Debt vs RRSP

I second Brunt's explanation, very well thought out! I would also add that you can do BOTH. If you are disciplined enough not to blow your refund and sink it back into your LOC then you will get a refund from your RRSP contributions (dollar for dollar they lower your taxable income, $1000 RRSP contribute = approx. $290 refund (AB) if you are high bracket) if you are high income as you said you are. Take the bigger refund and apply it to your debt. This will take discipline though.

Just my 2 cents as a tax preparer :)

Kelly

Brunt gave an excellent answer. To properly analyze your situation one would need to gather a little more information such as current income, expected future income, the interest rate on your line of credit, spending habits, etc.
However, I will provide my 2 cents by expanding slightly on Brunt's explanation. In general, if your income is below $45,282 (2015 federal bracket of 15%) then an RRSP doesn't make sense, especially if you have TFSA room available. If your income is above that, then making a RRSP contribution does, however the contribution amount should not bring your taxable income below the 15% federal bracket.

It is likely in retirement for a lot of people, the income levels will be below the 15 threshold when you factor in the ability to split pension income and CPP.( household income of $45,282 X both spouses is over 90K).The end result is you will get the RRSP deduction on income in the 22% bracket and take it out at the 15% bracket thereby net a 7% tax saving. Keep in mind provincial tax is added. The 2016 federal rates have changed as well.

I would pay down debt first. I know generally experts advise the opposite, paying down debt and saving at the same time but then it would take longer to pay off the debt and you would end up paying more in interest in the end so essentially part of your savings is being blown on extra interest.

Because my DH and I will never be high income earners we save money through our TFSA because it is pointless in the RRSP due to our income bracket. I have heard it is common for low income earners to save for retirement through a TFSA rather then RRSP. Currently we are saving to buy property with our TFSA's and then they will be used as retirement savings eventually.

We've been blessed to never have debt before even in terms of car loans. Thank heavens no body gave us credit cards in the first few years we were together otherwise this would have been drastically different.

I've never realized that RRSP's were no beneficial depending on your income. Guess I need to do more research!!

Is there a certain income mark that makes RRSP the best option? I wouldn't call us high earners, so that's why I ask.

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Originally Posted by PurpleBunny89

I would pay down debt first. I know generally experts advise the opposite, paying down debt and saving at the same time but then it would take longer to pay off the debt and you would end up paying more in interest in the end so essentially part of your savings is being blown on extra interest.

Because my DH and I will never be high income earners we save money through our TFSA because it is pointless in the RRSP due to our income bracket. I have heard it is common for low income earners to save for retirement through a TFSA rather then RRSP. Currently we are saving to buy property with our TFSA's and then they will be used as retirement savings eventually.

We've been blessed to never have debt before even in terms of car loans. Thank heavens no body gave us credit cards in the first few years we were together otherwise this would have been drastically different.

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Originally Posted by wimbly11

Is there a certain income mark that makes RRSP the best option? I wouldn't call us high earners, so that's why I ask.

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I think thriftygranny gave an income number in the post above. I'll just offer up another point for thought. When I was younger, I didn't have that magic number where investing in RRSPs made sense. The TFSA wasn't around either. I put money in RRSPs because there was a company match available, and I didn't know enough about ETFs, index investing, or dividend investing in a non-registered account to have a second option.

The real point for me was to "start" saving, period. The debate between RRSPs/TFSA/debt has been going on for decades and there won't be a definitive answer that works for everyone. The answer will always be "it depends". The answer will even be "it depends" from year to year or season to season. There's a pro to putting your money towards RRSPs/TFSA/debt. The con is that the money you allocate for one won't be going to the other two. Sometimes, the bigger mistake is to be so overwhelmed by the question that people don't even start and just sit on the money in a low interest GIC. At least in the other three options, the money is working for you in some sense.

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Originally Posted by wimbly11

I've never realized that RRSP's were no beneficial depending on your income. Guess I need to do more research!!

Is there a certain income mark that makes RRSP the best option? I wouldn't call us high earners, so that's why I ask.

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I wish I were more help but I did my research a year and a half ago so my memory is horrible. All I can remember was we were never going to be anywhere near the point for it to make sense.

That all being said if I somehow managed to find a company that matched RRSP contributions (HAHAHAHAHAAH YEAH RIGHT! Not in this day, so rare!) then I'd be signing up for one the day I signed the employment contract.

I think paying of debt first is always a good idea as opposed to RRSP . RRSP you just defer taxes, you don't actually avoid them.

I have always felt that RRSP makes more sense for rich people or very high income earners, & not really that great for middle class people or low income earner's. Plus when you get old lot of senior benefits, rebates, credits & government benefits like GIS are reduced if you have your own RRSP funds ! So the gov. actually penalises you for having your own funds in retirement as opposed to those, who don't save much.

Low income seniors get more gov. energy rebates, tax rebates, GIS etc than high income seniors !

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Originally Posted by wimbly11

Thanks for the advice everyone. We haven't made a decision yet as to which path to choose. I want our debt gone, but the future scares me with no plan put in place yet. Sigh....feeling like I do not want to "Adult" this week lol

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If your debt is paid off, mortgage is paid off etc , you won't really have much expense in your old age . Utilities, groceries, property tax that's pretty much it. Even medical & prescriptions drugs are free especially for seniors. Plus kids are grown up, so not much expense for them either :)

Trust me I know couples who just live off just OAS, GIS, CPP in their old age , its not much, but they manage as they don't have any other big expenses :)

If the situation gets really tight you can downsize your house or get a reverse mortgage or HELOC ..unlock some equity etc.

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Originally Posted by wimbly11

I've never realized that RRSP's were no beneficial depending on your income. Guess I need to do more research!!

Is there a certain income mark that makes RRSP the best option? I wouldn't call us high earners, so that's why I ask.

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Yes for low or middle income earners sometimes even TFSA could be better than RRSP in some cases. But in general High income earners due to their higher tax bracket/taxes benefit more from RRSP than low/middle income earners.

Each case is different so you really have to crunch the numbers to see which is better for you :

Payinf off Debt v/s TFSA v/s RRSP

Debt could be anything LOC , Mortgage, Credit Cards, Car Payment , Student loans etc in the above case .

I also suggest you pay off debt first as then you free up more money each month to save in the future. Not sure which of you is the higher income earner, but given that you have a pension plan at work( which is increasingly rare) have you considered continuing part time or going back full time and having your fiance stay home with the children? Also, as I understand it, your RRSP and TFSA contribution room carries forward for future years should you wish to use it later. Just some food for thought. Good luck with whatever you decide is best for your family!

I would also echo that you should probably talk with a financial planner, as it seems that you are not fully aware of the pluses and drawbacks of the different types of saving vehicles that exist, and which ones are better utilized in different situations. That said, be aware that a financial planner will want you to invest in something (investments can be lots of different things, with different risk profiles) as that is how they earn their living.

You said you contribute to a pension plan with your current employer. If you leave that employer and you have been contributing to the plan for 2 years or more, your contributions as well as those (if any) the employer made on your behalf will go with you. If less than two years, then you will only take your own contributions. You will want to be informed about what your options are and choose wisely what you will do with that money. There are many options depending on your employer, from taking it, to leaving it there, to having it transfered directly to an RRSP. The tax implications of each option are different.

A great book to read that talks about paying yourself first is the Wealthy Barber. I am naturally inclined to pay off debt first but it really depends on your personality and income level. I am very much looking forward to being debt free but have taken out multiple loans on my LOC for my children's RESP. My son is 16 and the 20% grant was higher than the debt cost for borrowing the money.
A financial planner will help you with all of this.

We talked a little more this past weekend and we are going to go and sit down and speak with an advisor so we can get a better picture of our options. I appreciate everyone's advice here :)

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Originally Posted by wimbly11

We talked a little more this past weekend and we are going to go and sit down and speak with an advisor so we can get a better picture of our options. I appreciate everyone's advice here :)

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Is it an independent advisor or with a bank/investment group? Typically, if it's a free session, they're trying to sell you on their products and get you to invest your money with them. Even if they say there's no fee for their advice, they get paid a bonus on the amount you invest with them, plus you get charged high management investment fees on the money you give them. You'll never see the bill because it gets sucked right out of your account.

I'm not saying they're all bad, only all the ones I've talked to. :-)

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Originally Posted by sweet sparrow

Is it an independent advisor or with a bank/investment group? Typically, if it's a free session, they're trying to sell you on their products and get you to invest your money with them. Even if they say there's no fee for their advice, they get paid a bonus on the amount you invest with them, plus you get charged high management investment fees on the money you give them. You'll never see the bill because it gets sucked right out of your account.

I'm not saying they're all bad, only all the ones I've talked to. :-)

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The very first time I went to a financial advisor and invested in RRSP's...happened to buy a copy of MoneySense magazine that rated my investment as the biggest rip-off possible in terms of fees among all banks...#1...top of the list.

So...uh...do your homework.

Also isn't there supposed to be a global recession coming on? Why put money in investments that are going to tank? You'll end up with less than you started with.