Do have questions about your retirement savings? Our expert has the answers.
Do you have an amount you want to invest and can’t decide whether to contribute to your RRSP or pay off part of your mortgage? Get out your calculation tables to make an informed decision. The first step is comparing the tax savings from an RRSP contribution to the interest savings from your mortgage payment. As a general rule, when mortgage interest rates are high, paying off your mortgage is better. When interest rates are relatively low, as they are now, the balance shifts in favour of investing in your RRSP.
The immediate tax savings on the RRSP contribution are greater than the interest savings on the mortgage. Expected return on investment should also be considered. Let’s compare mutual fund performance and real estate market appreciation. Historically, mutual funds have outpaced house price indexes, which favours RRSP contribution over mortgage repayment. However, nothing is preventing you from using a hybrid strategy; contributing to your RRSP can generate a tax return you can then use to pay off part of your mortgage!
Saving for retirement is always a good option, whether it’s for you or your spouse, but your financial and family situation will influence your choice. First consideration: Are you a married or common-law couple? For married couples, contributing to your spouse’s RRSP can be a good strategy for a person who currently earns the highest income and contributes to the person with who will have a lower income during retirement. It can lower their marginal tax rate and therefore their payable taxes.
All RRSPs are part of the family’s wealth and will be split 50-50 in the event of a divorce. For common-law spouses, contributing to a spouse’s RRSP represents a donation that cannot be recouped in the event of a divorce. No take backs in this case, so think carefully before making this decision.
Your advisor will be able to help you take all these factors into consideration and make recommendations specific to your own situation. Feel free to ask them about it.
A financial health assessment is the first step to better manage your personal finances. It helps paint a clear picture of your financial situation, define and prioritize your objectives, and suggest what you should do. Take your first step now and meet with your advisor.
New investment accounts are offered by LBC Financial Services Inc. (LBCFS). Mutual funds are distributed by LBCFS. The Financial Planning service is offered by LBCFS. LBCFS is a wholly-owned subsidiary of Laurentian Bank and a legal entity distinct from Laurentian Bank and Mackenzie Investments. Mutual funds offered by LBCFS are part of the Laurentian Bank Group of Funds managed by Mackenzie Investments. A Laurentian Bank advisor is also a licensed LBCFS Mutual Fund Representative.
Commissions, trailing commissions, management fees and other expenses all may be associated with mutual fund investments. Nothing guarantees that the fund will maintain its net asset value per unit at a constant amount or that the full amount of your investment in the fund will be returned to you. Mutual fund values change frequently, and past performance may not be repeated. Please read the simplified prospectus or Fund Facts before investing in mutual funds.
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