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Managing Your Money | Are RRSPs Right For You?

You can start contributing regularly to a Registered Retirement Savings Plan to save for retirement and save on taxes at the same time. But should you? Depending on your situation, it may make more sense to pay down your mortgage or other debts before contributing to an RRSP.

Contact your Member Service Advisor to help you decide if RRSP investing is right for you. Here are some of the topics you’ll discuss together.

What will you earn on your investments? What would savings today be worth when you’re retired?
What interest rate are you paying on your mortgage?
Do you have high interest credit card debts?
What are the tax benefits of contributing in your particular situation?
Should you borrow to contribute to an RRSP?
Should you invest in a spousal RRSP?

RRSPs may be right for you if:

You have low or no debt.
You’re going to receive little or no pension on retirement.
You’re still several years away from retirement.
You don’t want to work at another career during retirement.

RRSPs may not be right for you at this time if:

You have high monthly credit card payments and you struggle to pay off the principal.
You have a lot of other debt – a high mortgage or other loans.
You’re planning to fund your children’s university or college education.
Your retirement plans are fairly modest and you will be receiving a good pension.
You’re planning to work at a second career during retirement.
You’re retiring next week.

Should I invest in a spousal RRSP?
You can contribute to spousal RRSPs in the name of your spouse and the tax benefit goes to you as long as it is not withdrawn during the first three years. This is an excellent strategy when the contributing spouse earns more than the other and/or anticipates a higher retirement income stream. Trying to equalize the two retirement income streams will lower the taxes the two of you pay overall.

Check out some examples

Suppose you have several years to work before you retire, a good pension plan like the OPP’s, a mortgage of over $150,000 and high-interest credit card balances of more than $10,000. You may be paying as much as $700 per month in interest costs alone! Even with the potential tax benefits of RRSPs, it may be in your best interest to pay off some or all of your debt first. However, it may still be a good idea to consider a spousal RRSP.

Now, suppose you have several years to work before you retire, a good pension plan, a mortgage of over $75,000 and you plan to fund your child’s university education. It’s probably in your best interest to invest in an RESP, either on its own or in conjunction with an RRSP. Again, a spousal RRSP may also be the right choice for you.

Let’s say you’re debt free and want to travel on retirement. Even with a good pension, you may want to invest in RRSPs to ensure you have enough money to live out your retirement dream.