How to juggle RRSPs, TFSAs, RESPs and a mortgage

Sammu and Mandy Dhaliwall are trying to perfect their balancing act. Here’s what they should do

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From the April 2016 issue of the magazine.

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It’s funny how having a few kids can upend even the best laid financial plans. That’s precisely what Sammu and Mandy Dhaliwall are discovering as they deal with the competing challenges of raising children and still finding a way to pay off the mortgage and save for the future. It’s a juggling act all parents must eventually contend with, and for the Dhaliwalls that reality set in about three years ago.

Back in 2013, the young couple realized their suburban Toronto home needed a major basement reno to create more play space for their growing brood, which now includes a five-year-old daughter and two-year-old twins. To do that, they ran up a hefty bill on their line of credit (LOC)—of which $90,000 remains, not to mention the $350,000 still left on the mortgage. “We made a key decision to stay put and make do with the three-bedroom home we had already bought,” says Sammu, 37, who works as a pharmacist. “We’re close to family here and they’re our support network.”

To whittle away at their debt, the couple pays $10,000 annually to their LOC while making the minimum monthly payment on their mortgage along with an annual lump-sum payment of $12,000. But they don’t know if that’s enough, particularly since they’re allocating a lot of their resources elsewhere. Right now, Sammu contributes $19,000 annually towards savings earmarked for retirement. (Every two years, he takes the savings from his Employee Stock Ownership Plan and moves them to his personal RRSP). And then there’s the kids’ Registered Education Savings Plans (RESPs): They contribute $2,500 annually to each child’s account.

Despite all these savings, the Dhaliwalls find it a bit troubling that they have no emergency savings and no money in TFSAs. But helping their bottom line is the fact that last year, Mandy, 35, got a full-time job teaching elementary school after supply teaching on and off for 10 years. That means the family’s total household income is now $180,000. Even better, she’s now a member of her employer’s defined benefit pension plan. “I think we’ve got a good start but we really need to prioritize our goals,” says Mandy. She and Sammu want some assistance to ensure they’re making the right choices.

The action plan

Despite their concerns, the Dhaliwalls are accumulating a lot of retirement savings—and these savings will grow to almost $550,000 at even a modest 4% net rate of return over the next 20 years, says Jason Heath, a certified financial planner with Objective Financial Partners in Toronto. Heath now wants to help the couple come up with a debt repayment plan as well as a strategy to pay off their mortgage quicker.

Step 1: Consolidate debt

Since the mortgage is up for renewal in July, Heath wants the Dhaliwalls to explore the possibility of rolling their LOC into their mortgage. “This could save them some money and we’ll see if it does.”

Step 2: Forget the emergency fund

The Dhaliwalls are disciplined savers in their RRSPs but have no TFSA or cash in a savings account. “They should set up a home equity line of credit that they can draw from when they need cash for unforeseen expenses,” says Heath. “The Dhaliwalls are disciplined savers as well as debt-averse, making them good candidates for the HELOC.”

Step 3: Stop over-saving

Between them, the Dhaliwalls are contributing over $30,000 per year to retirement savings. “They are focusing too much on this long-term goal and not leaving much for the important things in life—like downtime and date night,” says Heath. The couple may also want to informally run some numbers with an online tool, as they’ll likely find out they’re doing a lot better than they otherwise think.

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