Q: My husband and I are close to paying off our mortgage early. Should we put the extra cash in our RRSPs even though I have a workplace pension plan, or should we save the money elsewhere to help buy a larger home in two years’ time?—C.K. London, Ont.
A: I’d argue there’s no rule of thumb when it comes to RRSP contributions versus mortgage repayment. You need to make the decision based on factors such as tax rates, interest rates, investment knowledge, risk tolerance, net worth and expected income in retirement.
Between CPP, OAS and your workplace pension you may very well have enough in retirement. I suggest doing your own thorough calculations or hiring a professional to provide perspective on how much you need in your RRSPs.
But there’s another consideration. Your decision also depends on how much larger and more expensive a home you’re looking to buy in two years. Might you be tight qualifying on the higher mortgage? If so, maybe you are best to focus on debt repayment, as a near-term move might be more important in the grand scheme of things than your long-term retirement plans.
If you choose not to contribute to your RRSP, I would shy away from saving in a TFSA or non-registered account. The time horizon (two years) is kind of short to take on much risk and earn a return better than the 3%, guaranteed, after-tax return of paying down your mortgage.
Jason Heath is a Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto.