Though it's typically a good idea to sock money away for retirement, in some situations, you'd be better off using your money for other purposes. In this article, we’ll look at when you should contribute to your Canadian registered retirement savings plan (RRSP), and when you shouldn't.

Should You Pay off Debt or Save for Retirement?

There is confusion over whether it's worth🐻 starting an RRSP if you have consume𒀰r debt, especially 澳洲幸运5开奖号码历史查询:credit cards. From a numbers perspective, it's always more financially sound to pay down the debt first because servicing debt has a guaranteed 澳洲幸运5开奖号码历史查询:rate of return in increased 澳洲幸运5开奖号码历史查询:disposable income as th𝔉e debt is reduced, whereas investing of any kind carries risk.

Should You Pay Off Your Mortgage or Save for𝔉 Retirement?

Mortgages and studen🦄t loans fall into the gray area of debt when it comes to RRSPs. These debts are usually long term and low interest.ꦕ Student loans even carry a tax deduction themselves.

Again, from a numbers perspective, when you are young, paying down your mortgage should take priority over most investments. Paying down your mortgage faster now will save you a lot in interest payments in the future. As such, you♐r mortgage should take priority, thanks to the guaranteed return you 🔜earn in interest savings.

This is a fact that most people find disagreeable for reasons outside of the numbers. There is a sense of future security that comes from maxing out your RRSP every year, 🅺regardless of whether you are making money in it or not.

This desire to balance mortgage responsibility with the p🦂sychological edge of investing for retirement has led to many different tax strategies. One of the most popular is the system of maxing out your retirement savings plan and using your tax refund to make an extra payment on your mortgage. It keeps you in debt for longer than if you simply used the money against your mortgage instead of the RRSP limit, but it balances financial and psychological necessities.

There is nothing wrong with investing for retirement while paying your mortgage. Doing so is much better than piling up consumer debt while paying your mortgage. If you do decide to go all out on your mortgage, you will still have to switch later and go all ou🌞t on your RRSP once your mortgage is paid off. In the end, this decision probably comes down to a personal choice.

Should You Add Debt to Save for Retirement?

Should you borrow money to max out your RRSP? Generally, no. However, if you are like the vast majority of North Americans, you’ve borrowed to buy a car, furniture, a TV, or to do something else much more financially unwise than to max out your annual contribution. If your RRSP is your only investment vehicle, then you are𒊎 better off borrowing to max it out and paying cash for something—a car, TV, etc.—that you intended to use borrowed funds to buy.

RRSP loans are of lower interest but not tax-deductible. If you have investments outside your RRSP, it might be better to max out your RRSP with available funds and then borrow for your other investment accounts. Borrowing to invest in non-RRSP accounts will result in another tax deduction for the interest on the loan you used to invest. This is an excellent strategy, but the end returns depend on your competenওcy as an investor, regardless of whether the loan is tax-deductible. Basically, the goal is to minimize all debt, particularly high-interest, nondeductible debt.

Should you borrow to start your RRSP? That depends as much on personality as your age. If you are in your 20s or 30s, occupy a high tax bracket, and are a poor saver with significant debts, then it ma🦩y be beneficial in the long run. It may be the most painless way to increase your financial security. The deductions and the long-term compounding you’ll hopefully enjoy on your money will generally outweigh the burden of interest payments in this case.

Banks cater to this strategy with very reasonable loan t♏erms when the funds are going to be used in an RRSP. If you don’t fit the aforementioned category, though, it is better to go the slow-and-steady route of regular, automatic transfers.

The Bottom Line

Saving for retirement is an important long-term goal, but it shouldn't take priority over paying down high-interest debt, such as credit card debt. Once you have that type of debt under control, turn your focus to an RRSP. The best way to start an RRSP is with regular contributions. These are automatic withdrawals that you can set for just after payday so that you’re never tempted to skip a month.