RRSP or Pay Down Mortgage?

Blubbs wrote: ↑ Hi all,

My wife and I have a goal of paying off our mortgage by the end of 2018, when the term is up. Our payments are currently doubled and by my calculations we need to save another $117,000 on top of that before that time in order to succeed. I want to know your thoughts on paying into RRSP vs saving for paydown of the mortgage.

She makes $133k and has a defined benefit pension, as well as a matching savings plan that has her RRSP pretty much maxed. We both have almost full TFSA's. I have nothing in RRSP and work two jobs, one is a yearly contract and the other commission. I had my best year ever in 2016 and made about $152k.

Just doing taxes and looking at allocating. I was looking at putting about $27k into an RRSP index fund to lower my tax bracket. I would get about $10,500 back, so that would create a higher mountain to climb on the mortgage front. This could prevent us from reaching our goal on time.

Am I being crazy? We want to start a family in 2019 and love the idea of having cash flow freedom.

Blubbs wrote: ↑ She makes $133k and has a defined benefit pension, as well as a matching savings plan that has her RRSP pretty much maxed. We both have almost full TFSA's. I have nothing in RRSP and work two jobs, one is a yearly contract and the other commission. I had my best year ever in 2016 and made about $152k.

Just doing taxes and looking at allocating. I was looking at putting about $27k into an RRSP index fund to lower my tax bracket. I would get about $10,500 back, so that would create a higher mountain to climb on the mortgage front. This could prevent us from reaching our goal on time.

Mike15 wrote: ↑ While I understand wanting to be 'mortgage free,' you also don't want to be penny-wise, pound-foolish.

http://www.taxtips.ca/taxrates/ab.htm

With AB marginal rates, I'd consider putting ~$12K in RRSP contributions. You'd get 42% (~$840) back on the first ~$2K, and 41% (~$4,100) back on the next ~$10K. Once you hit the 38% bracket (26% Fed + 12% AB) at $140K taxable income, stop, and put the rest against your mortgage. Should be a good balance of the two goals (optimizing tax and paying down mortgage).

You'd end up with $12K in the RRSP, and still have $15K cash + ~$5K tax refund coming = $20K to put to the mortgage.

BenK wrote: ↑ depends on what you're doing with your RRSP. I've been tracking a basic couch potato portfolio (20% XIC, 40% XWD, 40% XBB). In the last 12 months, its up about 10% and up 52% in the last 5 years (and that's not even including DRIP). so the choice would've been easy. but obviously, none of this is guaranteed.

forexnut wrote: ↑ Lend yourself your RRSP and pay the Canadian benchmark rate as your RRSP investment return. I beleive this was mentioned a few Moneysense magazine issues ago. You will need a trustee to setup, and there is likely some more fees involved but you will be paying yourself instead of the bank for the mortgage without withdrawing your RRSP as income. Haven't tried this myself, but definitely interested if someone could chime in that has done this.

Mike15 wrote: ↑ While I understand wanting to be 'mortgage free,' you also don't want to be penny-wise, pound-foolish.

http://www.taxtips.ca/taxrates/ab.htm

With AB marginal rates, I'd consider putting ~$12K in RRSP contributions. You'd get 42% (~$840) back on the first ~$2K, and 41% (~$4,100) back on the next ~$10K. Once you hit the 38% bracket (26% Fed + 12% AB) at $140K taxable income, stop, and put the rest against your mortgage. Should be a good balance of the two goals (optimizing tax and paying down mortgage).

You'd end up with $12K in the RRSP, and still have $15K cash + ~$5K tax refund coming = $20K to put to the mortgage.

Blubbs wrote: ↑ Thanks, I contributed $12,000 like you suggested. Now, whether to put them in index funds right now or wait for a bit! I always invest at the peak it seems.

Mike15 wrote: ↑ Nice!

Part of the index investing / CCP philosophy is don't try to time the market, just keep investing, and it'll smooth out over time. I know what you mean about equity markets being at all time highs, but conversely, you always want equities to be hitting new highs. That's why we invest (as opposed to 'trade'), right?

If you want to be conservative, I'd just use a higher bond allocation. Bond funds are not quite at all-time highs right now (November correction on hawkish US Fed).

Blubbs wrote: ↑ Yeah, plus since it's RRSP I probably won't be accessing it for 35 years.

Since I am 29 and paying down my mortgage so aggressively (over $60k principal / year), I thought that might form a bigger part of my low risk 'investment' and I could focus more on pure equities for retirement. Like 10% or 0% bond allocation. Thoughts?

Blubbs wrote: ↑ I know, it's crazy. You have to invest it with them but it's impressive.