Episode #15 - Two Minutes to a Better RSP: Pay Into Your RSP or Pay Down Your Mortgage
Announcer: Welcome to The Money Clip podcast series from The Vault, Scotiabank’s online guide to helping Canadians get ahead financially. Listen in to gain a deeper understanding of your personal finances and find out how a few small changes to the way you manage your money can make a big difference.Michael Seaton: Thank you for joining us on The Money Clip podcast series from Scotiabank. I’m your host, Michael Seaton, and with The Money Clip we provide Canadians with a deeper understanding of personal finance and money-related matters. This is our series titled “Two Minutes to a Better RSP”. We hope to put you on the path to understand how to maximize your retirement savings plan as the deadline approaches. This is episode number nine in the RSP series, and our subject today is RSP or mortgage? A question on the minds of many Canadian homeowners is whether it’s best to contribute to an RSP or pay down their mortgage. Now, it’s tempting to want to pay off the mortgage as quickly as possible because our home is usually our most significant investment, and the mortgage is our largest debt. But there are good reasons to keep your RSP a priority. First, money in an RSP compounds tax-free, and the sooner you invest, the more time your money has to grow. Second, an RSP is one of the best tax breaks available, as your contribution is tax deductible. And third, diversification. Many of us think of diversification only in the context of our investments; in fact, it should apply to our total wealth. So tying up all your money in your home would leave you exposed to the whims of the housing market. The good news is that there’s a way to contribute to your RSP and pay down your mortgage at the same time. In other words, do both: Make your RSP contribution each year and use any tax refund to pay down your mortgage. In a 40% tax bracket, a $5,000 RSP contribution would typically generate a refund of $2,000, which you can then apply towards your mortgage. Expert advice from your financial advisor can help you decide what’s right for you.
This has been another Two Minutes to a Better RSP podcast. Keep listening for more in this series as we take two minutes to review tips and suggestions to reach your retirement goals. Thank you for listening.
Announcer: Do you have any thoughts on today’s show? We’d love for you to get involved and become part of the conversation. Send us your questions, comments or money management tips so that we can address them in future podcasts. Our email address is themoneyclip@scotiabank.com and our call-in number is 1-866-652-5333. The Money Clip is brought to you by The Vault at Scotiabank. Be sure to tune in again next time.