Affiliated with National Financial Insurance Agency Inc.

Your Money Matters
The Overlooked Sides of RRSP Issues

During RRSP season, investors are confronted with several controversial RRSP questions that affect how, and even if, they should contribute to RRSPs before the March 1 deadline.

• Should I pay down my debts or invest in RRSPs?
• If I have lots of unused RRSP room, should I use a larger, longer-term loan to “catch-up” on some or all of my unused contribution room that only gets larger ever year?
• Are there situations where I would be better to invest outside of RRSPs?

Unfortunately, partially due to the public’s desire for information in simple 30-second soundbites, these issues are too often addressed in a superficial way that leaves investors without an answer. Rules-of-thumb do not apply to everybody’s individual situation. An analysis of financial issues needs to account for the math and the impact of taxes. Valuable answers to those questions will be based on the individual’s behaviours.

Before making decisions, consider these factors:

• If our habit is to spend most of our disposable cash flow to enjoy today instead of saving for tomorrow, the right advice would be to start the savings habit and invest in RRSPs through an automatic savings plan.
• If you are in the lowest tax bracket, and you are close to retirement, you benefit the least from RRSPs and are often better investing outside an RRSP.
• An RRSP loan to “catch-up” may make sense for some, but not for everyone. If you plan on using the RRSP refund to pay down the loan, and if a long-term loan causes no financial or emotional strain, and you will retire after that loan is paid, not before, and that it is beneficial as far as taxes and retirement income make sense – then it may be appropriate for you.

(Discuss the risks associated with leveraged mutual fund purchases with a financial planner before investing. Purchases are subject to suitability requirements. Using borrowed money to finance the purchase of securities involves greater risk than a purchase using cash resources only. If you borrow money to purchase securities, your responsibility to repay the loan and pay interest as required by its terms remain the same if the value of the securities purchased declines.)

Theresa Wever and the Money Concepts Team.