Money & Career

Pay down the mortgage or invest in RRSPs

Does it make sense to save for retirement when we need to pay down our house debt?


We’re meeting with our financial advisor this week. Over the past couple of years, he’s helped us boost our retirement savings, put together annual budgets and savings goals and last spring he did a very detailed spreadsheet that showed us what impact buying a bigger and more expensive house would have on our future (it was pretty scary and we decided to renovate instead). He’s helpful, available when we have questions and he didn’t hide from us during the 2008 market meltdown (not the case for a lot of my friends who have advisors).

But this year we need to balance two goals: paying down debt on our house and saving for retirement through our registered retirement savings plan (RRSP). Our current mortgage term will be expiring soon, which means that we have a chance to pay off a big chunk of debt without any penalty. Our debt diet has been challenging but the reward will (hopefully) mean we’re a lot less burdened by mortgage debt in the next few years (freedom!).

Now, I already know our advisor will want us to make our RRSP a priority. And, to a large extent, he’s right — we started saving for retirement on the late side so we have tons of room to make up. As I mentioned in this post, neither of us has a company pension plan so we’re relying on CPP, OAP and whatever we can sock away on our own. And the housing market could get rocky: do we really want all of our money tied up in real estate?

Still, with interest rates on the rise in the next few years, we are all for getting debt off our family balance sheet, even if it means taking a break from retirement savings for a year. And yet time is not on our side when it comes to investing, so can we really afford to take a break from investing?

Well, I think there are a couple of ways to have our proverbial cake and eat it to. We could use some of the money we’ve saved (say, $10,000) to invest in our RRSP and then use the tax return to pay down the mortgage. Or we could take an RRSP loan at a low interest rate and continue saving for retirement and then use the tax return to either pay off the RRSP loan or pay down our mortgage when our term expires. We’d have to be really disciplined about getting the debt down though so that could be easier to do by the end of the year.