If you plan to invest your RRSP savings in the stock market for a longer term, you have history on your side. Over the past 20 years, the S&P/TSX Composite Total Return Index has grown in value at an annual average rate of about 10 per cent. Statistics from the Canadian Real Estate Association show house prices have gone up just over 5 per cent annually on average over the same period. That suggests that your RRSP could be a better investment than your home.
But it’s not just about the money you make when you invest. There are other reasons you may choose to contribute RRSP instead of paying off debt. For example:
- You pay a higher rate of income tax. An RRSP can reduce the taxes you owe today. There are no tax breaks when you pay off debt.
- You have a Group RRSP or company pension plan and your employer matches your contributions. This can be an easy way to grow your savings even faster. For most people, it’s like getting extra money for free — an advantage other investment can’t beat.
- You are worried you will not have enough money to live comfortably when you retire. The closer you are to retiring, the more important this factor becomes. You may want to accelerate your retirement savings and keep paying your mortgage or other debt off at the regular rate — unless you are carrying debt with a high interest rate. Calculate your RRSP savings now
- You plan to contribute to your spouse’s RRSP. This can help you reduce taxes today and after you retire.
- You are saving up to buy your first home. You can use up to $20,000 from your RRSP for a down payment on your first home through the RRSP Home Buyer's Plan. Learn more
- You plan to get more education. You can use up to $20,000 from your RRSP to help you or your spouse go back to school through the Lifelong Learning Plan. This way you can avoid student loans and pay less tax. Learn more
Tip: Before you decide, remember to factor in the costs of investing. This includes RRSP account fees and fees to buy and sell investments.
Making the right choice for you is not always easy. It is always a good idea to discuss this with a qualified financial adviser. This can include someone at your bank or other financial institution.
Content in this section is provided in partnership with the Investor Education Fund, a non-profit organization promoting financial literacy to Canadians. To find out more go to GetSmarterAboutMoney.ca.