Is an RRSP your best option?

It’s RRSP season, which means the banks want to be your best friend so you’ll invest with them. My inbox in bombarded with RRSP loan offers, free this, and free that…

BUT

With the advent of the Tax Free Savings Account, putting your money into RRSPs this year may not be the best financial decision for you. Some situations where an RRSP may not be the most beneficial are:

1) If your savings goal is for anything other than retirement, there is likely a better option for you right now.

Child’s Education – RESP
Down Payment for a home – TFSA
Vacation – Open Account or TFSA
Purchasing a new vehicle - Open account or TFSA
*Note: What you invest in each account can be exactly the same, the difference is the tax treatment*

2) If your tax bracket now will be the same in retirement. This comes down to personal preference – when do you want to pay the tax owed – now, while working, or in retirement or do you want your estate to pay a huge tax bill on any residuals in your year of death if no spousal transfer available?

3) If you have a lot of high interest consumer debts it might be time to tackle that credit card that is charging you 19.99% interest. Look into setting up automatic payments towards debt and when the debt is cleared, switch it into a savings account.

With all this being said, it is never too early to start putting a few dollars away, even if you do have consumer debt, or other obligations.  For many people, the only dollars you may be able to depend on are those you actually set aside on your own.  Do not kid yourself, pension plans at work will change drastically in the future and government programs are out of your control.  These types of plans will allow you to live a lifestyle dictated by the dollars available, perhaps not the lifestyle you really wish to live which is set by what you yourself set aside.