The question of RRSP or Mortgage is the question of Savings or Debt Payment. This is from 2006 as you can tell by the dated numbers. There is also no mention of the TFSA or incredibly low interest rates. The low rates since 2009 have muddied the water in these discussions. Saving is no longer a savings account, and debt is so cheap, people get really confused. Still a good question to start with, even today.
So this case is pretty simple. Our family has their $1000 per year extra going into an RRSP, and when they get the money back, they put it in a savings account that pays 1% (yes, this is not the best, but we need a baseline to start from).
| Savings Rate | 1.00% | |||
| Yearly Input | $1,000.00 | |||
| RRSP Return | 5.00% | |||
| Tax Rate | 30.00% | |||
| Year | To RRSP | Refund to Savings | Total Savings | Total RRSP |
| 1 | $1,000.00 | $300.00 | $300.00 | $1,000.00 |
| 2 | $1,000.00 | $300.00 | $603.00 | $2,050.00 |
| 3 | $1,000.00 | $300.00 | $909.03 | $3,152.50 |
| 4 | $1,000.00 | $300.00 | $1,218.12 | $4,310.13 |
| 5 | $1,000.00 | $300.00 | $1,530.30 | $5,525.63 |
| 6 | $1,000.00 | $300.00 | $1,845.60 | $6,801.91 |
| 7 | $1,000.00 | $300.00 | $2,164.06 | $8,142.01 |
| 8 | $1,000.00 | $300.00 | $2,485.70 | $9,549.11 |
| 9 | $1,000.00 | $300.00 | $2,810.56 | $11,026.56 |
| 10 | $1,000.00 | $300.00 | $3,138.66 | $12,577.89 |
| 11 | $1,000.00 | $300.00 | $3,470.05 | $14,206.79 |
| 12 | $1,000.00 | $300.00 | $3,804.75 | $15,917.13 |
| 13 | $1,000.00 | $300.00 | $4,142.80 | $17,712.98 |
| 14 | $1,000.00 | $300.00 | $4,484.23 | $19,598.63 |
| 15 | $1,000.00 | $300.00 | $4,829.07 | $21,578.56 |
| 16 | $1,000.00 | $300.00 | $5,177.36 | $23,657.49 |
| 17 | $1,000.00 | $300.00 | $5,529.13 | $25,840.37 |
| 18 | $1,000.00 | $300.00 | $5,884.42 | $28,132.38 |
| 19 | $1,000.00 | $300.00 | $6,243.27 | $30,539.00 |
| 20 | $1,000.00 | $300.00 | $6,605.70 | $33,065.95 |
So at the end of 20 years, we have $33,000 in our RRSP and another $6600 in our savings account (and paying tax on the interest on the savings account too). This is not bad, really, you now have almost $40,000.00 put away for retirement and a rainy day.
The Series
- RRSP or Mortgage? The question remains Savings or Debt ?
- Put it in the Bank – maybe not the bank maybe this should read you invest it
- Refund to RRSP as well – Not sure why it was “as well” but putting your refund somewhere instead of blowing it on bottle rockets and moon pies is a good thing.
- Refund to the Mortgage like mentioned, it would be a good thing to put this found money into something useful.
- TFSA vs. RRSP asks the question should you be using the RRSP at all.
Remember Mortgage is really Debt, and Savings is TFSA, RRSP, RESP or Savings.
