The question RRSP or Mortgage is really the question of Savings or Debt Payment. This series 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 really muddied the water in these discussions. This is changing though, now you can get savings higher than 3%, and Mortgage rates are really up too.
So, if we now say, hey, this whole idea of putting money away for my retirement over the next 20 years, would even be better, if I took my refund and put it in my RRSP as well, let’s see what might happen with our RRSP. Note that since you are doing this, your RRSP refund gets bigger each year because you put more in your RRSP (clever eh):
| Savings Rate | 1.00% | ||
| Yearly Input | $1,000.00 | ||
| RRSP Return | 5.00% | ||
| Tax Rate | 30.00% | ||
| Year | To RRSP | Refund to RRSP | Total RRSP |
| 1 | $1,000.00 | $300.00 | $1,300.00 |
| 2 | $1,000.00 | $390.00 | $2,755.00 |
| 3 | $1,000.00 | $417.00 | $4,309.75 |
| 4 | $1,000.00 | $425.10 | $5,950.34 |
| 5 | $1,000.00 | $427.53 | $7,675.38 |
| 6 | $1,000.00 | $428.26 | $9,487.41 |
| 7 | $1,000.00 | $428.48 | $11,390.26 |
| 8 | $1,000.00 | $428.54 | $13,388.32 |
| 9 | $1,000.00 | $428.56 | $15,486.30 |
| 10 | $1,000.00 | $428.57 | $17,689.18 |
| 11 | $1,000.00 | $428.57 | $20,002.21 |
| 12 | $1,000.00 | $428.57 | $22,430.89 |
| 13 | $1,000.00 | $428.57 | $24,981.01 |
| 14 | $1,000.00 | $428.57 | $27,658.63 |
| 15 | $1,000.00 | $428.57 | $30,470.13 |
| 16 | $1,000.00 | $428.57 | $33,422.21 |
| 17 | $1,000.00 | $428.57 | $36,521.89 |
| 18 | $1,000.00 | $428.57 | $39,776.56 |
| 19 | $1,000.00 | $428.57 | $43,193.96 |
| 20 | $1,000.00 | $428.57 | $46,782.23 |
So in Case 1 we had about $390,00.00 put away in savings and RRSP, now we have $47,000 in RRSPs, not bad. So if you can, it would be good to take your Income Tax Refund and bash that back into your RRSP.
Interesting mathematical progression there, since your refund only increases up to $429.00 or so, far out.
The Series
- RRSP or Mortgage? Really 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.
Remember Mortgage is really Debt, and Savings is TFSA, RRSP, RESP or Savings.
