Written in 2008 as Interest Rates were about to tumble due to the great debt debacle. No one would have predicted over ten years with micro interest rates. I still believe paying down debt gives you options, but I am evidently, not with the times?
Bank of Canada Stays Pat
Experts? All the major sites were calling for a cut to 2.75% on the overnight rate. The Bank of Canada saw some sense and held its ground, and did not cut the rates this time. I think this is a good idea given the Inflation Boogie Man is out there, and I suspect he will come and stay for a while too!
The comment from the Bank of Canada States:
If current levels of energy prices persist, total CPI inflation will rise above 3 per cent later this year. However, with the Canadian economy operating in excess supply, core inflation is expected to remain below 2 per cent through 2009. Both total and core inflation should converge on 2 per cent in 2010 as the economy returns to balance.
Against this backdrop, the Bank now judges that the current stance of monetary policy is appropriately accommodative to bring aggregate demand and supply into balance and to achieve the 2 per cent inflation target. There continue to be important downside and upside risks to inflation in Canada, which the Bank will monitor closely.
Mortgage That’s the Ticket!
For me, I should be paying down my mortgage and debt load and not concentrating on my retirement.
Until about one year ago, I had the potential to get an excellent pension from my employer (the allowance was capped and a new pension system put in place, although I still have some equity built up in my now limited Pension), so I was investing heavily in a Spousal RRSP to ensure an income splitting model when I retire.
Currently, I save about 8% of my income in RRSP or retirement funds (without including the new Pension that I am now part of, that I am not sure what value it has yet).
Saving 8% annually approaches what I should be saving for my retirement as a minimum (last I heard, most “experts” said 10% is a minimum you should save for your retirement). I suspect I am ok for retirement, whatever that means to me (given I don’t think I can retire for a long time due to family commitments).
Wait a Minute, you said….
What do I mean by the title of this post, then? I am on the “RRSP That’s the Ticket” side of the question of whether to invest in your retirement or pay off your debts? I think I made a mistake and should have been more aggressively paying off my debt load (which is not as low as it should be currently).
I make this statement as my opinion of how my debt load is affecting me. Carrying debt is making me sick. It keeps me up at night. It distracts me and worries me every day since I went into debt many years ago. I am confident this worry has affected my health directly, worrying about this debt and the scenarios that come from still carrying this debt this late in my career.
What I should be doing now is the following interesting question? I need to sit down with my wife and figure out how to change all of this, but we were going to do that anyhow, given it is almost the end of this home finance quarter.
Interest Rates in 2008
- January 2009 rates were at 1%, money was effectively free.
- October 2008 rates continued to fall, but did we plan accordingly? No, we spent more.
- September 2008 the rates again remained unchanged.
- July 2008 and the rates remained the same.
- June 2008 the rate was 2.75% overnight. Seemed low even then.
- April 2008 another massive rate cut, where could this all lead?
- March 2008 the rates just kept falling, I wonder why?
- December 2007 is when the Christmas presents, like interest rates, kept falling.
A mortgage is one of if not the lowest interest rate major debts someone can have. If you can pay it down fast , great, but people still need to invest steadily to have a retirement. Paying down a mortgage too fast can result in little in investments down the road.
Disagree with that simplistic statement. Investments are secondary if you are carrying a large debt.
I don’t think there is any one right answer for everyone on the mortgage vs. retirement savings debate. But, I suspect that paying off the mortgage is likely a better idea for most people. If you have other debt with higher interest rates, the decision is more clear: pay off the debt.
Ideally, people should be paying off debt AND saving for retirement. If you can’t do both, then maybe you should look at reducing spending.