RRSP contribution or pay down your mortgage? Expert advice

This year's RRSP contribution deadline is just a few weeks away, but concerns about high debt levels may leave some wondering if they should put their money toward their mortgage instead of retirement savings.

"It sounds obvious, but you really need to consider your unique situation," said CBC business columnist Rubina Ahmed-Haq.   

She strongly recommends speaking to a financial adviser to get a better idea of potential outcomes for specific scenarios. Before that, however, she says people need a better understanding of their situation.

Here are a few key factors she says people need to consider to make an informed decision:

• age and proximity to retirement
• mortgage size
• other debts
• salary, including future salary expectations
• RRSP contributions to date

For example, those close to retirement with high amounts of RRSP investments may want to consider paying down their mortgage, as the high returns from their RRSPs could decrease government retirement benefits.

High housing prices in B.C. a unique situation

Ahmed-Haq says many people in B.C. are in a unique situation because of high housing prices, which have led to larger-than-average mortgage loads.

In that case, it might be better for people to consider paying off their mortgage faster.

"You have to keep in mind that every extra payment that you make on your mortgage, you're putting it right towards reducing your principal," said Ahmed-Haq. "And over time you can save thousands of dollars in interest payments."

Also, she says RRSP contribution amounts don't disappear. People can make mortgage contributions and then invest in RRSPs when they have a higher income, to take most advantage of tax savings that come with RRSP contributions.

But Ahmed-Haq cautions there is one crucial step to take before deciding anything else.

"The first rule is, if you're carrying any high-interest debt you've got to pay that down first," she said. "You shouldn't be contributing to your RRSP or making extra mortgage payments if you've got that extra debt lying around."

Understand retirement goals first

She also recommended people get a clear picture of retirement goals like lifestyle and living situation to better position themselves for their golden years.

"Most people don't think about where they want to be in retirement," said Ahmed-Haq.

Once people know how much they will need, they can use an online retirement calculator to know how much they need to be saving.

She also suggests people speak to someone older who is living the life they would like in retirement and asking them how they got there.

"That kind of practical advice, you're not going to get anywhere else but by speaking to someone who's actually doing it," said Ahmed-Haq.

To listen to the full interview, click on the audio labelled: Contribute to your RRSP or pay down your mortgage?