»Ps can be YOU’VE GOT some extra money to invest. By Talbot Stevens Contributing Writer Do you put it into an RRSP or use it to pay down the mortgage on your home? “The right answer noi only affects the size of your retirement fund, but also your short-term . financial security,” said Talbot Stevens, speaker and author of Financial Freedom Without Sacrifice. For most people, the short-term security aspect is more important than the mathematics, especially Sooner??? | AVIS LAPHAM | | FINANCIAL SERVICES | “Avis M. Lapham RFP, CLU, CHFC [ #300 -1497 Marine Drive, [West Vancouver, B.C. V7T 1B8 “: 14 years on the North Shore Investments can help in times cf emergency now that job security has gone the way of the dinosaur. An RRSP can double as an emergency income buffer to protect against low- or no-income periods. “This is the real reason that most people should maximize their RRSP before paying down their mortgage. “Ironically, many people want to pay down their mortgage tc eliminate the risk of losing their house,” said Stevens. “But having an RRSP emer- gency fund instead of a slightly smaller mortgage would allow you to continue mortgage payments, and could make the difference between losing and keeping the 5 house,” said Stevens. Mathematically, most people ¥ should maximize their RRSP j before paying down a personal debt like a mortgage, unless the "EXCEPTIONAL INVESTMENT ‘| 21.3% RETURN | AVERAGE ANNUAL YIELD LAST 2 YEARS | f REGAL PACIFIC MORTGAGE ff 731-2899 This is not an offering fur sale “ which may onl be mace br ofering memorzndors a COME AND SEE US AT THE NORTH SHORE FINANCIAL FORUM CAPILANO COLLEGE SPORTSPLEX Suaturday, February 10th 1030004300 Jfte, Investment Services A division of TD Securities Inc. | [TD Securities Inc. is a subsidiary of TD Bank and is a member of CIP. interest rate on the debt is at least 3% higher than their average RRSP return. For example, if you expect your RRSPs to average 10%, you should only pay down debts charging 13% interest or more. This means that paying down bank and department store credit cards ranks ahead of RRSPs, but generally not mortgages. After extensive analysis of 24 scenarios, Stevens found that the most significant factor was the per- centage of mortgage money that is invested once the home is paid off. “Obviously, if you never invest- ed any of the freed up money after the mortgage is gone, the RRSP is the better choice because eventual- ly you end up with a debt-free -home and a retirement fund.” Most RRSP versus mortgage pay down analyses assume that 100% of the mortgage payments are invested afterwards, but this is an unreliable assessment of human nature. “Most people, _ including myself, won't invest all of that used as a buffer money when the mortgage is paid off,” Stevens said. With many Canadians having most of their net worth in their home, increased diversification is another reason to maximize the . RRSP ahead of paying down the mortgage. Liquidity, or easy access to funds, is another factor in favor of . RRSPs. Talbot Stevens is the president of a financial education firm pro- viding employer-sponsored work- shops and has started a petition. to make basic financial education’. — a mandatory part of the school : system. : Tax tips on personal finance’ When should you make con- tributions to an RRSP? You can make an RRSP contri- bution anytime during the year. However, for the contribution to be deductible for 1995, it must be made by Feb, 29, latest. You may want to contribute, at the beginning of the calendar year, which will maximize your compounding interest and the tax- sheltering advantages of an RRSP. What are the advantages to contributing to a spousal RRSP? Spousal RRSPs allow an indi- vidual to shift future RRSP income from a higher-carning spouse to a lower-carning spouse. This can result in significant overall tax sav- ings when the spouses cash in their RRSPs and reduce some of the clawback of the Gld Age Security pension. Can you borrow money to make an RRSP contribution? Yes, you can, but any interest you pay on the borrowed amount will not be deductible for income tax purposes. For this reason, it is generally better to use available cash rather than borrowing. If you have to borrow to. make the contri- _ bution, try to repay the loan as soon as possible, to minimize the amount of non-deductible interest. What is a self-directed RRSP 1996 at the very’ Some who, what, where and whys and what are its advantages? A self-directed RRSP allows you to make the investment deci- sions. Unlike a regular RRSP, you decide what types of investments are made. Some restrictions may apply. but the more common types of investments for a_ self-directed RRSP are shares and debts in pub- lic corporations and credit unions, Canada Savings Bonds, mutual funds, and home mortgages. There is an annual admini:tra- tion fee for a self-directed RRSP, which is tax-deductible if you pay. it outside of your RRSP. So, if you're looking for more control and flexibility over the investment - powers of your RRSP, look into a self-directed RRSP. Can you borrow money from your RRSP? ; ; Yes, but only if you borrow in: rowed money is used to purchase . an investment such’as shares of a company or rental property,’ then; some portion of the interest: that: you pay back into your RRSP. may. be deductible for income tax pur- poses. ; Is there 2 good time to use the money from an RRSP? ; One of the objectives’ | for ‘tax planning with. RRSPs is. to,‘con- tribute to the RRSP in a year. wh you are subject to a high ta and withdraw funds when you'are in a lower tax bracket. - One | such. opportuni y arise in the first year you become self-employed, when your income is minimal as a result of start-up costs or is deferred as a result of tax planning. =~ : To give you arough idea yf sa ings from’ RRSP: contributic here are three rules’ ‘of thumb: if ‘your income. is. less th $30,00€, with’a $1, 000 RRS col be about $264. If - your ..incom "$30,000 to $40,000, the form of ‘a mortgage secured ‘:. against your home or a rental prop- * erty that you own. -You can do . whatever you wish with the bor- rowed money,: but the mortgage principal plus interest needs to be repaid to the RRSP. If the bor- Call or visit your local North Shore Branch today Lynn Valley 981-7550 14th & Lonsdale 981-7500 Marine & MacGowan 987-9305 “West Vancouver 981-7530 1 * Subject to certain torms and coadstion. would result ‘in tax savi gs of, least. $496. Be of British Columbia. .. ‘Bringy your. _RRSPs. to Scotiabank.» ‘To say thanks... -.We'll give you up to 1/2% Bonus Interest’ son new contributions * and transfers-i in..: Ask us today. - ‘Scotiabank § |