Should I maximize my RRSP or put money toward other goals?

When deciding how to allocate funds, it’s important to look at the bigger picture, Ms. Mourad says. She and her team work with clients to make a list of all their financial goals – paying off their mortgage, buying a new car, sending their kids to school, retiring by a certain age – and identify the time horizons for each. They also factor in considerations such as a client’s cash flow constraints or available RRSP contribution room.

Then they use CIBC’s GoalPlanner tool to help clients visualize multiple goals and model how various contribution scenarios will impact their overall financial pictures. 

“You can have specific goals – retirement, education, travel – and see how each impacts your financial health,” Ms. Mourad says. “The platform provides scenario analysis to help clients understand the trade-offs and benefits of different contribution levels.”

Based on those models and a client’s preferences, a CIBC advisor can help set up automatic contributions for each financial priority. It’s a way to personalize each client’s plan to their unique circumstances and to ensure no goal gets left behind, Ms. Mourad adds.

In the case of the mother of two who was waffling between contributing to their RRSPs and an RESP, Ms. Mourad says her CIBC advisor, who reviewed the family’s budget, identified where she and her partner could reallocate some discretionary spending toward their goals, helped them set up automatic contributions to both their RRSP and their RESP, and adjusted their long-term savings plan.

“She felt more confident in her financial strategy and was able to work towards both goals without feeling overwhelmed,” Ms. Mourad says.

Jamie Golombek, managing director of tax and estate planning at CIBC in Toronto, says the tax-deductible, tax-deferred RRSP is an excellent way to build substantial savings for retirement and lower your tax bill, but there may be other options you should consider. 

For example, Canadians with children should max out their RESP, Mr. Golombek says. That’s because the federal government matches 20 per cent of RESP contributions up to $2,500 per child each year, with a lifetime maximum grant amount of $7,200 per child. 

“My first rule is, go for the free money,” Mr. Golombek says. “If you've got kids that are going to go to some kind of post-secondary education, I would say number one, let's get the 20-per-cent grant."

He points to another valuable savings vehicle with a matching program: the registered disability savings plan (RDSP) for children with special needs, which offers a lifetime maximum of $70,000 in government grants per child.

On the other hand, the tax-free savings account (TFSA), which allows individuals to invest money without paying tax on earnings or withdrawals, can be a great vehicle for short-term goals, Mr. Golombek says. 

“If the goal is short term savings – for that leaky roof or a wedding reception or a new car – you're not going to want to use your RRSP for that, because when you take the money out [you're] never going to get that RRSP contribution room back,” he says. “The nice thing with the TFSA is you get the room back. So, if I want to take $10,000 out for a wedding reception, I can put it back in the following calendar year or any time in the future.”

Canadians who are saving for a first home may want to prioritize contributions to a first home savings account (FHSA), Mr. Golombek says. The FHSA, which has an annual contribution limit of $8,000 and a lifetime contribution limit of $40,000, combines the tax-deduction benefits of an RRSP with the tax-free withdrawals available with the TFSA, and the funds can be rolled into the contributor’s RRSP if they haven’t bought a house 15 years after opening the account.

"We love the FHSA strategy. And then, once you max that out, you’re able to use the RRSP Home Buyers’ Plan (HBP).” That program lets first-time homebuyers withdraw up to $60,000 from their RRSPs as a down payment towards a first home. The funds can then be paid back, interest free, over 15 years. “The two can work really nicely together," he says.

Whatever your goals or life stage, Mr. Golombek and Ms. Mourad agree that meeting with a financial professional is a great first step in determining the savings vehicle that’s right for you, during RRSP contribution season and beyond.  

“It’s important to have a financial plan and discuss your financial goals with someone, because it can be an eye-opener,” Ms. Mourad says.