RRSP

[wade]

Interest rates are low, both for borrowing or investing. Term deposit rates are low and mutual funds, well we won't go there. The only good thing is borrowed money is cheap also.
Would a person be smarter keeping RRSP investments or cashing in to pay down land (which is a form of an RRSP)?
I guess I would still have the same question if rates were high.

[frustrated1]

Guess it depends on what stage you are at. Locking in the borrowed stuff at a low rate keeps the RRSP monies available for expansion or an emergency fund or maybe even a holiday. On the other hand, if you're done expanding and have lots of cash sitting there, why not pay down some land if there are no penalties invovled? The tax man is going to want his share eventually one way or another, just play that to minimize their pound of flesh. They take a healthy cut right off the top of any cashed in RRSP. My parents were big fans of the RRSP. Until they retired. Paying some tax all the way along is a lot less painful than being spanked hard at the end.

[Hopperbin]

Wade are you pretty young? On an RRSP you have a tax deduction when you invest. On land you do not have a tax deduction. You only have a Capital gains exemption. Big difference. If you cash in RRSPs you will pay big tax especially if you cash in big in one year to pay down debt. I know I have a mutual fund that has 12000 dollars put into it today over a 4 year period and it is only worth 6 grand today, dammm F#$%^ mutual funds. Just I would not exit the stock market now after you take such a loss. You should also make use of that new 5000 yearly account they have out now where you don't even have to pay Capital gains on the income when you take it out.

[wade]

I'm 52 years old.
I know the feeling on the mutual funds!
Am wondering if the 5.8% interest on the land paid down now isn't worth more than just a maybe?? return interest earned in maybe a couple of years?
Am aware that the tax man gets his before I leave the bank on RRSP withdrawl.

[Hopperbin]

Hi Wade, haven't checked this topic for a bit. But one thing I have noticed is that you claim paying 5.8 percent on your farm loans. I am not an accountant and just a lowly farmer but you may want to shop around for a better interest rate. You should be able to pay off the higher rate with a floating for example at 4 percent today with a chance to drop because the Bank of Canada just dropped their prime to 1. Not many loans are locked in that they cannot be paid off without penalty and another taken even at the same financial institution. Could be one reason why bank shares are taking a licking these days. That 2 percent drop could save you some money to entice you to keep the RRSPs. The risk is interest rates going up, but saving 50 percent in interest rate costs is a big insentive in my opinion.

[Hopperbin]

ooops 5.8 to 4 percent is 31 percent in interest.

[bellson]

Just wondering what you guys decided.

Did you pay down the land debt?

[wade]

I had 2 smaller term deposits that matured. Cashed them in, took the penalty for withdrawl from RRSP. Took the remaining money and put it towards the land principal. Left the remaining RRSP money alone. Pro's and con's of either way, don't know if I will ever know which is the right way of thinking.
Soon will be caught up so will be investigating interest rates,terms, etc.

[Hopperbin]

Wade wade wade, I cannot for the life of me understand why you would have cashed the RRSPs. Did you ask about paying the higher rate loans and replacing with floating lower rates which are now about 3.5 give or take? I would be flipping in my grave on this one.

[wade]

Good to hear that you are that concerned with my financial wellbeing- maybe should have you as my investment adviser. lol
All kidding aside though, I will note that my net worth hasn't changed and I have paid down debt. The extra year early out on the land loan payout will be about the same as the extra possible rent income so would be kinda an RRSP. Coin toss on income paid or income earned with the interest.
Ironically, with less stress over money owing, will need more RRSP monies for extra years living-lol