Continuing the series of posts (Part 1) examining the financial myths mentioned in David Trahair’s book Smoke and Mirrors, let’s take a look at the second myth:

RRSPs are the Holy Grail of Retirement

Mr. Trahair rightly points out that it is better to pay down credit card debt or income tax debt than invest in a RRSP and suggests that Canadians paydown all their debts including mortgage debt before investing in an RRSP. He concedes that RRSPs used wisely can be a significant part of a secure retirement but only if attention is also paid to spending patterns and debt levels.

I have a neutral opinion on the RRSP versus mortgage paydown debate. I believe that RRSPs are a slightly better option but think that either is fine. You can only tell which would be the better option with the benefit of hindsight. Mortgage paydown would have been the better option in 2000 but someone investing in equities inside their RRSPs in 2003 would be very happy with the results today. It would be ideal if you can contribute to the RRSP and paydown the mortgage but the key is to have the discipline to at least do one.

I have a feeling that Mr. Trahair is outraged that mutual funds are getting rich even when investors are doing poorly. But that is no reason to avoid RRSPs altogether. That would be a bit like cutting off the nose to spite the face. Investing in RRSPs doesn’t have to mean forking over a big chunk of your capital to mutual funds evrey year. You could construct a simple, diversified, low-cost portfolio in minutes using ETFs or index funds.

Related: The Case for RRSPs Over Everything Else

Continued in Part 3…

This article has 7 comments

  1. why not do both – contribute to your RRSP and put the resulting tax refund towards your mortgage.


  2. There are too many variables to declare one over the other. What tax bracket are they in? Do they have any type of work sponsored plan? Married or Single? Employment secure?

    CC has tried to gone through each variable and offer up discussion points for us to “debate”. 🙂

  3. MCM,
    David Ingram discusses that very topic at:
    and concludes that putting the greater sum against the mortgage is the better option, unless your returns from the market are spectacular.


  4. “I have a feeling that Mr. Trahair is outraged that mutual funds are getting rich even when investors are doing poorly.”

    Yeah I get that feeling as well. The financial industry abused him as a child. But I do get a bit outraged myself when I meet someone who hasn’t heard of ETFs.

  5. Exactly Jon, I think one of the problems with a lot of these books is that they try to sell themselves as a resource for “All Canadians” when really they are appropriate for a much smaller subset of the population. Trahair’s book is probably most appropriate for someone who’s a bit older and hasn’t saved much and has just started thinking about what to do for retirement. Or for a low income earner. Swim with the Sharks is a great book for someone who values early retirement over standard of living and financial security, Derek Foster’s book is most appropriate for someone who doesn’t make much money but has somehow accumulated a large pot of cash or someone who is interested in dividend investing etc etc. I really enjoyed all three of those books but I’m not basing my actions on any one of them.
    M. Bai’s recent book (which I also enjoyed) would probably appeal to more people regardless of their situation since it doesn’t have any specific “magic” plan for early retirement.

  6. I find the Tax break I get from contributing to an RRSP make in worth while to put money into my RRSP vs. strictly paying down the mortgage. Any money left after the RRSP I put towards the mortgage. In the first couple of years I max’d out on the RRSP and aggressively paid down the mortgage to get it under control . . lately there’s no extra money for the mortgage. New baby on scene and deposible income has vanished 🙂

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