Well thanks for the ideas so far. *I'll include some more information that should clear up a few things.
Originally Posted by Nords
Are you able to buy CDs yielding more (after paying taxes on the CD revenue) than your mortgage? If that's the case then it makes more sense to build up your retirement portfolio and pay the minimum required on the mortgage. If nothing else you could set a portion of your savings aside in a high-paying multi-year CD and the rest of your savings in your long-term (18 years) asset allocation.
What happens to the mortgage after five years-- does it balloon or does it go to a new interest rate? If it balloons or if the rate jumps then you could take another look at the money you've built up in the CD and decide whether it makes sense to continue the arbitrage.
Based on the your idea Nords, I should invest rather than pay down the mortgage. *The investment account is under my wife's name, so with her running the daycare, her investment income gets taxed at 3.5% for dividents and 10% for captial gains.
The mortgage is a closed five year term, after that I have to refinance to a new rate. *Total lifespan of the mortgage is 20 years.
Originally Posted by Maximillion
Contribute to the RRSP then use refund to pay down Mortgage, except if you are a Teacher or have a Plan that pays 2% + for Pension Earnings(i.e. for each year worked you get 2% of your salary as a Pension), in which case, pay down the mortgage.
A couple with Full CPP/OAS gets about $34,000 Indexed so , with a company pension, an RRSP might be moving you into a higher tax bracket.
I'm currently putting about $3k/year into RRSP's. *Mine and a spousal account so I can income split in retirement phase #2. *I've got about $7K in unused contributions I can top up. *I plan to contribute until I'm 45 then stop. *I've got a fully funded company penstion that give me a defined benifit. *If I leave early I get a lump sum payment which I can transfer to the RRSP. *A conservative estimate would mean I can expect at least an additional $25K.
Originally Posted by Zipper
OAS at 65 will give you roughly $6000 in 2006 dollars.
In order to build up a big nestegg it is very important to max your RRSP's each and every year. *Put the refund and any extras on the mortgage. These early contributions will compound nicely.
Unfortunately you will be sacrificing the sweet years between 45 and 55 when compounding really takes off.......
Kids are very expensive so make sure you double factor their cost. Move to a bigger, better, and last house when you are around 40.
My advice would be work 25 years. That would make you 52.
Your RRSP's will continue to compound, the kids will be gone, hopefully, the bigger house will be paid off, and you will be eligible for full CPP at 60 minus the early retirement penalty.
In addition, if you paid into any DB pension plan you can commute and start drawing at 55.
That's pretty well the way I did it. I worked 33 years and left at 54. I'm now 62.
Mrs. Zipper is 6 years younger and took 5 years off to look after our 2 boys. She plans to work until 60 and then begin CPP.
You won't need to worry about Health costs in Canada. You may need supplemental drug benefits until you hit 65.
Zipper thanks for giving me a few things to think about. *I should point out the RRSP are going to be strictly for the phase two retirement (65 plus). *So I'm still going to get that sweet compounding between 45 to 55, so if I stop putting anything additional it won't really matter since its mostly going to be compounding interest for that period. *I will still get some CPP income, but I'm taken that into consideration for my models to date. *
I'm lucky that my wife chose to start a daycare in the house instead of going back to work, so we have no daycare costs and she is really good at estimating the cost of the kids so far. *So bacially her business helps cover alot of the kid related costs. *Toys, kid movies, lunchs are all deducted off of taxes as business expense.
Phase 1 of the retirement is stictly going to come out of the investment account, so with our new lower income I'll only be about 5% to 10% tax. *Rather than the 15% tax if I put it in the RRSP and draw out later. *At least that's the plan I'm keeping the RRSP's as backup in case of major problems with the investment account money.
Thanks for all the ideas so far. *It's helping me round out some cost estimates and my plans.