GIC maturing

Question: I am 65 years old and have no company pension but a small RRSP in mutual funds.

My concern is since I still have a dependant living at home for at least four more years is whether it make sense to take a GIC which comes due this October and is worth $19,000 and pay on my $30,000 mortgage which is 6 per cent with six years left or put it into the unregistered part of my RRSP since I don’t have any RRSP room. — Walter

Gordon answers: Before I answer the question, let me clarify one point. There is no such thing as an “unregistered part of an RRSP”. An RRSP is a registered plan, governed by very specific rules. Anything not in that plan is unregistered and has nothing to do with the RRSP.

Now to your question. It sounds like the GIC money will be received outside the RRSP. Therefore, you can put it towards the mortgage and that’s exactly what I would advise. You are paying interest on the mortgage loan at 6 per cent in after-tax dollars. Unless you are able to invest the GIC money in such a way as to produce a better after-tax return, this is a no-brainer.

Of course, it is possible to do exactly that. But to invest for a target fore-tax return of between 8 per cent and 9 per cent involves a higher degree of risk than it sounds like you are willing to assume. The mortgage pay down is a sure thing. Go for it.

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