Q&A: 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 soon 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 Pape 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 dexactly that. But to invest for a target before-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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