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Where Should I Put Extra Cash: RRSP, TFSA or Pay Down Debt?

If you find yourself with some extra cash—whether from a tax refund, a bonus, or simply good budgeting—you’re likely wondering where it should go. Should you invest in your RRSP, grow your TFSA, or focus on paying down debt? Each option has its own advantages, and the right choice depends on your financial goals, tax situation, and comfort with risk. Here’s how to decide which path makes the most sense for you.

Understanding Your Options

Before comparing strategies, it’s helpful to understand what each option offers.

RRSP (Registered Retirement Savings Plan)

An RRSP is a tax-deferred retirement account. Contributions are tax-deductible, meaning you can lower your taxable income in the year you contribute. Your investments grow tax-free until you withdraw them—usually in retirement, when your income and tax rate are lower.

RRSPs are ideal for long-term retirement savings and can help reduce your annual tax bill. However, withdrawals are fully taxable as income, so the money is best left untouched until retirement.

TFSA (Tax-Free Savings Account)

A TFSA allows your investments to grow tax-free, and withdrawals are not taxed at all—even on the gains. Unlike the RRSP, contributions are not tax-deductible, but the flexibility of tax-free withdrawals makes the TFSA excellent for both short-term goals (like a home purchase or emergency fund) and long-term investing.

In 2025, the annual TFSA contribution limit is $7,000, and if you’ve been eligible since 2009 and never contributed, you could have over $95,000 in available room.

Paying Down Debt

Paying off debt doesn’t earn “interest” the same way an investment does—but it can provide a guaranteed return. For example, if your credit card charges 19% interest, paying it off is equivalent to earning a risk-free 19% return. Even lower-interest debts, like a mortgage or student loan, can provide peace of mind and financial flexibility when reduced.

Step 1: Evaluate Your Debt Situation

The first step in deciding where to put extra cash is to analyze your debts.

  • High-interest debt (over 10%) should almost always come first. Paying off credit cards or payday loans provides an immediate, guaranteed return.
  • Moderate-interest debt (5–10%), such as car loans or personal loans, may be balanced with investing if you have a strong emergency fund and RRSP/TFSA room.
  • Low-interest debt (under 5%), such as many mortgages or student loans, may not be as urgent to pay off—especially if your investments can potentially earn higher returns.

The peace of mind that comes from being debt-free is invaluable, but the math often favours investing once high-interest debt is under control.

Step 2: Consider Your Tax Bracket

Your tax rate plays a major role in the RRSP vs. TFSA decision.

  • If you’re in a higher tax bracket, RRSP contributions are particularly beneficial because you’ll receive a significant tax refund now and likely pay lower taxes in retirement.
  • If you’re in a lower tax bracket, a TFSA often makes more sense. You won’t gain much from the RRSP deduction today, and the TFSA’s tax-free withdrawals provide more flexibility later.

A popular strategy is to contribute to your RRSP, receive the tax refund, and then reinvest that refund into your TFSA—maximizing both accounts.

Step 3: Align With Your Goals

Your financial goals should ultimately guide where your extra money goes.

  • Short-term goals (under 5 years): The TFSA is ideal since it allows for tax-free growth and penalty-free withdrawals.
  • Medium-term goals (5–15 years): A mix of TFSA and RRSP can work well, especially if you’re planning for major life milestones like buying a home or funding education.
  • Long-term goals (retirement): Prioritize your RRSP, especially if your employer offers a matching contribution—that’s free money you don’t want to leave on the table.

If you’re close to retirement and have little debt, focus on building tax-efficient retirement income through both your RRSP and TFSA.

Step 4: Don’t Forget Emergency Savings

Before investing or aggressively paying off debt, make sure you have an emergency fund—ideally covering three to six months of expenses. A TFSA is perfect for this because you can withdraw funds at any time without penalties or tax consequences.

Having this cushion protects you from needing to rely on high-interest credit if unexpected expenses arise.

Step 5: Combine Strategies for the Best Results

You don’t have to pick just one option. In fact, many Canadians benefit from a balanced approach:

  1. Eliminate high-interest debt first.
  2. Build or top up your emergency fund in a TFSA.
  3. Invest for retirement through RRSP and TFSA contributions.
  4. Pay extra on low-interest debt if it aligns with your comfort level and financial goals.

For example, you might direct 50% of your extra cash toward debt repayment and 50% into your RRSP or TFSA—adjusting the balance based on interest rates, tax savings, and your personal priorities.

Final Thoughts

Deciding whether to put extra cash into your RRSP, TFSA, or debt repayment isn’t a one-size-fits-all choice. It depends on your tax situation, interest rates, time horizon, and risk tolerance.
If you’re carrying high-interest debt, tackle that first. If your debt is manageable, focus on maximizing the tax advantages of your RRSP and TFSA.

When in doubt, consulting a financial advisor or accountant can help you create a personalized strategy that aligns with both your short-term needs and long-term goals.

Smart money management isn’t about choosing one perfect option—it’s about balancing priorities so your money works hardest for you.

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When should I start taking my CPP and OAS?

Deciding when to start taking your Canada Pension Plan (CPP) and Old Age Security (OAS) benefits is one of the most important financial decisions you’ll make in retirement planning. The right timing can significantly impact your income, taxes, and overall financial security in your later years. While many Canadians start collecting benefits as soon as they’re eligible, waiting can sometimes pay off—literally.

This article explains how CPP and OAS work, what factors to consider when choosing your start date, and how to make a decision that fits your personal circumstances.

Understanding CPP and OAS

Before diving into timing, it’s helpful to understand what these two programs are designed to do.

The Canada Pension Plan (CPP) is a contributory program. You pay into it during your working years, and your retirement benefit depends on how much you’ve contributed and for how long. CPP can provide a steady stream of income for life, indexed to inflation.

You can begin receiving CPP as early as age 60 or as late as age 70. The standard age to start is 65, but starting earlier or later changes your monthly benefit amount:

  • Starting early (before 65): Your benefit is reduced by 0.6% for each month before your 65th birthday — a 36% reduction if you start at 60.
  • Delaying (after 65): Your benefit increases by 0.7% per month delayed — up to 42% more if you start at 70.

Old Age Security (OAS) is a government-funded pension, available to most Canadians aged 65 or older who have lived in the country for at least 10 years after age 18. Unlike CPP, you don’t have to contribute to OAS. The amount you receive depends on how long you’ve lived in Canada, and it’s adjusted quarterly for inflation.

You can start OAS anytime between 65 and 70. For every month you delay after 65, your payment increases by 0.6%, or 7.2% per year, up to a maximum 36% increase if you start at 70.

Factors to Consider When Deciding

The “best” age to start CPP or OAS depends on several personal and financial factors. There’s no one-size-fits-all answer, but here are the main considerations:

1. Your Life Expectancy and Health

If you’re in good health and expect to live well into your 80s or 90s, delaying CPP or OAS often makes financial sense. The longer you live, the more time you’ll have to benefit from higher monthly payments.

On the other hand, if you have health concerns or a family history of shorter life expectancy, starting earlier may be the better option. It allows you to collect benefits while you’re still active and able to enjoy them.

2. Your Current Income Needs

If you retire early and need income to cover expenses, taking CPP or OAS sooner can help bridge the gap before other sources of income kick in.

However, if you’re still working or have sufficient savings or other income sources, delaying can boost your future payments — effectively giving you a guaranteed, inflation-protected “return” on waiting.

3. Employment and Taxes

If you’re still earning income from employment or self-employment, adding CPP or OAS could push you into a higher tax bracket. It might make sense to delay benefits until your income drops in retirement to reduce your tax bill.

Additionally, OAS benefits are subject to a clawback if your net income exceeds a certain threshold ($90,997 in 2025). Delaying OAS until after you stop working can help you avoid or reduce that clawback.

4. Spousal and Survivor Considerations

If you have a spouse or common-law partner, coordinating when each of you starts CPP and OAS can optimize your combined income. For example, if one spouse expects to live longer, delaying that person’s CPP might ensure more income stability for the survivor.

5. Inflation Protection and Longevity Risk

Both CPP and OAS are indexed to inflation, meaning their value keeps pace with the cost of living. They also pay for life, so delaying these benefits acts as a hedge against longevity risk — the risk of outliving your savings. A higher lifetime benefit can reduce the pressure on your investment portfolio later in life.

The Financial Impact of Waiting

The increases from delaying CPP or OAS can be substantial. For example, if your CPP at 65 would be $1,000 per month, waiting until 70 would raise it to $1,420 — a 42% boost. Over a long retirement, this can add up to tens of thousands of dollars in extra income.

However, the trade-off is that you’ll receive fewer payments overall. The “break-even age” — the age at which delaying pays off — is typically around 74–76 for CPP and slightly earlier for OAS. If you live beyond that, you’ll come out ahead by waiting.

A Balanced Approach

Some retirees take a hybrid strategy. For instance, they might start CPP at 62 to cover expenses but delay OAS until 68 or 70 for higher future payments. Others draw from their RRSPs or savings in their 60s and delay both pensions, effectively converting personal savings into a higher guaranteed lifetime income later.

This strategy can also reduce the risk of OAS clawbacks and lower required minimum withdrawals from RRIFs later, providing both income stability and tax efficiency.

Getting Professional Advice

Because the decision interacts with your overall retirement plan — including taxes, savings, and estate goals — it’s often wise to consult a financial planner. They can run personalized projections showing the long-term impact of different start ages, taking into account your health, risk tolerance, and financial situation.

The Bottom Line

There’s no universal right age to start CPP and OAS. The best choice depends on your unique circumstances — your health, income needs, work status, and personal priorities.

  • If you need the income now or have a shorter life expectancy, taking benefits early can make sense.
  • If you’re financially secure and expect a long life, delaying can provide valuable, guaranteed increases to your future income.

Ultimately, think of CPP and OAS as foundational pieces of your retirement income puzzle. The goal isn’t just to maximize dollars — it’s to ensure lifelong financial comfort and peace of mind.