Boost Your Retirement with TFSAs and Workplace Pensions

investing - doors - 401 — Which option is the best place to put your savings?

Q: My wife and I are both in our mid 30s and both have Defined Benefit Pension Plans (DBPPs) through work. My employer pension is with OMERS and hers is through a hospital. She is a saver and puts money into a TFSA where it just sits. I, on the other hand, use the TFSA to purchase ETFs here and there and pay the trading fees. For the last few years, I’ve been doing additional voluntary contributions (AVCs) through OMERS. Last year OMERs had a net return rate of 10.3%. I put more into OMERs then the TFSA. I’m wondering if this is a good route to take or if I should be putting more into my TFSA than OMERs AVCs. I’m trying to be proactive because I realize the only people responsible for our future is us. I’m just wondering where I should be putting the bulk of our savings. We own a house and have a mortgage, car payments and some credit card debt. Any advice would be helpful.

—Jevon

A: Thanks for the clear context, Jevon. It’s great that you and your wife are both actively thinking about how to allocate savings. You already have a strong foundation with employer-sponsored Defined Benefit Pension Plans (DBPPs), and you’re supplementing that with Additional Voluntary Contributions (AVCs) and TFSA savings. Below I’ll explain how AVCs and TFSAs differ, outline priorities you can follow, and suggest a practical approach to deciding where to direct most of your extra savings.

First, a quick recap of the vehicles you mention:

AVCs (Additional Voluntary Contributions) — In your case, AVCs are contributions made to an RSP-like account that OMERS manages separately from the DB pension. The AVC account is invested by OMERS in a diversified portfolio with relatively low fees (noted in your information as an annual administration fee of $35 plus roughly 0.6% of the RSP balance). AVCs do not increase your defined benefit pension entitlement, but they do provide a tax-deferred way to grow retirement savings under OMERS’ management. Past net returns such as 10.3% are encouraging, though any single year’s return will vary.
TFSA (Tax-Free Savings Account) — A flexible, tax-free account for savings or investments. TFSAs are often used for medium-term goals, emergency funds, or tax-free growth. You noted that your wife prefers to leave money in cash inside the TFSA, while you use the account to buy ETFs and incur trading fees. Both approaches are valid depending on the objective.

Key practical points to keep in mind:

Check your RSP contribution room and your Notice of Assessment to avoid over-contributing to RSP/AVC accounts. Once contribution room is exhausted, you can’t make further deductible contributions without penalties until room is restored the following year.
Consider the different time horizons: AVCs are best for long-term retirement accumulation under a professionally managed portfolio, while TFSAs are ideal for medium-term goals, emergency savings, or holdings where you want liquidity and tax-free withdrawals.
Factor in fees and trading costs. If you’re frequently trading ETFs inside a TFSA and paying commissions, those costs can erode returns. A low-cost, buy-and-hold approach inside the TFSA or using commission-free platforms can improve outcomes.

Before increasing savings, prioritize eliminating high-interest consumer debt. Credit card balances typically carry much higher interest rates than retirement or mortgage rates, so reducing or eliminating that debt first will usually deliver the best financial return. Review your household cash flow and ensure minimum monthly debt obligations are covered and that extra cash goes to the highest-cost debt.

Once high-interest debt is under control and you free up steady cash flow, consider this prioritized approach — either step-by-step or in parallel as cash allows:

Pay down high-rate consumer debt fully (credit cards, high-interest loans).
Accelerate car loan payments to reduce interest costs and free future cash flow.
Contribute a steady, regular amount to your OMERS AVC account if you want long-term retirement growth under professional management (this often makes sense if your household income places you in a tax bracket where RSP deductions offer meaningful tax relief).
Contribute to each TFSA up to an appropriate annual amount as your budget permits (an example guideline that some follow is contributing toward the TFSA limit each year; your note referenced $5,500 annually per TFSA as a planning reference).
If your income is higher and you still have RSP room, consider topping up AVCs to make full use of your available RSP deduction room.
Once other debts are reduced and savings are building, direct extra cash flow to accelerate mortgage principal repayments if your mortgage interest rate and long-term goals justify it.

In practical terms, if you value steady, professionally managed long-term growth and like the relative simplicity of OMERS’ AVC offering, continuing regular AVC contributions makes sense. If you need liquidity, want to save for medium-term purchases (a new car, renovations, or short-term goals), or want the flexibility of tax-free withdrawals, prioritize TFSA contributions. Many couples adopt a blended strategy: keep a disciplined AVC program for retirement while using the TFSA as a flexible savings vehicle and for tax-free growth.

Finally, simplify and coordinate with your spouse: align on emergency-fund targets, a debt-paydown timetable, and how each of you uses personal accounts. That clarity will help you decide whether to direct surplus savings primarily to AVCs or TFSAs at any given time. If you’d like, consider meeting with a financial planner to run numbers specific to your income, tax situation, and retirement goals so you can make a data-informed allocation between TFSA, AVCs, and debt repayment.

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