I’m 45 years old and expecting a $50,000 inheritance. What’s the better move — pay down my mortgage or invest for my retirement?

Now imagine the hypothetical story of Julia, a 45-year-old woman who’s about to receive a $50,000 inheritance from a distant aunt. She’s been diligent about paying down her home: her original $285,000 mortgage at 3.5% is now down to $85,000. Wiping out most of that balance in one move is tempting — being nearly mortgage-free years ahead of schedule sounds amazing.

The catch? Julia has only $10,000 saved for retirement between a Registered Retirement Savings Plan (RRSP) and a Tax-Free Savings Account (TFSA). With her 60s creeping closer, she’s worried that pouring everything into the house could leave her “house-rich, cash-poor” later on.

So what should she do — crush the mortgage, boost her retirement savings or find a balance? While there’s no single one-size-fits-all answer, a few key considerations can point her, and readers like her, in the right direction.

What to consider with a windfall

Paying off a mortgage early appeals to a lot of homeowners — and for good reason. Eliminating a major monthly payment provides emotional security, reduces financial stress and can feel like a guaranteed return. But when you zoom out, using a windfall to crush a low-interest mortgage isn’t always the most efficient financial move — especially if retirement savings are thin.

Today's mortgage environment matters

Julia’s remaining mortgage carries a 3.5% rate, which is exceptionally cheap in today’s context. For comparison, according to WOWA, the five-year fixed rate for a standard mortgage currently sits at a benchmark of approximately 3.79% to 4.79% for insured borrowers, while uninsured rates are slightly higher, reaching up to 5.59% (3).

Because Julia is borrowing at 3.5%, paying the mortgage down early is effectively earning her a 3.5% risk-free return — pretty good, but not stellar over long horizons.

Investing may produce more over time

Instead, it may be more beneficial for Julia to invest her inheritance through her RRSP and TFSA, since long-term equity returns have historically been higher. Over the last 30 years, Canadian equity markets have returned roughly 6% to 8% annually, adjusted for inflation (4). That spread — earning on average 7% versus 3.5% — compounds significantly over 15 to 20 years.

For example, if Julia invested $50,000 at 7% annually and compounded monthly from age 45 to 62, it could grow to roughly $164,000. That same $50,000 used to pay off the mortgage saves only 3.5% interest, and the return stops the moment the mortgage balance hits zero.

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Retirement readiness matters — and she’s behind

The bigger issue isn’t Julia’s house: It’s her retirement timeline.

Survey data shows many mid-career professionals have far less saved than they need in order to retire comfortably. As mentioned previously, 59% of Canadians fear they’ll outlive their savings — a figure that remains stubbornly high across age groups.

Separate research from FP Canada’s 2025 Financial Stress Index finds that money is the top source of anxiety for Canadians, with 42% saying it’s their leading concern, ahead of health, relationships and work — with a high cost of living and fear of making the wrong financial decisions being major contributors (5).

For someone like Julia, who is 45 and has relatively small RRSP and TFSA balances, this matters. A windfall represents one of the few chances to make a meaningful contribution toward future retirement income. Using the inheritance to eliminate a cheap mortgage may feel good today, but it does little to solve the bigger issue: A long retirement that needs adequate funding.

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What’s her next best move?

In Julia’s case, prioritizing retirement savings over the mortgage is likely the best long-term financial play — because her mortgage rate is low (3.5%) relative to the long-term expected returns from investments. Financial planners note that “if you expect your portfolio’s rate of return to be greater than your mortgage’s interest rate, investing may be the better choice (6)."

Channelling most of the windfall into her RRSP or TFSA would give those dollars decades to compound — helping close the gap between where she is now and where she’d like to be for retirement.