Should I cash in my RRSPs to pay my debts?

A survey conducted by a major bank concluded that almost 40% of Canadians admit they’ve cashed in part of their Registered Retirement Savings Plan (RRSP) well before retirement.  Many feel they don’t have a choice.  Most aren’t using their RRSPs to take trips, buy cars or renovate their homes.  The money earmarked for retirement is being used to pay bills, assist children, service debts, pay income tax arrears and just staying afloat.  This does not bode well for these future retirees.

The vast majority of us will not work until the day we die.  Whether you’re 25, 35 or 55, you know that at some point in your life, you will retire and will need some savings to support your retirement lifestyle.  If you carry excessive debt into retirement, the additional burden will negatively affect your lifestyle choices.  You don’t want to have to choose between buying medication or groceries and making the minimum payment on your credit cards.

The closer you are to retirement, the more serious you have to become about dealing with excessive debt.  Cashing in your RRSPs is not recommended. Increasing debt to maintain spending is not a solution.  Continuing to rob Peter to pay Paul is never a good idea.  Following this path will not lead to a realistic chance of ever paying off debt.  Stop gap measures will only delay and possibly eliminate any opportunity for enjoying a comfortable and financially stable retirement.  You should be looking forward to your retirement, not planning to work until you drop because you can’t afford to do otherwise.

A common theme we hear from our clients: “I am scraping by every month and it’s starting to take its toll on my health and ability to focus on my job and home life.  I don’t know much about consolidation loans or refinancing but they make me feel like I am spinning my wheels.  My creditors and new lenders are offering more credit but if I do that, I’m digging a deeper hole for myself.  I don’t want to touch my RRSPs.  I want to move forward, not take a step back.  What other options do I have?”

Self-assessment of your financial situation is not always easy.  Most need help creating a budget, prioritizing bills and debt payments and creating a plan to improve financial health.  In many ways, coming to see a Licensed Insolvency Trustee is like going to a doctor and getting advice about your health: they can pinpoint the problem areas, target the low hanging fruit and set realistic goals to get you back in shape.  Best to seek advice sooner rather than later to avoid causing irreparable harm and making misinformed decisions.

Your first step is to seek the help a Licensed Insolvency Trustee. The Trustee will review your financial situation and records with you.  The Trustee may discuss mortgage refinancing, credit counseling, debt consolidation, a consumer proposal and bankruptcy and then recommend the best option for you.  By filing a formal arrangement through a Licensed Insolvency Trustee, RRSPs are exempt from seizure except for the last 12 months’ contributions to the plan.

If you are burdened with debt stress, asking for sound advice is a sign of strength and the smart thing to do.  Asking sooner rather than later is always better.  Call Doyle Salewski today for your free, no obligation consultation.  You’ll be glad you did.

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