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  • Writer's pictureDeanne Gage

Why withdrawing early from RRSPs to pay down debt can lead to ‘regret’.

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Deanne Gage

THE GLOBE & MAIL

December 14, 2022


📰 Read the FULL ARTICLE here.


Read an excerpt below.

Cindy Marques, chief executive officer and CFP at Money MakeCents Inc. in Toronto, notes that it’s extremely rare for a parent to even consider going that route.
“I have found they would rather get into their retirement money before getting into the children’s education money even though there’s no penalty for doing so,” she says. “I think it’s a good thing. It’s the mindset of it being the kid’s money and being a provider for your child.”
As Ms. Marques investigates solutions for clients, she says their lack of financial literacy on the subject is partially the fault of some overzealous advisors who emphasize RRSP contributions at all costs for every client.
She has had new clients come to her with significant RRSP assets, but also possess “endless monthly cash flow deficits” because they feel embarrassed about asking their previous advisor, more often than not a product salesperson, to lower their contributions or stop them altogether.
“Some advisors won’t take the time to complete comprehensive budgets or cash flow reports to assess the situation – essentially blaming the client for spending too much,” she says.
“But in reality, the recommendations provided by their previous advisor are not based on feasibility within their budget. RRSPs are great and saving is important, but there are other avenues to invest that can provide greater flexibility and liquidity.”
Other clients have used RRSP savings for making lump sum repayments on large, out-of-control credit card debts, Ms. Marques adds.
“In those situations, there’s a history of perpetual indebtedness to the point that credit card balances are in the five-digit range and regular monthly payments just barely scratch the surface after interest charges,” she says.
But Ms. Gilbertson of MNP says using registered assets to pay off creditors is a mistake as the plans are creditor proof, so off limits. While clients want to do the right thing and pay down debt by any means they can, “there is often a fair amount of regret” when they don’t know the options before making the best decision.
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