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Jon, 40, and Adrienne, 35, Toronto
Should she ditch her underperforming RRSP? After a decade, the $5,000 fund is going nowhere, and this mom of two is fed up - she wants to cash it in to pay off her credit card. Her husband thinks she should put up with short-term pain for long-term gain.
SHE SAYS: CASH IT IN
I got a $5,000 locked-in RRSP when I started a new job 10 years ago, and a little while back I learned that the government will allow me to access it if I can demonstrate financial need. I've got a couple thousand in credit-card debt, and I could use the cash right now, even though I'd have to take a penalty - around $500 - so I'd be left with $4,500. Looking at my statements from the last decade, I can see that the fund went up for a while, but then I got dinged after the crash in 2008. Basically it's worth exactly what I started with. Right now it's being managed by a financial adviser I hired years ago, when I got an inheritance that I ended up investing in my house. I don't think he's really up to snuff, and the fact that I'm not seeing returns kind of bothers me. It's like a mosquito in my ear. I know everyone thinks RRSPs are sacred, but shouldn't paying off debt be a priority? It's not like we don't already have savings.
HE SAYS: KEEP IT
Registered retirement savings plans are called that for a reason - they're meant for retirement. As the baby boomers get older and become a bigger drain on the system, it's going to get harder for the government to support people in their retirement years. It's up to us to look out for ourselves. I know $5,000 doesn't sound like much, but over the long term it can make a big difference. My RRSPs are at about $100,000, but that won't be enough for both of us - and since Adrienne is only working part-time from home with our kids, it's important to keep saving. I think she should ditch her financial adviser, not her RRSP. What we need is a consultation with a financial analyst for a fee. I think you really need a variety of opinions so you can make your own decisions, rather than paying someone long term. Your relationship with an adviser can get complicated if your investments are underperforming, and with a bank their motivation is to get you to buy their products.
Vital stats
Occupations: Both are journalists; he is full-time and she is freelance
Kids: Two toddlers
Annual household income: $100,000 (mostly his)
Assets: $100,000 in Jon's RRSPs, $5,000 in Adrienne's, $6,000 in RESPs for the kids
Debts: $200,000 mortgage at 3.8 per cent fixed, $1,600 paid monthly; $2,000 in credit-card debt
The advice
Great points, Jon, and I generally agree with you. Adrienne, don't give up hope on investing, but you do need to shop around for a new adviser. An RRSP is simply a tax shelter - not an investment in itself.
What to do depends on what your income will be this year. If it's minimal or nil, it might make sense for you to take out just enough to pay off your credit-card balance (assuming you have a high interest rate on it). Another option is to call your bank and switch to a lower-rate credit card or see if you can get a loan to pay off the card.
Whatever option you choose, make sure you vow never to rack it up again, and start saving monthly ASAP. Set up even $25 a month to be taken automatically out of your account (put this in a TFSA until you're earning a higher salary, then roll it into the RRSP). But also keep in mind that if you take the funds out of your RRSP now, you'll not only pay tax on that withdrawal, you'll lose that RRSP room and realize a loss (if there is one) on your underlying investment, which I'm assuming to be a mutual fund.
Jon, with the size of your portfolio it does make sense to consider hiring a fee-only financial planner to take a look at the big picture and your future as a family. It's well worth the investment.
Kelley Keehn is the author of The Money Book for Everyone Else. ( kelleykeehn.com
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