A for-sale sign is pictured in front of a home in Vancouver on Sept. 22, 2016.Ben Nelms/Reuters
Raiding your retirement savings to find the down payment to buy a house has been a Canadian tradition since 1992. Enough, already.
The federal Home Buyers' Plan allows you to withdraw up to $25,000 from your registered retirement savings plan to buy a first home. You have up to 15 years to repay the amount you withdraw. If you don't make the minimum annual payment, the amount is added to your income.
Houses are expensive in some cities, so it's understandable why first-time buyers are eager to pull money out of their retirement savings. But there's an often-overlooked cost. As detailed in a recent article by financial planner/tax expert Doug Carroll, users of the HBP "have a significant risk of permanently depleting their retirement savings."
Mr. Carroll prefers tax-free savings accounts for people trying to build a home down payment because of their transparency and simplicity. "You know exactly what you have to spend [with TFSAs], and exactly what future repayment obligations you will have – there are no required repayments," he writes.
Mr. Carroll calls for an end of the HBP, which would be a blow to the housing industry. It was lobbying by the housing sector that resulted in the HBP in the first place. But RRSP savings should be reserved for retirement. At a time when many young adults don't have company pensions, the importance of retirement saving can't be over-stressed.
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Rob's personal finance reading list…
Her living space is still very 'college'
A 33-year-old lawyer in Toronto talks about how she manages money. She's paying off a big student debt, which explains her modest lifestyle. It's standard personal advice to "live within your means." Find out here how someone actually does it.
What if a man is out-earned by his female partner?
Most men don't think any less of a man who makes less money, but a few seem bugged by the idea. This finding is contained in a survey in Chatelaine about what it's like to be a man in 2018. Money-related issues are well represented here – salaries, who manages household finances, careers, paternity leave and more.
The Top 500 online passwords
This is cool – a graphic showing the most commonly used passwords. They're grouped into 11 categories – names is the most popular category, followed by cool/macho words.
What can a geriatric care manager do for you?
All about a service where an expert helps guide seniors through decisions related to health care and wellness. This is a U.S. article, but geriatric care managers can be found in Canada as well. Try a google search for your city. Might be of interest to people who have an older parent in another city.
Today's featured financial tool
Here's an infographic summing up key points in this week's federal budget.
Ask Rob
The question: "My son is in his early twenties, is now established in his first job after university and wants to start saving. He wants to invest $15,000 in one high-growth technology stock to hold long term. My sense would be to go for Amazon. What are your thoughts?"
The answer: "I'll assume your son has thought this through and has a solid rationale for picking this approach rather than a globally diversified stock portfolio with some bonds as well. If so, my suggestion is to think about making a diversified investment in technology via an exchange-traded fund that tracks the Nasdaq stock market. Two examples are the BMO NASDAQ 100 Equity Hedged to CAD Index ETF (ZQQ-T) and the PowerShares QQQ Index ETF - CAD Hedged (QQC.F-T). Amazon has a weighting of 9 to 10 per cent in both, as do Apple and Microsoft. Facebook, Alphabet and Intel are other big holdings. Diversification protects your son against the risk of a picking a stock that runs into trouble. A compromise would be to invest $5,000 in a single pick and the rest in a technology ETF.
Do you have a question for me? Send it my way. Sorry I can't answer every one personally. Questions and answers are edited for length.
Featured Video
I was on BNN the other day to talk about why millennials shouldn't shy away from investing in stocks to build their retirement savings.
In case you missed these Globe and Mail personal finance stories
- Don't forget savings for children's education in RRSP season
- Good pensions mean Toronto couple don't have to rush decision on selling their home
- Thirteen U.S. stocks that carry the hallmarks of stability (for Globe Unlimited subscribers)
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Rob Carrick