Q: With today’s volatile markets do I pay down my debt first or save for retirement? My wife and I are using a secured line of credit for our mortgage, so the interest rate is approx. 3.5%. Our current balance is $215,000.
It was recommended that we cash in our RRSP’s (valued in at $225,000) and put it towards our debt, as it’s hard to say where the market is going,
I have a pretty good pension at work. Do you think it makes sense to cash in our RRSP’s and apply them to our mortgage
A:I definitely don’t recommend that you cash in your RRSPs. The tax that you will pay now far outweighs any savings in interest costs. Besides, if needed, the RRSPs can serve as an emergency nest egg and may allow you to retire sooner.
If the market volatility is really effecting you, then you may consider rebalancing the holdings somewhat although I would be very careful of selling out of your entire portfolio, assuming that it meets your long term goals. Liquidating your portfolio now will lock in any losses, which may take many, many years to recover from.
Remember that one of the biggest risks on your portfolio is buying and selling at the wrong time and letting short term market conditions influence your long term investment strategy.
One strategy that I would consider is to make regular monthly deposits into your RRSP portfolio and dollar cost average into the market. You may also wish to contact the Canada Revenue Agency for permission to allow your employer to reduce your tax with holding at source and apply this savings against your mortgage.
This article provides general information and does not constitute financial or other professional advice. Seek independent advice before implementing any of the strategies discussed.
Imran Syed, BA CFP CFSB TEP is an independent, fee only Certified Financial Planner and can be reached at www.feebasedadvisor.ca. Please send any home related, financial planning questions to him by email at homes@ottawacitizen.com
