Help out the kids without hurting your retirement

As parents, we want nothing more than for our kids to succeed.  Often, we wish to give our children a “leg up” in their transition to adulthood by helping them out with larger expenses, such as tuition for post-secondary education, a down payment on a home or even a reliable vehicle.  If you find yourself in this situation, be sure to carefully consider where you take that money from so that helping your kids doesn’t hurt your retirement.

For people who don’t already have savings set aside for their kids, such as an RESP or a savings account, there are generally two options:

  1. Retirement savings.  Tapping into your retirement savings may be the quickest way to access cash but it could have some undesirable consequences.  For example, you’ll be charged taxes on a withdrawal from your RRSP and you’ll lose that contribution room forever.  You’ll also forego any future growth on the amount you’ve withdrawn, which will most likely mean you’ll have less money available at retirement.
  2. Home equity.  Some people are reluctant to take on more debt in the years leading up to retirement.  However, using a home equity line of credit to help out your kids may be the wiser choice in some instances.  Here’s why: you won’t be charged any tax when you access your home equity and your existing retirement savings can remain intact and continue to grow.  Some accounts will even allow you to track different portions of your debt separately.  This can be particularly useful if you’re providing money to more than one child and/or if you wish to track the interest charged for different portions of the debt.

We all want to help our kids succeed. By carefully considering how you help, you can help to ensure you don’t compromise your own future financial security.
If you’d like to help your kids with a large expense, give me a call and I can help you determine which option makes the most sense in your specific situation.
Andrew W Bradley is a licensed Insurance Broker and Financial Services Advisor helping Orleans families since 2011. Combining this with his previous working experience with the Canada Revenue Agency enables him to help a wide range of individuals, families and businesses. As an Independent Broker he devotes time to educating the consumer and implementing comprehensive financial plans for both individuals and businesses in areas including insurance and investments.
The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. I recommend that you obtain your own independent professional advice (preferably me) before making any decision in relation to your particular requirements or circumstances.