Do you have a plan for debt elimination?

When most people think about retirement planning, they think of building a retirement nest-egg through RRSPs and pension plans. While these are key pieces of the puzzle, it’s important not to forget about another important element of retirement planning – debt elimination. After all, the less you spend on interest payments, the more you can allocate to your retirement savings. A debt-elimination plan doesn’t have to be complicated. But you should have one or you’ll likely be in debt longer than you have to. There are a few simple strategies for getting out of debt sooner, such as:

• Building extra debt payments into your budget.
• Consolidating all of your debts at the lowest rate possible.
• Using your income and savings to automatically reduce your debt (without giving up access to that money).

When you’re planning for retirement, don’t forget about the impact that your debt has on those plans. With a strategy for becoming debt-free sooner, you may even be able to retire earlier than expected. I’d be happy to help you develop a debt-elimination strategy that complements your overall retirement savings strategy. Give me a call if you’d like to discuss how you can be debt-free sooner.

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 You’ll also forego any future growth on the amount you’ve withdrawn, which will most likely mean you’ll have less money available at retirement. 2.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.