The Importance of Leaving Retirement Savings Alone

In early May, various discussions around government programs allowing individuals to withdraw retirement savings from a Registered Retirement Savings Account (RRSP) have renewed the discussion of whether such savings ought to be tapped.

Unlike the Home Buyers Plan or Lifetime Learning Plan, which allow for the withdrawing of retirement savings for large investments in education or housing, withdrawing money to meet one’s short-term needs is not likely to bode well for most individuals over the long-term and ought to be avoided at any cost. Here’s why.

Every investor who puts money away does so with the expectation of growth, allowing for a dollar today to meet one’s needs in the same proportion in the future. In other words, the growth one receives in a retirement portfolio is required to combat inflation.

Simply putting money under a mattress doesn’t do much good if the cost of everything continues to rise over time. Thus, removing a dollar today from a retirement portfolio could have a much larger impact for younger savers over longer periods of time and ought to be considered a true worst-case option.

That said, these are indeed difficult times, and some may be forced to explore such options in the absence of any other measures. For those contemplating whether taking out an equity loan or a personal loan versus withdrawing from an RRSP, I do think that for most out there, taking out a loan is likely to be a better move long-term, particularly now with stock prices somewhat depressed.

Times may be hard for the next few years but staying the course and adjusting one’s spending or looking at other alternatives is likely to be a better long-term move than tapping one’s RRSP.

Invest wisely, my friends.