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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: GoStumpy on January 02, 2014, 10:51:00 PM

Title: Cash out and be comfortable, or roll into RRSP and be smart?
Post by: GoStumpy on January 02, 2014, 10:51:00 PM
Wondering what I should do... or what I would rather do... Be comfortable, or be smart.  LOL

I have ~$6200 coming to me from a DPSP (Deferred Profit Sharing Plan) as I just resigned from my previous employer.

I won't be starting work again until mid to late January, and until the 3 months is up, I will be making slightly less than I was.

My wife is 4 months along, and is finding it hard at her work with all the lifting and crouching, and she is thinking about going on Disability EI until Maternity EI kicks in near birth...  So we may be on one income fairly quickly, which we can do with the EI supplements, but it's definitely kinda tight.

I am a YNAB'ber so I do track our spending, although living paycheque to paycheque I don't really get to use YNAB the way it was designed (with a month's buffer).  I would LOVE to have that buffer and plan out our month's spending, including saving and saving for retirement.

Anyhooo, would either love some facepunches or advice about this... She thinks we should cash it out, take the hit ($1500 so we'd have $4700 left).... we could use the money to get out of overdraft, build a bit of a buffer in our chequing accounts, and feel a lot more comfortable with our financial situation.

Do we do what I know is the smartest thing, and roll it into an RRSP and avoid paying taxes on it?

Or do we cash it out, have a month's buffer, and dedicate a minimum of 10% towards retirement?

I don't want to cash it out and pay down debt, considering we are having a baby within 6 months, I've decided we should just pay the loan ($290/mo) for the time being and pay down extra later once the baby is born and that stuff settles down.....

We are both 28 now, and have less than a grand each in retirement.



I forgot to add, we're down on funds because I have been off on medical EI for the past 4 months, so our monthly income has been down ~$600+ per month for the past 4 months... we've cut out eating out pretty much completely, buy almost no alcohol anymore, and have been able to pretty much float along, but it's been tight.  That is why we're behind the 8ball right now, in overdraft due to some housing costs...forgot to pay our electricity for 3 months and all of a sudden it's $400... plus other bills :(  I know I know wah wah
Title: Re: Cash out and be comfortable, or roll into RRSP and be smart?
Post by: SoftwareGoddess on January 03, 2014, 07:32:57 AM
Assuming this is not just a "tell me what I want to hear" request :-) :

No, you don't have less than a grand each in retirement. You have that, plus $6200. And you're talking about cashing out most of it and giving ~25% of it to the government. $6200 can grow to a sizeable sum by traditional retirement age (sounds like that is what you are aiming for if you are thinking of saving 10%), but not so much if you cash it out.

You have presumably already consumed some RRSP contribution room for the DPSP funds, in the form of pension adjustments. You'll never get that room back; you won't be able to "catch up" by putting an extra $6200 in your RRSP later. So, in case my opinion isn't blindingly obvious, I'd vote to roll it into your RRSP.
Title: Re: Cash out and be comfortable, or roll into RRSP and be smart?
Post by: lackofstache on January 03, 2014, 10:04:04 AM
My thoughts on one-time, lump sums like this are: If it helps you get through a rough spot, but you'll be in that spot when the one-time $ goes away, then don't bother, just pretend it doesn't exist and move on.

If, however, the money gets you through the rough spot and is a springboard for getting passed the rough spot, by all means use it. You won't regain the $ later, but there's also no point in having savings while you borrow money to pay bills.

It's a balancing act sometimes & in different situations I've done different things.
Title: Re: Cash out and be comfortable, or roll into RRSP and be smart?
Post by: GoStumpy on January 03, 2014, 10:20:27 AM
We are going to be buying a fuel efficent car within a week or two, so we will stop hemorrhaging money on fuel... the Christmas time is over (travelling, gifts, etc), and I will be starting a new job that makes good money... So I do think that using it would likely be more than enough to last us until my new job is in full swing (52k after 3 months).

Another idea was to only cash out part of it.  This intrigues me... It would be more like cashing out to get us out of the red and well into the black, and then we'll see if we can stay that way (god dammit we better), whilst still rolling half of it into RRSP's.

So perhaps put $2500 into RRSP, and withdraw $3700 (leaving us $2700 after taxes) is a good win-win solution... gets us a bit of a buffer while still putting a decent chunk for retirement.
Title: Re: Cash out and be comfortable, or roll into RRSP and be smart?
Post by: TrMama on January 03, 2014, 10:29:04 AM
Be very careful of going on disability early in the pregnancy. It can interfere with your wife being able to claim her full year of parental leave later. In order to claim the full year of mat leave, I believe you need to have worked (and paid into EI) 600 hours in the previous 12 months. If you take disability leave early in the pregnancy, it can screw you. This was the case 5 years ago when I was last pregnant, although it would be good to confirm before you make any decisions in case anything's changed.

I dealt with this in my second pregnancy when I was very seriously ill basically from conception. I ended up toughing it our at work. In your situation, since you're not a in  a strong financial spot, I'd recommend the same. As long as the baby and your wife aren't at risk, she needs to keep working as long as possible.
Title: Re: Cash out and be comfortable, or roll into RRSP and be smart?
Post by: GoStumpy on January 03, 2014, 10:38:50 AM
We did check with the Service Canada EI office, and she had the required working hours as of December 18th I think it was... so she is good to go on that front.


Well, found out that the payout wouldn't be until sometime in March, when they do their shares selloff or something... so it doesn't look like the money will help me in the short-term :(