3 Oct

How to Support Your Family Without Jeopardizing Your Retirement


Posted by: Lena Larsen

According to a study by Finder.com, 67.7% of Canadian parents assist their adult children financially. This may include helping them with rent (29.3%), handing out cash (38%), or contributing to larger purchases such as a down payment on a house (21%). Another reason why you may be helping out family members right now is the financial strain brought on by the COVID-19 pandemic.

The pandemic has disproportionately affected millennials, with 76% feeling the squeeze due to a reduction in working hours or job losses. Despite the fact that you may be in a better financial situation than other family members, it’s important to consider your options when looking to financially help your family – so you won’t jeopardize your retirement in the process.

How can I free up funds without paying a price?

There are many avenues you may explore in order to access the cash you need to help out adult children or other family members.

Withdrawing from savings:

The easiest and most straight-forward option may be to withdraw from retirement savings. However, be aware that reducing your savings may have a negative impact on your future retirement income. There’s also the possibility that it’ll trigger capital gains and withdrawal tax, as well as OAS clawback.

Sell off assets:

Another option is to cash in on investments, although considering the economic upheaval of the pandemic, now may not be the best time to liquidate assets. Meanwhile, cashing in will eliminate investments from your portfolio unnecessarily, as well as triggering taxes and OAS clawback.

Draw on lines of credit:

An alternative is to turn to existing lines of credit such as home equity lines of credit (HELOCs) or credit cards in order to help out family members. If you’re able to get approval for a HELOC, it can be a strong option as the interest rate is lower than for most other loans. However, banks are currently approving far fewer than before in an attempt to protect themselves from the economic effects of the pandemic – retirees without a steady income are particularly susceptible to having their HELOCs denied. Something else to consider with most lines of credit is the need to make monthly loan repayments, which can put additional pressure on your retirement income. Credit cards are another loan option; however, these have among the highest interest rates of all and can quickly lead borrowers into a cycle of debt.

Explore a different option:

If none of these options are for you, there’s another option that’s often overlooked. The CHIP Reverse Mortgage from HomeEquity Bank allows you to borrow up to 55% of the value of your home while continuing to live there. The CHIP Reverse Mortgage is made specifically for Canadians 55+, with an approval process that doesn’t penalize you for being retired or approaching retirement.

Furthermore, you don’t have to pay what you owe until you no longer live in your home, meaning no stressful monthly repayments affecting your cashflow. And depending on what you need the money for, you can opt to have it in monthly payments or as a lump sum. Finally, some clients are concerned that they may end up owing more than their house is worth, however, with HomeEquity Bank’s No Negative Equity Guarantee, you’ll never owe more than your home is worth.

Financially assisting family members is something that generous Canadians have been doing for a long time. However, COVID-19 means that many people need to help out their loved ones more than ever. By carefully thinking through your options and deciding what’s right for you, you can give your family financial support without jeopardizing your retirement.

Contact your DLC Mortgage Professional today to find out more about how the CHIP Reverse Mortgage can help you support your family during this time.

Agostino Tuzi

Agostino Tuzi

Agostino Tuzi is the National Partnership Director, Mortgage Brokers at HomeEquity Bank.