Q&A: Fired from job, now what?

Question: I am 59 years old and I live in British Columbia. I was fired from my job three months ago. I cannot get employment insurance because I was fired due to “my own misconduct”. I have a lawyer working on an unfair dismissal lawsuit. I cannot get any help with prescription costs due to the fact that I have funds in RRSPs. I cannot get any help whatsoever from government agencies, also due to the fact that I have these funds.

Currently I am only earning about $450 per month. I have just about used up all my savings. I have approximately $30,000 in RRSPs earning only about 3 per cent. I have a balance on my mortgage of $52,000 with an interest rate of 5.39 per cent.

My question to you is: Should I pay off my mortgage and use up the funds that I have in order to get some help? Or maybe in my situation it might be the best thing to do anyway? The whole situation has me so stressed out, I can’t think clearly. I look forward to your reply. – S.M.S.

Gordon’s answer: Oh dear, you are in a pickle. If the $30,000 in the RRSP is all that stands between you and government assistance, then you should probably draw out the money. Given your circumstans, it would appear that the plan will not be large enough when you reach 65 to provide much income anyway.

At your income level, it appears you will have to pay tax on a full withdrawal at the rate of about 22 per cent. This means you’ll be left with about $23,000 which you can apply against the mortgage if you wish, or draw against to supplement your income.

However, there may be a problem. You say the money is only earning 3 per cent. That suggests it may be invested in a guaranteed investment certificate. If so, it’s probably locked in until maturity and financial institutions are usually unwilling to allow early termination. If they do, there’s often a penalty attached. So check out all the details before you make a move.