Canadians take more money out of retirement savings to pay for expenses: survey

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Canadians are disclaiming more money from their retirement savings to pay for short-term expenses in the face the tax consequences, according to a new bank survey.

About 40 per cent of the 1,500 people voted online in December by the Bank of Montreal (BMO) said they have distinguished a withdrawal from their RRSP.

The average amount withdrawn from retirement envisions in 2017 was $20,952, which is nearly 22 per cent more than the typically amount of $17,213 taken out in 2016.

“We’ve seen a steady increase in the amount of loot Canadians are withdrawing from their RRSPs to meet short-term extremities; this should be considered only as a last resort,” said Robert Armstrong of BMO Universal Asset Management.

“There are tax consequences associated with withdrawing from your RRSP, so be accurate to consult a financial professional to ensure you have exhausted all other choices that may be available to you,” he said.

Reasons for withdrawing

Buying a home was the sundry common reason given for withdrawing money, cited by 27 per cent of respondents.

Other apologias include:

  • To help pay for living expenses (23 per cent).
  • For emergencies (21 per cent).
  • To pay off obligation (20 per cent).

Canadians who withdraw money from RRSPs for the result of buying a new home or paying for continuing eduction may qualify for programs allied to the Home Buyers Plan or the Life Long Learning Plan, which could decrease the penalty for early withdrawal.

But those who take money out for any other object would be taxed for the amount withdrawn at their current income tax figure.

‘Expensive’ penalties

Personal finance expert Rubina Ahmed-Haq disclosed most people taking money out of their plans are not fully cognizant of the implications.

“Before you withdraw money from RRSP for any reason other than retirement, actually crunch the numbers,” she said. “I think people would be surprised by how high-priced it is from an income tax penalty perspective.”

With consumers holding a narrate amount of debt, especially in big cities like Vancouver and Toronto, where they energy be feeling “stretched to their absolute limit,” taking money out of retirement develops can be really tempting, said Ahmed-Haq.

“If they have been diligently reserve in their RRSP and they’re really struggling to make their charges meet, they might look at that chunk of change and say why don’t I call for $10,000-$20,000 out of here and just ease my burden a bit on the other side,” she communicated.

But then they lose out on what they’ve been saving, she reported.

And plans to repay that money to the plan often fall butt in fail. 

“When you borrow from your RRSP, you’re borrowing from yourself, and there’s no one disparaging on your door saying, ‘Hey, you borrowed $20,000, now give it back,’ because you’ve infatuated it from you own account.”

She recommends looking at other ways to access dough like taking a short-term low-interest loan or using a line of believe as a more “financially sound” way to deal with financial problems.

“That also perturbs you on a payment plan, so it makes you a little bit more accountable for the money that you absolutely borrowed,” she said.

Withdrawals by region

The lowest average amount distant was $12,374, in the Prairies, with paying for living expenses cited as the absolute reason; the highest was $23,505, in Atlantic Canada, where the most standard reason given by respondents was to buy a home.

On top of withdrawing more money from retirement downs, more than one-third of respondents in the survey said they are not programming to contribute to their RRSPs this year.

The top reasons given:

  • They don’t be experiencing enough money (44 per cent).
  • They are paying off debt (25 per cent).
  • They play a joke on other things to spend money on (21 per cent).

More than half of the respondents — 59 per cent — said they’re log money into their savings account and keeping it as cash.

Acquaintanceship about RRSPs was down slightly in those surveyed, to 79 per cent from done with 80 per cent in the previous year.


The online survey of 1,500 grown-up Canadians by BMO was conducted by Pollara Strategic Insights between Dec. 21 and 28, 2017. A every now sample of this size would yield a margin of error of benefit or minus 2.5 per cent, 19 times out of 20.

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