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

23:15  18 february  2018
23:15  18 february  2018 Source:   cbc.ca

New Survey Unveils The Dollar Amount Canadians Feel They’ll Need For Retirement

  New Survey Unveils The Dollar Amount Canadians Feel They’ll Need For Retirement A new survey by the Canadian Imperial Bank of Commerce (CIBC) has found the magic dollar amount people feel they will need to save in order to have a comfortable retirement: $756,000. CM

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

Quotes in the article

Bank of Montreal


Here's the average cost of retirement: How prepared are you?

  Here's the average cost of retirement: How prepared are you? Your retirement is likely to be your biggest expense in life, so take it seriously and plan for it. Leaving much of it up to chance is risky and ill-advised.How much money needed for retirement will be different for different people, but here's a look at an average figure, and what it means for you.

S&P/TSX Composite


S&P/TSX Venture Composite


S&P TSX 60



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

The average amount withdrawn from retirement plans in 2017 was $20,952, which is nearly 22 per cent more than the average amount of $17,213 taken out in 2016.

"We've seen a steady increase in the amount of money Canadians are withdrawing from their RRSPs to meet short-term needs; this should be considered only as a last resort," said Robert Armstrong of BMO Global Asset Management.

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

When saving into an RRSP instead of a TFSA could cost you dearly

  When saving into an RRSP instead of a TFSA could cost you dearly RRSPs aren't for everyone.It's the time of year when Canadians are bombarded with ads about filling up their Registered Retirement Savings Plans, or RRSPs. Maximizing your contribution before the March 1 deadline is simply the wise and financially responsible thing to do, the message goes.

Reasons for withdrawing

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

Other reasons include:

- To help pay for living expenses (23 per cent).

- For emergencies (21 per cent).

- To pay off debt (20 per cent).

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

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

'Expensive' penalties

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

"Before you withdraw money from RRSP for any reason other than retirement, really crunch the numbers," she said. "I think people would be surprised by how expensive it is from an income tax penalty perspective."

It may be time to rethink RRSP contribution limits

  It may be time to rethink RRSP contribution limits The Registered Retirement Savings Plan (RRSP) has been one of the mainstays of saving money for retirement since it was introduced in 1957. IGM

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

"If they have been diligently saving in their RRSP and they're really struggling to make their bills meet, they might look at that chunk of change and say why don't I take $10,000-$20,000 out of here and just ease my burden a bit on the other side," she said.

But then they lose out on what they've been saving, she said.

And plans to repay that money to the plan often fall short.

"When you borrow from your RRSP, you're borrowing from yourself, and there's no one knocking on your door saying, 'Hey, you borrowed $20,000, now give it back,' because you've taken it from you own account."

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

"That also puts you on a payment plan, so it makes you a little bit more accountable for the money that you actually borrowed," she said.

RRSP 2018: Deadline, contribution limits and other need-to-knows

  RRSP 2018: Deadline, contribution limits and other need-to-knows How to tell how much you can contribute and why you might want to postpone getting your RRSP refund.HRB

Withdrawals by region

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

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

The top reasons given:

- They don't have enough money (44 per cent).

- They are paying off debt (25 per cent).

- They have other things to spend money on (21 per cent).

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

Knowledge about RRSPs was down slightly in those surveyed, to 79 per cent from over 80 per cent in the previous year.

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

When income drops, should we tap the RRSP and feed the TFSA? .
If one partner is home with the kids, it sometimes makes sense to withdraw from an RRSP

—   Share news in the SOC. Networks

Topical videos:

This is interesting!