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'It's concerning': Canadians dipping into RRSPs to cover expenses

Canadians dipping into RRSPs to cover costs of buying a homes, expenses: study
(Portra Images / Getty Images)

Canadians are being forced to dip into their retirement savings to cover the costs of a variety of expenditures, including buying a new home, day-to-day expenses and paying back debt.

The findings, released on Tuesday, come from a new study conducted by market research firm Pollara on behalf of the Bank of Montreal.

The survey, which polled 1,500 people online in December, found that 38 per cent of Canadians have taken money out of their RRSP before the age of 71, which is up four per cent from last year.

And on average, they withdrew $17,213, $1,305 more than they did the year prior.

“It’s concerning to see that so many Canadians are dipping into their RRSPs to meet short-term needs, which should only be considered as a last resort,” Chris Buttigieg, director of wealth planning publications at BMO Wealth Management, said in a statement.

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Red-hot real estate markets across the country could be to blame, as the number No.1 reason Canadians were raiding their RRSP was to buy a new home, with 30 per cent of participants of who have done so indicating that was the case.

In British Columbia, where 44 per cent of respondents said they had dipped into their RRSP, 38 per cent said the reason was to buy a home.

The findings were similar in Ontario and Quebec, where 31 per cent and 23 per cent of those who pulled from their RRSP put the funds towards a new home.

Canadians dipping into RRSPs to buy home, cover expenses
(BMO)

Vancouver continues to have the country’s most expensive real estate, though they’ve slumped since a foreign property transfer tax was implemented, while prices in Toronto continue to surge.

Many Canadians have turned to the Home Buyer’s Plan program, which allows first-time buyers to withdraw up to $25,000 a year from their RRSP and pay it back over the span of 15 years. As long as the sum is repaid in that time frame, there are no penalties for withdrawals.

After housing, covering living expenses (21 per cent), paying off debt (18 per cent) and emergencies (18 per cent) were the other reasons participants said they were forced to withdraw from their retirement savings.

Canadians are also opting to pull from their RRSP despite the fact that the majority of them (75 per cent) are very concerned about the consequences.

A further 73 per cent said they were aware of the tax penalties or repayment rules (in case of a homebuyer withdrawal) associated with raiding their retirement savings.

And 19 per cent never expect to be able to put that money back into their account.

Buttigieg said Canadians need to make sure they’re know all the options that are on the table before they funnel money out of their RRSP.

He advised them that it might be a better choice to set up a TFSA or a high-interest savings account, as funds are more “liquid and accessible.“

“These short-term savings could be views as an emergency fund that will allow you to withdraw money for unexpected future needs without having to incur unnecessary taxes or jeopardize your retirement savings,” said Buttigieg.

The BMO survey is considered accurate within 2.5 percentage points 19 times out of 20.