Four in 10 Canadians who hold a registered retirement savings plan (RRSP) have withdrawn funds before reaching retirement, according to a study of 1,500 Canadians by BMO Financial Group.
“These survey results are worrying; they indicate that many Canadians are not treating RRSPs for their intended use,” said Caroline Dabu, vice-president of retirement and financial planning strategy at BMO Financial Group. “Generally, withdrawing money from your RRSP prior to retirement is something to be avoided if possible.”
Early withdrawals from RRSPs can result in a heavy tax bill, the loss of contribution room and the loss of the potential growth of the investment, said BMO.
However, there are some situations when withdrawing money from an RRSP makes sense — such as the purchase of a first home, said Dabu.
The main reasons why Canadians are withdrawing money early from their RRSPs include emergencies, such as the loss of a job (36 per cent), paying off everyday debt, such as credit card balances (26 per cent) and a house purchase or home renovation (25 per cent), found the survey.