In its annual RRSP study, BMO found the top reasons Canadians withdraw from their RRSPs are to fund a home purchase (30 per cent), finance living expenses (21 per cent), to repay debts (18 per cent) and emergencies (18 per cent).
The study revealed Canadians withdrew an average of $17,213 from their RRSPs this year, up $1,305 from last year. Thirty-eight per cent of Canadians withdraw from their RRSPs before the age of 71, a 4 per cent increase since last year.
"Speak to a financial professional"
Chris Buttigieg, Director, Wealth Planning Publications, BMO Wealth Management, says withdrawing from RRSPs to meet short term-needs should only be considered as a last resort. “Before withdrawing from an RRSP, speak to a financial professional to make sure you have fully considered the ramifications of the early withdrawal tax consequences, and to consider any additional options that may be available to you,” he said.
Start an emergency fund
Buttigieg suggest alternatives to withdrawing from RRSPs. “Investing in a TFSA or putting funds in a high interest savings account to keep funds liquid and accessible is a good alternative to dipping into your RRSPs prematurely for non-retirement expenses. These short-term savings could be viewed 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,” he says.