The last couple of months have been all about putting money into an RRSP – something less than half of Canadians planned to do for the 2016 tax year.
But the other part of a BMO survey shows over the past year more than a third of Canadians – B.C. residents are the second largest group – have withdrawn money from their RRSPs before the required withdrawal age of 71.
The average amount withdrawn across the country is $17,213 and the main reason is to help buy a home. In B.C., the average amount is $21,538, also mainly to buy
a home.
About three-quarters of those surveyed understand the consequences of such withdrawals: loss of what that money could have grown to tax-free – plus tax on the income if the home-buying money isn’t repaid.
An additional cost would be paying back more tax in the withdrawal year if the person was in a higher tax bracket then – compared with the tax saved in the lower contribution year.
Yet 19 per cent don’t expect to pay back the funds.
Only Atlantic Canadians top B.C. residents in the percentage of people making withdrawals and the amount withdrawn.
One-fifth of Canadians use their RRSP withdrawals to pay for living expenses, 18 per cent to pay off debt and 18 per cent to pay for emergencies.
Instead of such withdrawals, consider a personal loan if that’s an option, which in most cases would be a wiser move financially.
You can take some consolation that you at least have choices if your retirement finances aren’t growing as quickly as you had hoped – whatever the reason.
Very simply, you can (1) cut spending now to allow you to save more, (2) plan to work longer, or (3) live on less when you do retire – or any combination of these three options.
“Retirement leaves you with lots of free time, and filling it often costs more money than people anticipate,” says Pat McKeough, financial adviser and newsletter publisher.
“But postponing retirement, or working part-time as long as you’re able, can pay off in higher current income, more contentment and greater long-term security.”
Mike Grenby is a columnist and independent personal financial advisor; he’ll answer questions in this column as space allows but cannot reply personally - email [email protected]
