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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

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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 . About 40 per cent of respondents said they withdrew money from their RRSPs.

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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.

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Bank of Montreal

BMO

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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 .

Canadians taking more money out of RRSPs to pay for expenses , says survey | CBC News. 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 .

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The average amount withdrawn from retirement plans in 2017 was $20,952, which is nearly 22 per cent more than the average amount of $17,213 taken out in 2016.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

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The survey also found that a quarter of working Canadians , those aged 20 to 64, were dipping into their retirement savings . Canadians taking more money out of RRSPs to pay for expenses , says survey .

Taking money out of an RRSP account before retirement can be very expensive because withholding taxes often apply. If you have an RRSP and you want to take money out of it for anything other than retirement , post-secondary education expenses or the If you take out … In Quebec you pay …

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."

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The most salient concerns are: 1. The prices for everyday things increase dramatically (59%); 2. Coping with declining health (52%); 3. Healthcare expenses that we have to pay out of pocket (41%); 4. Don’t have enough money to live on during retirement (41%)

You can find out how long it should take to double your money with the rule of 72. If you figure you’ll need k/yr NET for expenses in retirement , you’ll need to save more to have that left after taxes. Withholding Tax on RRSP Withdrawals: What You Need to Know. The 16 Best Paid Survey Sites in

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.

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Canadians taking more money out of RRSPs to pay for expenses , says survey . 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 .

o Dental expenses — Most retirees do not have dental insurance, and dental costs are not covered by Medicare, so retirees must pay out - of -pocket for this care. The survey question: If you (and your spouse/partner) were running out of money (in retirement ) due to unforeseen circumstances

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.

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