The high cost of living in B.C. can make finances a little tight, and some residents are turning to their RRSPs as a sort of last resort to make ends meet, according to a BMO survey released February 25.
In this province, respondents said they have taken out, on average, $24,100 from their RRSPs before retirement. This is more than 50% higher than the national average of $15,908 and almost double the $12,622 taken out by the average resident of Quebec.
Of those in B.C. who have taken out cash, only 28% have paid it back. This is the lowest rate in Canada, where the overall average is 33%. Those in Quebec are most likely to have paid their accounts back at 42%.
When asked why they have taken money out of their RRSPs, B.C. respondents say the number one reason was to buy a home, which takes top spot across most other regions of Canada as well. On the other hand, those in the Atlantic provinces and Ontario say they used the money to help pay living expenses.
“Although it’s not advisable to make withdrawals from an RRSP, it’s clear that some Canadians have had to do so in order to meet short-term needs,” said BMO Wealth Management senior manager or wealth planning strategy Chris Buttigieg.
Buttigieg said Canadians should set up contingency funds in short-term savings products such as TFSAs, rather than dipping into their RRSPs.
“There are tax consequences associated with making early withdrawals,” he said.
“It’s best only to make premature RRSP withdrawals for the purpose of buying a new home or paying for continuing education, as these withdrawals may qualify for the Home Buyers Plan or the Life Long Learning Plan, respectively.”
Considering the high cost of real estate in this province, it may come as no surprise that British Columbians are using more of their RRSP proceeds to purchase a home than are other Canadian residents. In Metro Vancouver alone, the Canadian Real Estate Association said that in January, the average home sold for $1.08 million – up 31% year-over-year. By comparison, the national average was less than half, at $470,000.
Why are Canadians turning to their retirement savings as a source of funds? A full 84% said they are using the money as a last resort. This brings a new set of concerns, and 79% say they are worried about the potential loss of retirement income. As well, 77% say they are worried about withholding tax at the time of withdrawal and 62% say they are concerned about a loss of contribution room in the future.
@EmmaHampelBIV
