Photo: Wilson Hui/Flickr
Many Canadians are funding their home purchases in a worrying way, one of Canada’s biggest banks says.
Some 38 per cent of Canadians have dipped into their registered retirement savings plans before turning 71, and 30 per cent of this group did it so they could buy a home, suggests results from the BMO RRSP Survey.
“It’s concerning to see that so many Canadians are dipping into their RRSPs to meet short-term needs, which should only be considered as a last resort,” says Chris Buttigieg, a BMO spokesperson, in a statement.
On average, Canadians who have tapped retirement savings early took out $17,213, according to the BMO survey of 1,500 adults, which Pollara conducted from December 14th and 19th last year.
After home purchases, living expenses were the next most common reason a Canadian would spend retirement savings before age 71. In fact, it’s the reason 21 per cent did so, while 18 per cent serviced debt with their RRSP. Another 18 per cent drew on retirement savings for emergencies.
The survey suggests these aren’t decisions that Canadians are taking lightly. Three quarters of respondents say they are “very concerned” about the consequences, and 19 per cent admit they don’t think they will be able to pay the money back.
As an alternative to borrowing from an RRSP, Buttigieg suggests investing in a tax free savings account or a high-interest savings account. “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 adds.
That’s worth considering — unless, of course, you have an account with the Bank of Mom and Dad.