Wednesday, January 10, 2007

Do you withdrawl your RRSP's early?

I was reading an interesting story early this week about 40% of Canadians withdrawl from the RRSP before retirement. The top reasons for those who use the funds were to pay for a house downpayment (37%) or cover living expenses (20%).

The article presented this as something bad rather than putting it in a good light. Out of the 1026 people surveyed most (60%) never pulled out anything from their RRSP's. Out of those who did about 152 people used it to buy a home, which is good thing for retirement planning in my mind. Then that leaves about a mere 82 people (out of 1026 or 8%) who used the RRSP's to cover living expenses, which is not a great idea. So 92% of us are doing the right thing with our RRSP's overall.

So why was this even a news story? You might want to notice who did the survey, the Bank of Nova Scotia. Perhaps they like to sell you some more RRSP's this season. Keep your eyes open everyone we are going to be drowning in "stories" about retirement savings over the next few months.


pragmatic said...

I haven't read the article, but in some cases withdrawing early is actually beneficial.

For example, if you are making little or low income in a given year and know that your tax bracket will be higher later then you could withdraw from the RRSP now and pay less tax than you would if you withdrew later.

For example if you went back to school full time, instead of using the Lifelong Learning Plan option, you could just do a straight withdrawal and pay little tax. Later, when you're back in the workforce and earning more money (due to your extra schooling!), you would be in a higher tax bracket.


Canadian Dream said...


Very good point. There could be times where a withdrawl could be very useful.

Thanks for the tip.


Big Cajun Man said...

This and RESPs I have managed to treat as "locked boxes" which is a good thing. I don't access the money and I let it grow, but I think if I was in a financial bind, like I had been laid off or something, I would consider going into those funds. --C8j

Canadian Dream said...


I agree with the RESP being locked. I don't even think of that as my money at all instead I treat it like it belongs to the kid already.