Retirement lost: More Canadians are cashing out RRSPs early

More Canadians are making early withdrawals from their RRSPs because they need the cash, a Global News analysis finds. Fred Lum/The Globe and Mail

Lianne Paul had to empty her RRSP in September.

Not because she’s retiring – far from it: The mother of three is in her 40s. And a year after crippling health issues, including PTSD, forced her out of her job, she’s still unemployed. Openings for the same administrative work she’d been doing for years require skills that didn’t exist during her original diploma program.

Before she could qualify for income assistance to help her get by while she looks for a job, Paul had to liquidate all her savings – including the retirement nest egg to which she contributed for a decade.

Factoring in the tax penalties for withdrawing from her RRSP early, those funds barely lasted six months.

As politicians wring their hands over Canadians’ lack of retirement savings, figures obtained by Global News from years of tax filings indicate a significant jump in the number of Canadians making early withdrawals from their RRSPs – not for housing or education, but simply to make ends meet.

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The biggest increase was from 2007 to 2009, when 1.86 million Canadians took out RRSP cash early. That figure dipped slightly by 2012, to 1.82 across Canada, but remains about 7 per cent above 2007 levels nationally, 12 per cent above 2007 levels in Quebec and almost 10 per cent above in comparatively wealthy Alberta.

READ MORE: How to withdraw money early from your RRSP without getting penalized

Government response: What the feds had to say about Canadians’ labour instability trap

“People withdraw money from RRSPs before retirement because they need it – why would you voluntarily put a tax break at risk?” asks financial consultant and researcher Hugh Mackenzie.

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At the same time, Mackenzie said, fewer Canadian workers than ever are enrolled in private employers’ pension plans – fewer still in pension plans with defined benefits.

“Improvement of the Canada pension plan in some form is really the only viable solution to the retirement income issue that we’re facing now,” he said.

“Anything that’s based on the premise that employers are suddenly going to put up their hands and offer pension plans, I think, is just crazy.”

Tell us your story: Have you had to make premature withdrawals from your RRSP for reasons other than the condoned education or home-buying purposes? We’d love to hear from you.

Note: We may use your response in this or other stories. While we may give you a shout to follow up we won’t publish your contact info.

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