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The last place you go for money to pay debts or an emergency expense should be your registered retirement savings plan. You’re going to need that money to live on after you retire.

But the results of Bank of Montreal’s latest annual RRSP study found that 34 per cent of RRSP-holders had withdrawn money before the age of 71. At the end of the year you turn 71, you have to convert an RRSP into a registered retirement income fund, or RRIF.

There are normal reasons to withdraw money from an RRSP before 71, including early retirement. Also, you can withdraw up to $25,000 from an RRSP to buy a first home. But the BMO numbers clearly show that RRSPs are often being used for emergency purposes or debt repayment.

The good news here is that BMO’s numbers show a 6 per cent year-over-year decrease in the number of people who have taken money from an RRSP. The bad news is that the average amount withdrawn jumped 23 per cent to $25,779. Worse, 59 per cent of those who made withdrawals either don’t know when they will repay the money or do not expect to do so.

Robert Armstrong, vice-president of multi asset solutions at BMO Global Asset Management, linked the rise in RRSP withdrawals to Canadians getting serious about debt repayment. “As interest rates start to slowly increase, they’re understanding now that their monthly payments for various item are starting to tick higher,” he said.

BMO’s survey results found that 20 per cent of people withdrawing money from an RRSP used it for paying off debts. Another 24 per cent used the money for living expenses, and 15 per cent used it for emergencies. Twenty-eight per cent of people withdrawing money from an RRSP used it to buy a home, while 18 per cent used it for early retirement.

Mr. Armstrong’s advice if you need money and don’t have an emergency fund: “I would always like people to touch their TFSA [tax-free savings account] first, before they start touching their RRSP.”

When you pull money out of an RRSP, you lose that contribution room. You can replace what you withdrew, but this money would count against future contribution room. With a TFSA, you can re-contribute money you’ve withdrawn as long as you follow the rules. Also, RRSP withdrawals are taxed, while TFSA withdrawals are not. Finally, you lose out on long-term compounding when you take money out of an RRSP well before you retire.

Mr. Armstrong sees the RRSP withdrawal numbers as evidence that people don’t have the cash resources to cover higher debt costs or emergencies with savings. “I think we’re living in a society that is house-rich and cash poor,” he said. “A lot of people have not saved enough money on the side.”

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