Top Reasons for RRSP Early Withdrawals

Plan sponsors have a good idea of the financial struggles that employees are facing. But did you know that some people are turning to money saved in Registered Retirement Savings Plans (RRSPs) for nonretirement needs? Why don’t they have an emergency fund? Recent research sheds light on reasons your participants may be turning to RRSP early withdrawals when facing a financial need.

Top Reasons for RRSP Early Withdrawals

The International Foundation Financial Education for Today’s Workforce: 2016 Survey Results showed Canadian organizations viewed the top four challenges affecting a significant portion of participants as:

  • Credit cards and other debt (65%)
  • Trouble saving for retirement (57%)
  • Covering basic living expenses (44%)
  • Saving/paying for children’s education expenses (42%).

Compare those with the top four reasons for RRSP early withdrawals according to BMO Financial Group:

  • Home purchase (27%)
  • Living expenses (23%)
  • Emergencies (21%)
  • Pay off debt (20%).

The lists overlap to show debt, living expenses and lack of savings are getting in the way of long-term needs like retirement security. Do financial education programs address these topics? The Foundation survey showed that, no, these weren’t common topics. About one-third or less of Canadian organizations’ financial education included:

  • Savings (39%)
  • Budgeting (30%)
  • Spending (17%)
  • Borrowing (8.5%).

Plan sponsors can play a powerful role in helping workers build their savings to meet short-term and long-term financial needs. Ideally, credit cards are paid off every month, an emergency fund is used for emergencies and unexpected living expenses, and RRSP money is left to grow until the age of 71.

[Related: Ten Ways Behavioral Finance Can Boost Retirement Security]

Unfortunately, we don’t live in an ideal world. The data shows people don’t have emergency savings to draw on when they have financial struggles. The complex reasons for these challenges are beyond the scope of this blog, but one issue is a culture focused on spending. It’s more fun to spend today than save for the future. Future self isn’t going to have a home or car repair, right?

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Also, we can see spending, but we can’t see savings. One example of how we see spending is the instant gratification from a tangible credit card reward. A report by Claritas Financial and Value Penguin showed more U.S. households participate in at least one credit card rewards program than use any type of retirement savings vehicle.

One idea to bring to your participants: Spend less, and turn that amount into automatic savings.

When you talk about spending reductions in your financial education program, stay away from the term “budget,” or at least offer a different way to think about a budget. Budgeting to spend less is like counting calories to lose weight—It sounds like an unpleasant task and people don’t do it. Try some different language—something participants can picture in their heads. For example:

Helpful: I will eat dinner out once a month. I will order one glass of wine with the meal.

Not helpful: My dining out budget is $100 per month.

[Related: Financial Education/Retirement Security—Free resources for plan sponsors in Canada]

Turn the spending reduction into an automatic transfer from a paycheque or regular account into a savings account. A goal of three to six months of income saved to an emergency account may feel overwhelming. Encourage participants to take a baby step to start saving something. You can make it as easy as possible for them with the way you design your paycheque deposit form—Make sure the form has spaces for a both a chequing account and savings account to remind them to start saving.

Jenny Lucey, CEBS
Manager, Reference/Research Services at the International Foundation


Jenny Gartman, CEBS

Manager, Reference/Research Services at the International Foundation

Favorite Foundation member service: Personalized Research Service

Benefits topics that interest her most: mental health, work/life benefits, retirement readiness of different generations

Personal Insight: Jenny gets things done. She started working on her CEBS just over two years ago. Welcoming her daughter into the world during this time frame did not slow her down—she recently completed her last exam and earned her designation. When she’s not working or studying she enjoys family playtime, knitting and exercising.


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