Only half of younger Canadians know their RSP funds can be used to buy a first homeWe often attempt to compare ‘retirement planning protocols’ of other countries, to reflect on how consumers around the globe perceive their own income-planning challenges. Here, we look at the Canadian ‘Retirement Savings Plan’ (RSP).
TORONTO, Jan. 18, 2016 /CNW/ – Millennials may be making it harder for themselves to buy their first home or go back to school as a mature student because many don’t know a retirement savings plan can also be a ‘fund with benefits’, helping fund important milestones in life, long before retirement.
As a new survey from TD has found, only half (50 per cent) of Canadians aged 18-33 know that money in an RSP can be used to help purchase their first home and barely a quarter (28 per cent) know RSP funds can help pay for full-time education or training as a mature student.
“Saving enough money for a down payment on a home can be difficult for many younger Canadians, so the ability to withdraw up to $25,000 from an RSP, or up to $50,000 for a couple, can help make it easier,” said Linda MacKay, Senior Vice President, Personal Savings and Investing at TD Canada Trust. “Building up an RSP from the earliest possible moment not only helps you save on income tax now, but could also help get you into your first home more quickly and lower your monthly mortgage payments down the road.”
Enter the ‘Lifelong Learning Plan’
MacKay notes that any money withdrawn from an RSP to buy a home must be repaid over the next 15 years or it will be taxed as annual income, whereas money withdrawn as part of a Lifelong Learning Plan – up to $20,000 over a four-year period – must be repaid within 10 years.
The TD survey found that almost one-third (32 per cent) of millennials admit they are “not at all knowledgeable” about RSPs. For those who are not saving enough for retirement, more than 40 per cent say they can’t afford to contribute right now because there are too many demands on their money, while more than a quarter (28 per cent) say they’re currently saving for other priorities.
According to the survey, many millennials are unaware that RSP funds cannot be used for other items such as making a charitable donation (64 per cent), paying childcare expenses (60 per cent), financing a car (52 per cent), making a personal loan (51 per cent), renting an apartment or purchasing a second home (50 per cent). Half (50 per cent) of all millennials surveyed correctly identified that RSP funds can be used for first time home purchase, although just 28 per cent were aware they can be used to fund full-time education as a mature student.
“It’s easy to see how younger Canadians find it difficult to make regular RSP contributions when there are so many things they want to save for now,” said Lee Bennett, Senior Vice President, TD Wealth Financial Planning. “But knowing you can use part of your RSP for some more immediate priorities, in addition to reaching your long-term financial goals, can make it easier to redirect at least part of your savings into one.”
Pros & Cons
Bennett says there are pros and cons and long-term implications of using RSP funds to buy a home or pursue further education, including giving up the potential growth of RSP savings until that money is repaid into the plan. As with any significant investment decision, she recommends investors consult with a financial planner who can help explain what’s best for each individual.
MacKay agrees, adding that it’s important to have a bit of know-how and understand clearly what an RSP can – and cannot – be used for in order to avoid incurring tax penalties for improper withdrawals and to be able to maximize the amount of money that can be saved. She says this applies particularly to millennials who, as the TD survey shows, have many misconceptions about how an RSP fund can be used.
To learn more about Retirement Savings Plans, please visit here.
About the TD Funds with Benefits Survey
The TD Poll surveyed 2,115 respondents 18 years or older (of which 613 were between 18-33 years of age and considered Millennials) from across Canada and was conducted using an online methodology by Environics Research between Friday, October 30th and Thursday, November 5th, 2015.
About TD Canada Trust
TD Canada Trust offers personal and business banking to more than 11.5 million customers. We provide a wide range of products and services from chequing and savings accounts, to credit cards, mortgages and business banking, plus credit protection and credit travel medical insurance, as well as advice on managing everyday finances. TD Canada Trust makes banking comfortable with award-winning service and convenience through 24/7 mobile, internet, telephone and ATM banking, as well as at over 1,100 branches, with convenient hours to serve customers better. For more information, please visit: www.tdcanadatrust.com. TD Canada Trust is the Canadian retail bank of TD Bank Group, the sixth largest bank in North America.
About TD Wealth Financial Planning
TD Wealth Financial Planning is a division of TD Waterhouse Canada Inc., a subsidiary of The Toronto-Dominion Bank. As of November 30, 2015, TD Wealth Financial Planning included 887 advisors offering a diverse range of services to 359,745 clients and $48.6B assets under management.