As the name implies, a registered retirement savings plan (RRSP) is for your retirement. However, it can be tempting to take the savings out before your retirement date. After all, it is your money!

There are plenty of reasons why it’s not a good idea to withdraw from your RRSPs early. (Cue: hidden costs!) But are there good reasons to cash in your RRSP before you retire?

When is a good time for early RRSP withdrawals?

There are two well-known reasons for early RRSP withdrawals:

  1. To buy or build your first home (with the Home Buyers Plan, or HBP).
  2. To go back to school (with the Lifelong Learning Plan, or LLP).

Two more reasons you may want to raid your RRSP

There are two other valid reasons why you may need to raid your RRSP. And, while we’re not endorsing these scenarios, the options may be worth discussing with your advisor.

Reason #1: You’re taking a phased-in approach to retirement

Let’s say you’re 63 and you’ve cut back your hours at work. How might that play out?

Your income

Your employment income is reduced. But you don’t want to start receiving your Canada/Quebec Pension Plan or employer pensions early at a reduced rate. And you’re too young to start receiving Old Age Security.

Your options

You could convert your RRSP to a registered retirement income fund (RRIF) or a payout annuity. After all, you’ll have to do that no later than the end of the year you turn 71, anyway.

But you might not yet want the amount of ongoing income that RRIFs and annuities provide.

A solution that may work for you

You’re looking for “bridge” income to supplement any employment income or personal savings you have.

In this case, a lump-sum or regular scheduled withdrawals from your RRSP might make sense.

Things to keep in mind

  • Lump-sum RRSP withdrawals don’t qualify for the $2,000 Pension Income Tax Credit. But, annuity income from an RRSP does qualify if you’re 65 or over.
  • If you’re 65 and over, RRIF income also qualifies for the tax credit.
  • When you’re under 65, withdrawals from your RRSP and RRIF receive the same tax treatment as annuity or employment income.

Reason #2: Your health is a major concern

Talk to your family about your wishes, and your advisor about your options for your RRSP if you:

  • don’t expect to reach retirement age, and
  • don’t have a spouse who is the beneficiary of your RRSP.*

*(A spouse named as RRSP beneficiary can receive the entire RRSP balance without paying tax, if they transfer it directly to their RRSP or RRIF.)

Talk to a professional before making RRSP withdrawals 

Choosing to take money out of your RRSP early is a big decision. And a complicated one. So, it’s best to talk to your advisor before you do anything drastic. Don’t have one? Find a Sun Life advisor today.


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