Raiding Your Piggy Bank
Could that “interest-free loan” from your RRSP come back to bite you?
On the surface, it feels like a win—you borrow your own money, avoid paying interest, and solve a short-term problem. But what if dipping into your RRSP today quietly steals from your tomorrow?
Let’s unpack how these RRSP withdrawal programs really work, why they were created, and what long-term impact they might have on your retirement dreams.
Why RRSP Withdrawals Were Created
RRSP withdrawal programs were designed to help Canadians in tight spots.
Back in the day, when the government needed to stimulate the economy but didn’t have the cash, they came up with a clever workaround. Programs like the Home Buyers’ Plan (HBP) and the Lifelong Learning Plan (LLP) were born—tools that let Canadians borrow from their own RRSPs, interest-free.
The goal? To make home ownership and higher education more accessible, without spending taxpayer money. It felt like a generous gesture—your money, your use, no penalties (if you follow the rules).
But there’s a hidden cost most people overlook: the opportunity cost of what that money could’ve become.
The Temptation of Available Cash
It’s hard to resist money that’s already in your hands.
Emma and John, a young couple from Winnipeg, dipped into their RRSPs for a down payment through the Home Buyers’ Plan. “We figured it’s our money anyway,” John said. “Why not use it now?”
Here’s the catch: they didn’t pay it back quickly. Life happened—kids, daycare, car repairs—and before they knew it, their repayment schedule fell apart. The withdrawn amounts started being added to their income, taxed, and their retirement savings took a serious hit.
This isn’t rare. In fact, according to the CRA, a huge chunk of RRSP withdrawals each year are never repaid.
The True Cost of Raiding Your Retirement
Borrowing from your RRSP has a price that isn’t on the receipt.
Let’s say you withdraw $20,000 at age 30 and don’t replace it. That $20,000 might have doubled every decade, becoming $40,000 at 40, $80,000 at 50, and over $160,000 by 60—assuming an average 7% annual return. That’s a massive loss for one short-term decision.
Now imagine doing this more than once. You’re not just borrowing money—you’re borrowing time, growth, and financial peace in your golden years.
RRSPs are meant to grow tax-sheltered for decades. Raiding them early is like pulling fruit from a tree you just planted.
Delayed Gratification Pays Off
The pain of discipline beats the pain of regret.
Saving for retirement is hard because the reward feels so far away. But remember the Marshmallow Test? Those who waited, gained more.
If you avoid withdrawing from your RRSP—even when tempted—you’re choosing future comfort over today’s craving. Think of your future self as someone you love. Would you take from their wallet?
The answer is probably not. So let’s protect those long-term gains.
Alternatives Before You Withdraw
Explore every other option first.
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Use a Tax-Free Savings Account (TFSA):
These accounts let you withdraw any time, tax-free, and don’t require repayment. Many Canadians treat them like emergency funds.
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Try a line of credit or low-interest loan:
It might seem counter-intuitive to borrow when you have savings, but preserving RRSP growth can be worth the cost.
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Use free budgeting apps from your bank:
Most Canadian banks now offer excellent budgeting tools that help you find savings in your everyday spending.
Try tools like Mint (now part of Credit Karma), or check your bank’s mobile app for built-in budgeting features.
When It’s Worth It
Sometimes borrowing from your RRSP makes sense—but only with a plan.
If you’re facing an emergency or using an RRSP withdrawal to invest in something with long-term payoff—like a home or education—it might be a worthwhile trade. But commit to a repayment plan from day one.
Emma and John eventually did this. After a financial wake-up call in their late 30s, they doubled their repayments, rebalanced their budget, and committed to rebuilding. Today, they’re back on track and sharing their story so others can learn.
So yes, sometimes you can dip in—just don’t dive in without a ladder out.
Action Steps to Protect Your Retirement
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Before withdrawing, run the numbers:
Use a compound interest calculator to see what you’re giving up. Here’s a great one: Investor.gov
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Set a strict repayment plan:
Even if the CRA gives you years to repay, aim to return the money in 1-2 years max.
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Rebuild your RRSP as soon as you’re able:
The longer the money stays out, the more you lose.
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Talk to a financial advisor:
Or use free tools and planners from Manage Your Money.
Final Thoughts
Think twice before you borrow from your future.
We get it—life throws curveballs, and sometimes you need cash fast. But remember, your RRSP isn’t a piggy bank for short-term splurges. It’s your lifeline for a dignified, secure retirement.
With the right mindset and a little planning, you can avoid raiding your savings and build a life that balances today’s needs with tomorrow’s dreams.
Your future self will thank you. And maybe, just maybe—you’ll still get that marshmallow 🍬.
In my E-books (“Water Barrel” and “The Balance”) I discuss simple methods to live sensibly for today, take charge of your financial affairs, and invest safely for the long term. For more information please visit David Penna Amazon.
Disclaimer for ManageYourMoney.ca
The information provided on ManageYourMoney.ca is intended for educational and informational purposes only. It should not be taken as financial advice. The opinions shared are those of the authors and are meant to encourage sensible financial habits and decision-making. We recommend that you do your own research or consult a certified financial advisor before making any financial or investment decisions. All investments come with risks, and there is no guarantee of success. Past performance is not a reliable indicator of future results. Always consider your personal financial situation and risk tolerance before pursuing any investment opportunities.
As always, we are not a qualified financial advisors. We just relate financial management to our own experience which may not resemble yours at all. Advice is frequently worth exactly what you paid for it. Most of ours came from expensive experiences.
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