Canadians are withdrawing more money from their retirement savings to pay for short-term expenses despite the tax consequences, according to a new bank survey.

About 40 per cent of the 1,500 people polled online in December by the Bank of Montreal (BMO) said they have made a withdrawal from their RRSP.

The average amount withdrawn from retirement plans in 2017 was $20,952, which is nearly 22 per cent more than the average amount of $17,213 taken out in 2016.

"We've seen a steady increase in the amount of money Canadians are withdrawing from their RRSPs to meet short-term needs; this should be considered only as a last resort," said Robert Armstrong of BMO Global Asset Management.

"There are tax consequences associated with withdrawing from your RRSP, so be sure to consult a financial professional to ensure you have exhausted all other options that may be available to you," he said.

Reasons for withdrawing

Buying a home was the most common reason given for withdrawing money, cited by 27 per cent of respondents.

Other reasons include:

To help pay for living expenses (23 per cent).

For emergencies (21 per cent).

To pay off debt (20 per cent).

Canadians who withdraw money from RRSPs for the purpose of buying a new home or paying for continuing eduction may qualify for programs like the Home Buyers Plan or the Life Long Learning Plan, which could reduce the penalty for early withdrawal.

But those who take money out for any other purpose would be taxed for the amount withdrawn at their current income tax rate.

'Expensive' penalties

Personal finance expert Rubina Ahmed-Haq said most people taking money out of their plans are not fully aware of the implications.

"Before you withdraw money from RRSP for any reason other than retirement, really crunch the numbers," she said. "I think people would be surprised by how expensive it is from an income tax penalty perspective."

With consumers holding a record amount of debt, especially in big cities like Vancouver and Toronto, where they might be feeling "stretched to their absolute limit," taking money out of retirement plans can be really tempting, said Ahmed-Haq.

"If they have been diligently saving in their RRSP and they're really struggling to make their bills meet, they might look at that chunk of change and say why don't I take $10,000-$20,000 out of here and just ease my burden a bit on the other side," she said.

But then they lose out on what they've been saving, she said.

And plans to repay that money to the plan often fall short.

"When you borrow from your RRSP, you're borrowing from yourself, and there's no one knocking on your door saying, 'Hey, you borrowed $20,000, now give it back,' because you've taken it from you own account."

She recommends looking at other ways to access money like taking a short-term low-interest loan or using a line of credit as a more "financially sound" way to deal with financial problems.

"That also puts you on a payment plan, so it makes you a little bit more accountable for the money that you actually borrowed," she said.

Withdrawals by region

The lowest average amount withdrawn was $12,374, in the Prairies, with paying for living expenses cited as the main reason; the highest was $23,505, in Atlantic Canada, where the most common reason given by respondents was to buy a home.

On top of withdrawing more money from retirement plans, more than one-third of respondents in the survey said they are not planning to contribute to their RRSPs this year.

The top reasons given:

They don't have enough money (44 per cent).

They are paying off debt (25 per cent).

They have other things to spend money on (21 per cent).

More than half of the respondents — 59 per cent — said they're putting money into their savings account and keeping it as cash.

Knowledge about RRSPs was down slightly in those surveyed, to 79 per cent from over 80 per cent in the previous year.

The online survey of 1,500 adult Canadians by BMO was conducted by Pollara Strategic Insights between Dec. 21 and 28, 2017. A random sample of this size would yield a margin of error of plus or minus 2.5 per cent, 19 times out of 20.