Some interesting statistics on savings for the Home Buyer’s Plan in Canada from our friends at Zoocasa
Using the HBP comes with the caveat that RRSP funds must be saved in the first place – not always an easy feat in markets where incomes haven’t kept pace with housing prices and other inflationary pressures.
With this in mind, how long would it actually take for home buyers across Canada to save the maximum $35,000 in their RRSP to put toward a new home?
To find out, Zoocasa analyzed individual income thresholds in 14 regions across Canada, based on 2017 tax filings from Statistics Canada, assuming the income was earned income, eligible to create RRSP contribution room, and that individuals contributed the maximum to their RRSP annually (18% of earned income, to a maximum of $26,500). The study also compared how long it would take for those in the top 50%, 25%, and 10% income groups to save $35,000.
The study finds that for those earning median incomes across Canada, it would take between 4.3 – 6.0 years to save $35,000 for the HBP.
It would take those looking to buy Ottawa real estate the least amount of time to save; due to the city’s strong public service and government sectors, median incomes are higher than in other major regions at $44,700, making it possible for savers to set aside a maximum of $8,046 annually. In contrast, it would take the longest in Toronto, where the median income is comparably lower at $32,600, allowing for a maximum RRSP contribution of $5,868.
Those timelines are roughly halved for those earning within the top 25% of incomes to between 2.5 – 3.3 years. Montreal residents will be saving the longest, due to an income of $58,100, allowing for a contribution of $10,458, while the shortest timeline is again in Ottawa, with incomes of $79,100 and a maximum contribution of $14,238.
However, it would take those in the top 10% of income earners just 1.6 – 2.2 years to set aside $35,000; again, the longest timeline occurs in Montreal, with an income of $88,400 and a maximum contribution of $15,912. Meanwhile, those earning $122,300 in Calgary face the shortest timeline to put funds away, as they’re able to make a contribution of $22,014 annually.
Check out the infographic below to see how long it would take to save $35,000 in an RRSP across Canada:
Methodology
Benchmark home prices and average home prices for December 2019 were sourced from the Canadian Real Estate Association (CREA). Income groups and income thresholds by metropolitan area are based on 2017 tax filings and were sourced from Statistics Canada. The annual RRSP contribution limit is 18% of earned income, up to a maximum of $26,500, as set out by the Government of Canada.
For the purpose of this report, the income amount was assumed to be earned income, and thus eligible for calculating RRSP contribution room. The maximum withdrawal limit from RRSPs for the Home Buyers’ Plan is $35,000, as set out by the Government of Canada. The number of years it takes to save $35,000 in RRSPs is calculated as $35,000 divided by the annual RRSP contribution limit.