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RRSP contributions remain steady

(Special) - Canadians RRSP contributions this year were slightly higher than the previous year but still remain far below the maximum.

A survey by BMO Financial Group has found that 65 per cent of Canadians made a contribution to their RRSP before the deadline, a slight increase over the 62 per cent who made a contribution the previous year. The average value of this year's contributions, however, was down slightly to $3,518 from $3,544 the previous year.

When asked about the amount of money they contributed, the study found that two-thirds wished they had been able to contribute more this year. Fifty-four per cent said they contributed as much as they could, 49 per cent were confident the amount they contributed leaves them on track to realize their ideal retirement lifestyle, and 35 per cent said they could have contributed but didn't.

"It is encouraging that more than half of Canadians feel that they contributed as much as they could this year, however it's unfortunate that so many wished they could have contributed more," says Chris Buttigieg, senior manager of wealth planning strategy with BMO Financial Group. "Although it may seem like a big commitment, Canadians should know that contributing to an RRSP doesn't necessarily take a lot of time or money. Establishing a financial plan, which includes a budget, is a great way to achieve financial goals and earmark fund for retirement savings."

The government set up Registered Retirement Savings Plans in 1957 as a vehicle for Canadians to save for their retirement, but more than five decades they later have not used it to their fullest and now are sitting on some $600 billion in unused contributions.

Part of the reason is that many people have a lot of other priorities such as a mortgage, children's education, cars, entertainment and travel and simply don't have the income to be able contribute the maximum.

Many Canadians consider real estate a good investment that they can use for their retirement. An RBC home ownership poll found that 86 per cent of Canadians aged 25 to 34 believe owning a home or condominium is a solid investment, up from 78 per cent last year.

Whether it is better to buy a home and use your money to pay down the mortgage as opposed to putting it into your RRSP is a tricky one that will depend on your individual circumstances, debt levels and interest rates.

Money contributed to an RRSP grows tax-deferred, so over the long-term it provides an opportunity to accumulate wealth. And contributions can result in a tax refund which can be used for other purposes such as paying off debt or being reinvested into your RRSP for retirement.

Over the long term, real estate tends to increase in value and can be a good investment but there are a lot of costs associated with owning a home, for example, such as taxes, repairs and property maintenance that can add up over time. Investments in an RRSP tend to be more passive although brokerage and management fees can apply.

The BMO study found the top RRSP investment choices for Canadians were mutual funds (49 per cent) followed by Guaranteed Investment Certificates (35 per cent), bonds (18 per cent), stocks (17 per cent) and exchange traded funds (12 per cent).

Financial professionals advise people to do an analysis of their retirement - what do you want to do, how much will you need to maintain that lifestyle and then how are you going to pay for it - and then create a budget that includes money for your retirement fund.

"The key is to plan ahead and put aside an amount that you're comfortable with, even if it's a modest sum," Buttigieg says. "Establishing and sticking to a financial plan, which includes a budget, is a great way to achieve financial goals and earmark funds for retirement savings. You'll be pleasantly surprised at how quickly your retirement nest egg will grow over time."

Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.

Copyright 2014 Talbot Boggs

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