With files from Sean Cooper
Each year, the Registered Retirement Savings Plan contribution deadline looms – and each year, it’s apparent that Canada is a nation of RRSP procrastinators.
According to a poll released by CIBC, one third of Canadians (this writer included) have left their planned contributions for the 2013 tax year to the last minute.
“Our poll shows that once again, the last few days before the contribution deadline are going to be busy, as millions of Canadians make their final decisions about investing in their RRSPs,” says Christina Kramer, executive vice president of Retail and Business Banking at CIBC.
Of those hemming and hawing in the lead up to the deadline, 16 per cent have contributed but plan to funnel more into their RRSPs while 15 per cent haven’t yet contributed anything for the 2013 tax year.
Leaving Money on the Table
Although the majority of Canadians who contribute to their RRSP wait until the final hour, at least they contribute. Only 26 per cent of Canadians contributed to their RRSP in 2010, according to Statistics Canada. For the Canadians that actually contributed, they contributed a total of $33.9 billion in 2010. That sounds impressive, until you hear that Canadians could have contributed a whopping $717 billion. That’s $683.1 billion in RRSP contributions left on the table – not chump chance by any stretch of the imagination.
Avoid The Last Minute Cash Crunch
Turns out, the biggest hurdle for RRSP contribution is coming up with the cash – many savers are failing to plan ahead for their contribution. “Some Canadians find it difficult to come up with a lump sum for their RRSP, underscoring the importance of creating a budget and a regular savings plan for the year ahead to avoid the last-minute crunch,” says Kramer.
But here’s the kicker – setting up regular automatic transfers to your RRSP can be a lot more manageable than scraping together a lump sum at the last minute. Even contributing $50 a week can really add up – that’s $2,600 a year towards your RRSP! If you contribute $50 a week from age 35 to age 65, with a modest rate of return of 5 per cent you’ll have $252,879.80 when you retire. If your employer offers an RRSP, even better – you can receive the tax deduction immediately and take advantage of the power of compounding.
Says Kramer, “Our research shows that less than one third of Canadians have a regular investment plan for retirement, which highlights how important it is to set up regular contributions for next year when you make this year’s contribution.”
Younger Savers Slow To Start Contributions
The advent of online and phone banking have helped add to the convenience of contributing, but the common concern, especially among young people, is sorting out where the money is going to come from.
Half of Canadians aged 18 to 24 still have to make a contribution for the 2013 tax year and 22 per cent of people aged 25 to 44 have yet to make a contribution.
This group is also facing steep student debt, making it all the more difficult to find the cash for RRSP contributions, but Kramer maintains that retirement planning needs to be part of the bigger picture.
“Canadians balancing debt and savings need to consider both sides of their finances when making decisions about retirement savings, which is what makes it even more important to spend some time evaluating their options before the deadline,” she says. “While there are only a few days left until the contribution deadline, there is still time to sit down with an advisor and talk about which retirement savings option is right for you.”
Find Your RRSP Risk Tolerance
Thirteen per cent of Canadians won’t invest in their RRSPs due to market volatility. Although the market has its upswings and downswings, through proper diversification and asset allocation your portfolio should grow long-term. It’s important to have a balance of equities and bonds – when equities are down your bonds will most likely be up and vice-versa. Your financial advisor can help you set up an investment portfolio that meets your risk goals without keeping you up at night. Don’t be an RRSP procrastinator – contribute all year round!
Advice For The Procrastinators
Short of talking to a financial planner, there are other ways to stay on track with your contributions.
– Add money in small increments throughout the year. Every little bit counts.
– Set goals and reward yourself for reaching those benchmarks.
– Set up auto-transfers online to make contributions for you.
– See if your workplace has a system for making contributions directly from your pay cheque.