Canadians, it seems, finally may be getting the message that they need to save more for their retirement.
Some recent reports from BMO, RBC and tax expert H&R Block indicate that more Canadians are holding RRSPs and Tax Free Savings Accounts (TFSAs), are contributing more to them and would prefer to tuck money away for retirement than reduce current debt levels.
A survey for H&R Block found that 81 per cent of Canadians believe RRSPs are a good way to save for retirement. Most consider their RRSP savings off limits and 75 per cent would like the government to guarantee RRSP contributions the way bank accounts are guaranteed.
An RBC poll found that 59 per cent of Canadian adults now own an RRSP, up from 55 per cent in 2012, and the amount they planned to contribute by the March 3 deadline had risen to an average of $4,653, up about $500 compared to the previous year.
The poll indicates that younger Canadian adults aged 18 to 34 in particular are showing more attention to RRSPs. Half of them now own an RRSP, up 10 per cent from 2012, and their planned contribution amount increased by 39 per cent to an average of $4,329 compared to $3,104 in 2012.
Canadians currently have more than $600 billion in unused contributions to their RRSPs. Three-quarters of people in the RBC poll indicated that they wouldn't be making the maximum allowable contributions this year.
Most Canadians have a lot of other priorities in life like a mortgage and children's education and simply don't have the income to be able to contribute the maximum.
"This is not necessarily a cause for concern," says Richa Hingorani, senior manager, financial planning support with RBC Financial planning. "Maxing out your contribution at the start of the year is great if you can afford it, but for most Canadians regular contributions throughout the year is a more realistic and effective approach. By building RRSPs into your cash flow you can start small and adjust as you go and by making regular contributions you ensure that time and compounding growth work to your advantage."
Canadians also are jumping on the TFSA bandwagon.
A BMO report shows that almost half of Canadians had a TFSA in 2013, up 23 per cent from 2012 even though many people still are unfamiliar with the specifics of the program.
TFSA holders plan to contribute an average of about $3,600. Adoption is strongest in Western Canada and seniors aged 65 and older are more likely to have an account than Canadians in other age groups.
Canadians identified not having to pay tax on withdrawals and the ability to withdraw funds at any time as the key benefits of the TFSA. They are being used most often as a vehicle to save for retirement and as an emergency source of funds.
"When first introduced in the 2008 federal budget, the TFSA was described as a 'tax policy gem' that was good news for the country," says Christine Canning, head of everyday banking with BMO. "Given the impressive adoption rate it is clear Canadians tend to agree, however work still needs to be done to raise knowledge about the program."
And finally, reversing last year's ranking, more Canadians are citing saving for retirement as a top financial priority compared to those who are prioritizing paying off debt, an annual RBC RRSP poll has found.
Fifty-two per cent of Canadians now are focusing on increasing their retirement savings and 48 per cent are placing a priority on debt reduction compared to 44 per cent and 54 per cent respectively in the 2012 poll. The reversal of financial priorities is more pronounced among middle-aged Canadians between 35 and 54 years old.
"The findings indicate Canadians are more comfortable with how they are managing their debt and this is allowing them to focus more strongly on retirement savings this year," says Bill Hill, national retirement planning consultant with RBC. "To help ensure those savings will support the retirement they have in mind we recommend they review their lifestyle and financial goals with a financial adviser as early as possible."
Talbot Boggs is aToronto-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
