RRSP contributions continue to plunge: Report

Your RRSP is the best tax break around and now we have the TFSA to help as well.

If you contribute $10,000 to an RRSP and receive a $4,000 refund - do not forget about it in the equation. Imagine if you invested that amount also in a TFSA, after 25 years you would have ~$253,000. When you make withdrawals from your RRSP you can use this money to pay your tax for free.

I contribute monthly to an RRSP so that I'm not in a panic at the last minute. The problem with a lot of RRSP advertising is that it promotes borrowing and contributing large amounts, i.e. $10,000. For someone like myself who makes only a little over $40,000 a year, this is entirely unrealistic. I do manage to contribute approximately $8,000. I think banks need to promote the concept that it's fine to contribute a lesser amount without feeling like a loser. It's not always possible for people to contribute to their RRSP limit. For people like myself who work for small organizations (a non-profit in my case) there will not be big raises in the future. I've made a decision to live a simpler life in order to have job satisfaction so I'll never have the big bucks but I can still save a fair amount for my retirement by being careful. If banks want to encourage people to contribute to RRSPs, they are going to have to start targetting people with modest incomes and that means not scaring them off by suggesting that they need to come up with a mega sum to contribute in relation to their income.

Contribute anything towards your RRSP or TFSA! Of the three variables that affect how much you get back from your investment (interest rate, how long you've been investing, and the amount you've invested), the first two (interest rate and how long you've been investing) are the two key variables. Maximize those, and you'll be a millionaire when you retire without having to put away all that much each month. If you wonder why, go study the wonders of compound interest!

RRSPs are a scam. They give you a tax rebate to lure you in now, but essentiallly you're just writing a blank cheque to a future government down the road who could choose to tax your withdrawals as much as it wants.

At least with the TFSA, the tax is paid, you forget about it, and you don't have to worry about it ever being taxed again.

Also an RRSP often disqualifies you from getting OAS and other benefits, while a TFSA doesn't.

The money available in RRSPs is an illusion because the moment you withdraw funds you are taxed. With government deficits, debt and an ageing poplulation I can only see the tax rate going in one direction ...........up. Personally Id rather pay the tax now, then be worried about a higher tax rate later.

Over the last few decades the Financial Industry has done a great job of educating the public regarding retirement and the value of RRSP contributions, making regular contributions ( bi-weekly etc), and over the years I have seen that $$ amount decline as more investors moved from Fixed Income to Equities.
We finally have historical data that show we do not need as much as we were told to save for retirement.
Another factor that is lost when these figures are sent out is that the baby boomers are going to inherit $ Trillions, from their parents who were largely savers.
They want more out of life than their parents, so rather than wait for retirement before enjoying themselves, they are doing it as they go along.

http://arewethereyetbd.blogspot.com/

some people sound like bumbling idiots..i hear all the time why pay rrsp cause ill be taxed later...duh..if your paying tax its because you can afford to..i work with many people who dont contribute.. yrs later they are NO FURTHER ahead in life while ive used time and compound rates to accumulate $200,00 in rrsp in a somewhat short span ...plus the tax benefit each year...now tell me who is better off?

At present low income group rArely contribute to RRSP because they feel that their chance of getting OAS and other benifits may be compromised. Govt should encourage this low/ mid income group to contribute to RRSP by paying OAS and other related benifits to those who have less than 250,000.00 in RRSP.

I would never encourage anyone to contribute towards an RRSP. As most retireees have commented, when you rtire and want to withdraw from this account, the government takes most of it back in taxes and lowers your pension amount. I strongly urge anyone to invest in a money market, tax free or any other savings that you do not get taxed to death. and can be worry free in your old age.

Do you not understand what an RRSP does. It allows you to invest tax free now when your tax rate is fairly high and then you can withdraw the money, presumably when you retire, at a much lower tax rate. This allows you to receive a tax break now as the money you invest into an RRSP is deducted from your income on your tax return. Then when you withdraw the money you are taxed at a lower tax rate because your income is much lower. Try having the money invested into your RRSP with an automatic withdrawal from your bank account and then you don't even miss the money. It can be as little as $25.00 per month once the RRSP is set up. It's surprising how much money accumulates. You can then buy your mutual funds or other investments over a period of time which averages the price so that you don't get hit so hard when the market fluctuates. Good investment strategy!

Yes, I've done the "rrsp" thing. However, now, I'm thinking I shouldn't have done it and will be pulling it out before retirement so that I can get the full contributions of the government.
However, I DO like the idea of the "tax free savings account"...where you can do $5000/person/year. You don't ever get taxed on that and it doesn't "dock" you from gaining from the government.
In my opinion, unless you are sure to NOT have to rely on the government in retirement...just do the "tax free savings account."

RRSPs really only work for people who earn an income that is significantly above the lowest tax bracket. These people get much bigger refunds when they make their RRSP contributions, and its likely that their income will fall into the lowest tax bracket after retirement so the amount of tax they pay out of their RRSP/RRIF income will be less than the tax they would have paid but for the RRSP contributions they made. The only way this wouldn't work is if the government raises the lowest tax rate (15% federal) up to the current level of the next-highest tax rate (I think it's 22% federal) as the baby boomers retire and start decimating the public pension funds, but I don't think anyone seriously believes that will happen. For people near retirement who earn income in the lowest tax bracket, RRSPs are a complete waste of time as the amount of income these people get from RRSPs is offset by the public pension clawback amounts as others have said. If you're in the lowest bracket, forget RRSPs and plow as much cash as you can into a TFSA. People who expect to retire in 5 years or less and who expect to have less than $100,000 in RRSP savings should consider collapsing their RRSPs before they retire to avoid the pension clawbacks.

I really get a chuckle out of people who talk about OAS clawback.... yes OAS not CPP and how investing in RSP will ultimately result in your OAS being clawed back after 65. The only way your OAS is clawed back is if your income is greater than aprox... 65000. now in order for that to happen you would have to withdrawl 65000 from your RSP every year from 65 until the day you die. assuming you live to 85 you would need to have at the very least over a million dollars in your RSP. You also have to remember that you only are "required" to take a certain percentage of your RSP on an annual basis. The government has now also allowed couples to spilt income in order to have both husband and wifes income in the lowest possible tax bracked possible. This would mean that your 65000 could be 32500 for both husband and wife. This is basic stuff folks.... TFSA's are great investment vehicle but they should be used to compliment an RSP plan no a substitute for it.

The poster who calls himself "Common Sense" above has obviously never heard of the "Guaranteed Income Supplement (GIS)" and has no idea how having modest savings in an RRSP at retirement can work to dramatically reduce or even eliminate ones entitlement to the GIS. The GIS is paid to individual Canadians who generally have no other income beyond their Old Age Security payments and perhaps a small pension. For a single retiree, annual income cannot exceed $15,672 (2009) and the maximum GIS benefit is $652 a month. For couples, all GIS benefits stop at a combined annual income of $37,584. For those eligible for the GIS, each dollar of additional income reduces GIS payments by 50 cents. Since about half of GIS recipients pay income tax, the combined effect of paying tax on the RRSP payments and the reduction of GIS benefits results in an unexpectedly horrendous situation – an effective marginal tax rate of 75 per cent on those RRSP benefits. Call it a clawback by another name. Little wonder that a 2003 study by the C.D. Howe Institute called RRSPs a "poor investment" for those at the lowest end of the income spectrum.

People should also be aware that once the GIS disappears, so do some other benefits like drug and rent subsidies and provincial aid programs. For example, the one-time federal Energy Cost Benefit of $125 was sent to eligible seniors in early 2006 – but only to those who qualified for the GIS.

The take-home message is clear: if you want to maximize your retirement income and you have only a modest amount of cash saved in your RRSP, you should consider cashing in before you retire and using the TFSA to shelter income from tax as TFSA holdings have no effect on entitlement to the GIS.

When the individuals income exceeds the threshold, then a portion OAS must be repaid (clawed back). Currently OAS is reduced by $0.15 for every dollar above $66,335 and is fully eliminated at $107,692.

Remember though, the clawback is based on the income of the individual. If you split pension income with your spouse, the additional income will impact wife/husband's OAS only if the allocation places your spouse above $66,000.

So unless you see both of you with a six-figure pension each year, clawback isn't really much of an issue.

I contribued to my and some to sposal RRSP for years.
I am now retired. Yes I was getting the tax savings etx. I had the Banks and two financial advisors look after my money at different times.
The the tidal wave came and all the tax savings of the years and some of the principal was gone. The advisors were there for their commission and could not do a thing. I hired advisors to help me save my money not lose it.
Bottom line is no RRSPs for me. Many people think when they retire their income will be lower and they will be taxed at a lower rate. Its a myth.
I think the people who are marketting the RRSP's etc are all dependant on the commission they make.

I used to use an investment advisor until I finally woke up and realized that all they really do is (i) offer boilerplate investing advice that you can get from any reputable online source (e.g. MSN Money), and (ii) push their company's own brand of investment products whether they are suitable for a particular investor or not. I dumped my investor years ago and transferred my account to one of the big-bank discount brokerages and haven't looked back since.

No one has talked about when an individual dies yet. If no surviving spouse, the "RRSP?RRIF" is dissolved and cashed in by surviving relative,entire lump sum is added to the deceased person's taxable income. Talk about a big loss. NO RRSP's for me!!!

Why would you not save now because something maybe taken away or clawed back from you later?
What if by the time you get there , there is nothing to be had? Too much of our society worries to much about getting something for nothing. Everyone wants to governemet to pay These are problably the same people who say we should leave no debt for our childern. If everyone is going to get paid I can guarantee by the time the babayboomers are done retirement there will be zero left for our childern and debt for generations to come.
That being said it is sad that you can work your whole life and get no government aid and yet if you
do as little as possible you will be taken care of.
My grandmother told me that she scripmed and saved and by the time she went to spend the money
at retirement, kids had gone without shoes and it would not buy a loaf of bread. Before you get up in arms remember this lady raised her family in the 1930-1940's. The point is that no one knows what will happen. You prepare for the worst and hope for the best. Even if you manage to save a million in 30 years it may take that to pay your expenses for year. We will be unable to plan and save for what we require becasue we just dont know. If we keep valuing products and services not on what it costs to produce but on what someone in the advetising world can convince us we have to pay to have it. Speculators that drive up cost on what they think may happen next year or next week. It has come to the point where supply and demand is dead. Prices are now influenced as much but rumor and speculation as anything else. aAs one small example , If this was not the case the price of oil would not have jumped sky high when Bush said he might invade Iraq. Remember the company that said they lost millions over Tiger Woods? How can we ever hope to know what to save for retirement when these kinds of things are what is driving our markets. Your guess of what you will need is as good as mine....A guess and nothing more.

anything the government wants you to do is bound to be a ripoff down the road.I say enjoy what money you have now.if you don,t have any money when you reach 70 so what. the way the governments work is if you save for tomorrow they will be there to take it away with some bullshit gov tactic. just remember in canada we have an elected dictorship,which can change the rules when it suits them. governments make rules for the pheasants which don,t apply to the gods

No I will not get RRSP's ever again. You pay taxes on the amount when earned then have to pay again when you want to cash in your RRSP's. Double ticketing.Furthermore the bank pays cheap amount when they are using your money and making much more. It's a one sided program.
I don't trust banks or Government anymore.They are one of many rip offs and getting paid for it.

Often we forget the little guy, the SMB, in our discussions of the comings and goings of the Internet marketing industry. Sure there are times like this when a report surfaces talking about their issues and concerns but, for the most part, we like to talk about big brands and how they do the Internet marketing thing well or not so well.

www.onlineuniversalwork.com

You know what. I started this RRSP thing in the late seventies or early eighties. By the time the so call tech bubble hit around 1998, the total value of my saving was reduced by half. It has never ever regained the value in the following decade. By 2009, a good chunk of the value got knocked out again. I say no more RRSP for me. I think the whole thing is a scam perpetualted by the investment industry. These so called advisors are there only to make money for themselves.

RRSP overall is a good thing, it all depends from which angle you are looking from

More Common Sense.... the article is speaking to Canadians 34 and under. My comments were directed to those folks who posted that RSP's did not make sense because of OAS claw back. I am not sure where GIS supplement was brought into the picture?? The GIS supplement is meant for low income seniors, People who unfortunately are in a position where they didn't save enough, starting saving to late.... GIS has a purpose, I hope when I get to that age I won't rely on it, but don't begrudge people who need.. I guess if you are giving advice to a person under the age of 34 whose goal is to be a low income senior you may have point by not investing in RSP's. Most people who invest at a young age are obviously hoping for a retirement that will provide them with an income to live in a lifestyle in which will provide them the luxurys in which they desire in retirement. So is your advice to a 34 year old... spend it all, have fun, party, then qualify GIS at 65?? One of the best things about RSP's that TFSA's don't offer is the tax liability that exists if you take your money out. People think twice about withdrawing these investment knowing they will have to pay income on any withdrawls. RSP's have a true purpose... Retirement!! TFSA for certain individuals can be used for simply savings for trips, vehicles, or retirement. For a well desciplined individual TFSA's would be a better choice, as rarely people invest the tax return they receive from a RSP contrubtion. This article suggests obviously that most individuals are not that disciplined considering contributions are dropping....

Dear "common sense"...you are probably right that alot of people posting here are NOT under 34--myself included in that. However, now, in my early 40's...and it's too late for my husband and myself...we had gone into complete anxiety because of not knowing what we were going to do in retirement. We have both worked hard, but also made mistakes. So, it was nice to hear what "better common sense" was saying. I'm VERY happy for that post.
My best advice to the younger generation...you...if you're making 80 grand a year, at least and STILL spending wisely...then YES, DO RRSP's. However, that means you need an excellent job, from day one of your career. (Some DO have excellent careers...many don't.)
I had to defend "better common sense"...as he had some excellent information.

Thanks for your reponse Lisa.... I didn't mean to say that people under the age of 34 were the ones that were posting here. I simply meant that the article was talking about people under the age of 34 and how they are reducing the amount of their savings. I am not far behind you in age. I worry as well about retirement. I am no expert by any means, but I don't believe 40 is to late to invest. many people are working well into their 60's now. The first book i read on investing many years back was the Weathy Barber. In the book, his very simplistic approach to retirement was investing 10% of your income into something.... TFSA, RSP, GIC's.... whatever. Thats really easy to say, but he goes on to say that whatever that 10% amount is has to be like a bill payment. You have to put this money away first... before Tim Hortons, or fancy cell phones, or suppers out. It is very hard to do in real life though. Retirement is 20 years away assuming I work till 60. Thats a long time. You and I have lots of time, and you don't need to make huge amounts of money to invest in RSP's... to say that the RSP's are a scam (which I am not saying you said) is simply short-sighted. We each will determine what our retirement looks like and have choices that we make daily that will impact how in the end it will actually turn out. As much as government make me mad, I refuse to do nothing now then rely soley on them 20 years from now for OAS/CPP/GIS. I will do the best I can today with the choices I have. The only thing I expect from the Govt is CPP which I contribute to every two weeks... If OAS still exists thats a bonus...but that is it. Cheers!!

Bonaventure is correct that alot of Baby Boomers will be inherting from their parents, but since they also like to spend so freely, how far do you think that money will get them?

My own parents may well end up relying on said inheritance to live when they retire, and I fully expect to receive zero when they pass away. It's not that they've been irresponsible (in the traditional sense of over-splurging) with their money, just that they didn't plan for the contigency of everything not turning out as expected in their lives, i.e. their retirment funds not performing as high, extended economic problems in the region where I grew up, etc. They also knew that there would be an inheritance coming at some point, I don't think it made them greedy, it just failed to instill the heaviness of ones responsibility to save for retirement.

Believe me, when I say I am worried for my generation (the grey area between generations X and Y), from what I have seen many of my peers have adopted the same lassez-faire attitude from their parents, when in actual fact, I think they should be bloody well worried. Gone are the days of relying on CPP and certainly not an employer pension that may be drained by the time you actually retire.

I'm way too risk adverse to rely on money anywhere except from my own pocket when I hit retirement, ending up with too much is certainly more appealing than not enough.

I understand what you are saying "common sense." Just realize that different generations are looking at RRSP's or whatever they get, have, from different perspectives. You sound like you have your head screwed on straight for your age, and have not made many (if any) major mistakes.
Also..."piratekitty" made an excellent point. There are people who THINK they have a large inheritance coming. So, when they're in their 20's' or even 30's, they don't worry. Then, one parent dies saying the child will get a large lump sum. The other parent dies, and there's a small lump sum left. Through no fault of the child, they are now scrambling to figure out where their future finances will come from...because they trusted a parent who told them that they would inherit, without realizing the OTHER parent was thinking completely differently. That's hard.

I am 70 years old, and put my money in rrsp's.
Now let us have a closer look,In the last 2 years I lost$150,000.00 because of the reccession.
I lost buying power,A house would cost $15,000.00 3 bedroom brick same house now $250,000.00
At age 71 you have to take out 7.5% that is taxed. your pension+7.5% puts most people in the 40% tax breaket. So for every $100 received send $40 to the Governement.The Governement did nothing to help Seniors and their losses in the rrsp's. Pay your bills first.