RRSP contributions continue to plunge: Report
Having trouble coming up with an RRSP contribution this year? Well, you’re not alone.
Citing economic conditions as the main reason, a recent Royal Bank survey suggests that just 35 per cent of Canadians have contributed to or plan to contribute to an RRSP this year – the lowest percentage of contributors since 1996.
And this isn’t likely to change anytime soon, according to a recent RBC Economics study which predicts that the amount of money going into RRSPs is likely to decline sharply over the next 10 years.
The decline in RRSP contributions can largely be pinned on changing demographics, according to RBC’s research. However, it’s important to note that steady increases in contribution limits and scrapping the cap on carry-forward room also spurred savings in the past.
Historically, the savings patterns of Canadian age groups suggest that those aged 34 and under are the least likely to make RRSP contributions, RBC reports. Contributions rise between the ages of 35 and 55, at which point they decline.
Despite the fact that most many people have tens of thousands of dollars in unused RRSP room, “the projections suggest that the declining trend in the ratio of total RRSP contributions to disposable income that began in 1998 will continue through 2020,” the report says.
And, to add to the confusion, even if you do have the money to work with you may get more bang for your buck by ploughing future savings into a tax-free savings account rather than an RRSP, says the C.D. Howe Institute.
Do you plan on contributing to your RRSP this year? If not, why?
By Gordon Powers, MSN Money
Posted by: Paul Lambe | Feb 3, 2022 9:33:00 AM
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.
Posted by: Maureen M | Feb 3, 2022 10:37:40 AM
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.
Posted by: Dan | Feb 3, 2022 10:52:11 AM
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!
Posted by: FrankTalker | Feb 3, 2022 11:05:01 AM
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.
Posted by: Random | Feb 3, 2022 11:16:43 AM
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.
Posted by: Bonaventure | Feb 3, 2022 11:19:24 AM
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/
Posted by: will live comfortable when i retire | Feb 3, 2022 12:03:01 PM
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?
Posted by: bala | Feb 3, 2022 12:28:05 PM
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.
Posted by: sue hepburn | Feb 3, 2022 1:01:22 PM
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.
Posted by: Are you kidding! | Feb 3, 2022 2:10:09 PM
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!
Posted by: Lisa | Feb 3, 2022 2:48:50 PM
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."
Posted by: Sword of Damoclese | Feb 3, 2022 2:58:58 PM
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.
Posted by: Common Sense | Feb 3, 2022 4:04:33 PM
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.
Posted by: Better Common Sense | Feb 3, 2022 4:45:12 PM
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.
Posted by: retired someday | Feb 3, 2022 4:58:34 PM
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.
Posted by: isa | Feb 3, 2022 4:58:43 PM
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.
Posted by: advisor free | Feb 3, 2022 5:14:25 PM
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.
Posted by: john | Feb 3, 2022 5:34:20 PM
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!!!
Posted by: Don | Feb 3, 2022 5:53:19 PM
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.
Posted by: Dave Stevens | Feb 3, 2022 6:45:38 PM
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