By Richard Bloom
The Globe And Mail
RRSP 2005 Special Report
Wednesday, January 19, 2005
Almost $300-billion of contribution room is going begging, leaving Canadians with hard choices, writes RICHARD BLOOM
The numbers are mind-boggling. While the number of Canadians creating registered retirement savings plans (RRSPs) and contributing to them has risen exponentially since the program's inception in 1957, the actual amount sheltered, by comparison, has been paltry.
Adrian Mastracci, investment counsel at Vancouver’s ‘fee-only’ KCM Wealth Management, says, "Do you want to have things within your control or do you want to be at someone's mercy? I'm from the school that I like to have some control over my destiny.”
Of the nearly $310-billion in RRSP room available to Canadians in 2003, $27.6-billion was plunked into the accounts -- representing a mere 9 per cent, according to recent data from Statistics Canada.
Why? "It's easier said than done," says Michelle Kosar, a 29-year-old food-industry sales representative, who had put "a couple of thousand dollars" a year into her RRSP since graduating from university but put it on hold in 2002 and 2003 as other expenses took precedence. "Last year, we were married and paid off those bills. Then we bought the house, then the washer-dryer broke down, then it was the fridge breaking down. I don't even know what I did with my bonus last year, but I know it didn't go into my RRSPs."
Ms. Kosar, who values her RRSP portfolio at around $25,000, said that will change this year -- she enrolled in her company's recently introduced payroll deduction and matching program. She plans to put a portion of the $5,600 after-tax annual bonus into the account. Still, that's also nowhere near the $24,000 maximum she's eligible to contribute, tax free, before the March 1 deadline.
Ms. Kosar's situation isn't unique.
Experts agree that even though Ottawa has been regularly ratcheting up the maximum RRSP room available in recent years, most Canadians just don't have the means to dole out that much cash.
What's more, as more people put off costly decisions -- such as buying a house, getting married and starting a family -- until later in life, retirement just isn't on their radar.
"At the end of the day, people don't have any money left," says David Trahair, author of Smoke and Mirrors: Financial Myths That Will Ruin Your Retirement Dreams.
"They don't have any money left over after paying for the kids, education, travel and clothing, food, paying the mortgage and two cars for work," he explains.
"They're perhaps at the peak of their earning years so taxes are at their highest and they're making CPP and EI payments, as well."
He says that "the ultimate weapon" in planning for retirement is to keep precise records of day-to-day spending. That, in turn, will translate into knowledge of where cuts can be made and how much can be earmarked for savings."
He also advises clients to pay down debts first, then jump into an RRSP.
John Bennett, vice-president of financial products and services, disagrees with the thinking that people don't have enough money to save for retirement.
People are shocked when they see that putting a small amount aside on a regular basis, beginning as a young adult, can translate into a substantial portfolio decades later, he says. "A lot of people tend to focus on this large body of investment knowledge they need to know . . . you don't create wealth by knowing what to buy, you create wealth with what you do -- paying down debt and buying RRSPs.
"They get caught up in this complexity of financial investing when that's a tiny portion of what they need to worry about."
Lew Johnson, a professor of finance at Queen's University in Kingston, Ont., says many people are of the "I'll get around to it" frame of mind when it comes to retirement planning. In reality, he says, they either never do, or when they do, it's too late to save the amount needed for a comfortable retirement.
"There are fears that many [baby] boomers won't have the pensions they've planned for, even though it's sitting there right now," Prof. Johnson explains, noting that scores of pensions are underfunded and that while a pension is usually protected if a company goes bankrupt "it's not 100 per cent." (People enrolled in pensions can also have RRSPs but the maximum contribution level is lower.)
That's why, Prof. Johnson says, it's necessary to educate people when they're teenagers about the alternatives to pensions, such as RRSPs.
"Start them young, start in high school," he says. "Give them some basics of financial markets, including retirement planning so that those who don't go onto to further education will have, at least, a foundation to do some life planning."
For Adrian Mastracci, president of Vancouver-based KCM Wealth Management Inc., while a lot of younger Canadians have "other priorities," he's amazed by the number in their 40s and 50s that have either a small RRSP or no retirement savings at all.
"Do you want to have things within your control or do you want to be at someone's mercy? I'm from the school that I like to have some control over my destiny," he says.
"Pay yourself first. Take some off the top [of every paycheque] and sock it away."
Adds Mr. Bennett: Saving is "not easy but it's actually quite simple."
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