Are RRSPs still the way to go? Many Canadians aren’t sure and don’t seek advice: CIBC poll
A new CIBC poll finds that most (65 per cent) Canadians don’t seek expert advice to get retirement ready, which may lead to some misconceptions about the value of contributing to a Registered Retirement Savings Plan (RRSP). Indeed, two in five Canadians see “no point” in investing in an RRSP, and two-thirds believe a Tax-Free Savings Account (TFSA) is a better savings vehicle as it’s completely tax-free.
“Several myths about RRSPs have been circulating in recent years, which are unfairly giving them a bit of a bad rap and Canadians are asking if an RRSP is still the way to go,” says Jamie Golombek, Managing Director, Tax & Estate Planning, CIBC Financial Planning and Advice. “While everyone’s retirement needs will be different, it’s important to take the time to build a retirement plan to ensure you have sufficient funds to live the lifestyle you want, cover unexpected expenses such as health or care costs, or leave a legacy for heirs.”
“RRSPs should still be the primary retirement savings vehicle for most Canadians, and in many cases, can be your best option,” says Mr. Golombek.
In his new report, In Defense of RRSPs: Dispelling common RRSP myths and video, Mr. Golombek debunks some of the common myths behind the recent decline in RRSP contributions to help Canadians sort through the confusion and get retirement ready.
Key poll findings:
- Barely half (51 per cent) say their RRSP is, or will be, among their top sources of retirement income or expected retirement income
- 39 per cent believe there’s ‘no point’ investing in an RRSP since you pay all the savings back in taxes when you retire
- 67 per cent believe TFSAs are a better way to save because they are completely tax-free
- 54 per cent don’t understand the tax consequences associated with an RRSP upon their own or their spouse’s death
- Only a third (35 per cent) seek expert advice when planning for retirement, and nearly one quarter (22 per cent) may also rely on family and friends when figuring out how to best save and plan for retirement; Nearly a third (31 per cent) of Canadians plan on their own
- Almost two in five (39 per cent) don’t plan to make an RRSP contribution and 19 per cent aren’t sure if they should or not
Debunking top RRSP myths
Almost three in five (57 per cent) Canadians say saving for retirement is complicated, and wish they knew what strategy was best for them, yet few seek out expert advice.
“The danger comes in not seeking advice from a qualified financial advisor or planner, and instead relying on misinformation and cocktail party banter to make important financial decisions,” says Mr. Golombek.
Saving for retirement is a touchy subject. Some Canadians expect to spend less, while others find that expenses either stay the same or increase from travelling, new hobbies, or health-related expenses, he says. Whatever the desired lifestyle, income from government benefits or an employer pension (if eligible) is likely to fall short.
“Perhaps the biggest misconceptions about RRSPs is that they’re pointless given you’ll still pay tax in future, while a TFSA provides a completely tax-free source of income,” says Mr. Golombek. “But, the fact is, although a TFSA may be a better choice for those currently in a lower tax bracket or early in their income-earning years, an RRSP can provide a completely tax-free rate of return and is frequently the best option for retirement savings.”
In his report, Mr. Golombek illustrates how even with the deferred tax bill on RRSP income in retirement, investing in an RRSP or TFSA beats investing in non-registered accounts. If your tax rate is lower in the year of withdrawal, you’ll get an even better rate of return on your RRSP investment, he adds.
“The bottom line is that there’s no point having non-registered investments unless you have maxed out your TFSA or RRSP room,” he says.
While respondents cited ‘not having enough money to save’ as the top reason for not having an RRSP, Mr. Golombek says most of us could save a bit more if we understood the risks and rewards of doing so, which is why early financially planning is critically important.
“While some Canadians tend to leave their RRSP decisions to the last minute and squeeze them in before the deadline, contributing even small amounts monthly can make a big difference over time and leave you with more savings in your pocket,” he adds.
KEY POLL FINDINGS:
Percentage of Canadians who have or expect the following sources of retirement income:
|Government pension/benefits (e.g. CPP, QPP, OAS, GIS)||57 %||39 %||53 %||77 %|
|Registered Retirement Savings Plan (RRSP)||51 %||50 %||48 %||55 %|
|Employer sponsored pension||34 %||29 %||29 %||44 %|
|Tax-Free Savings Account (TFSA)||32 %||43 %||23 %||35 %|
|Equity in home||19 %||14 %||17 %||26 %|
|Non-registered investments||18 %||20 %||14 %||22 %|
|Inheritance||11 %||14 %||11 %||9 %|
|Real Estate Investments||8 %||12 %||7 %||7 %|
|Rental Property Income||7 %||10 %||6 %||5 %|
|Lottery||4 %||7 %||4 %||3 %|
|Other||4 %||3 %||2 %||5 %|
|I don’t know||13 %||18 %||18 %||4 %|
Percentage of all Canadians who have a RRSP/RRIF or spousal RRSP/RRIF:
|Yes||60 %||49 %||61 %||67 %|
|No||40 %||51 %||39 %||33 %|
Top sources for advice about saving for retirement among all Canadians:
|Family and/or friends||22 %||40 %||16 %||12 %|
|Financial expert/professional (NET)||35 %||26 %||31 %||47 %|
|Financial planner||20 %||15 %||17 %||29 %|
|Professional Investment Advisor||15 %||12 %||13 %||21 %|
|Accountant||8 %||6 %||8 %||9 %|
|Other||6 %||5 %||5 %||7 %|
|No one – I do it myself||31 %||19 %||35 %||37 %|
|I haven’t thought about retirement||17 %||27 %||22 %||4 %|
Number of Canadians not currently retired or semi-retired who plan to make an RRSP contribution for the 2017 tax year:
|Yes, I have already made my entire contribution||10 %||11 %||8 %||12 %|
|Yes, I contribute monthly/regularly||21 %||17 %||26 %||12 %|
|Yes, I plan to contribute before the March 1, 2018 deadline||11 %||12 %||10 %||15 %|
|No, I’m not making a contribution||39 %||40 %||36 %||43 %|
|I’m not sure yet||19 %||20 %||19 %||19 %|
About the 2018 Retirement Savings Poll:
From January 12th to January 14th 2018 an online survey was conducted among 1,523 randomly selected Canadian adults who are Angus Reid Forum panellists. The margin of error—which measures sampling variability—is +/- 2.5%, 19 times out of 20. The results have been statistically weighted according to education, age, gender and region (and in Quebec, language) Census data to ensure a sample representative of the entire adult population of Canada. Discrepancies in or between totals are due to rounding.
CIBC is a leading Canadian-based global financial institution with 11 million personal banking, business, public sector and institutional clients. Across Personal and Small Business Banking, Commercial Banking and Wealth Management, and Capital Markets businesses, CIBC offers a full range of advice, solutions and services through its leading digital banking network, and locations across Canada, in the United States and around the world. Ongoing news releases and more information about CIBC can be found at www.cibc.com/en/about-cibc/media-centre.html or by following on LinkedIn (www.linkedin.com/company/cibc), Twitter @CIBC, Facebook (www.facebook.com/CIBC) and Instagram @CIBCNow.
SOURCE CIBC – Consumer Research and Advice