The RRSP season is clearly heating up.
With the March 1 contribution deadline for registered retirement savings plans less than a month away, three of Canada's big banks released surveys on Thursday, not-so-gently reminding Canadians of the pressing need to start saving for their golden years right now.
A Bank of Nova Scotia study found that 73 per cent of Canadian investors surveyed said the age at which they plan to retire has not changed, despite the uncertain economic and market conditions of the past two years. However, of the 22 per cent of Canadian investors who are pushing back their retirement date, 56 per cent per cent are aged 45 to 64 and therefore closest to retirement. The study also revealed that the average Canadian investor plans to retire at the age of 61.
"Now is the perfect time for Canadians to review their retirement plan to ensure they are on the right track to making their retirement dreams a reality," Beverley Moir, a senior wealth adviser with ScotiaMcLeod, said in the release.
Not to be outdone, a retirement poll from the Toronto-Dominion Bank found that 91 per cent of Canadians have "fears about retirement." The fear is so prevalent that 30 per cent of respondents said even thinking about saving for retirement makes their hearts pound because they haven't saved enough, according to the TD data.
"What is alarming is that 20 per cent of people surveyed said that instead of contributing to an RSP, they are counting on either the Canada Pension Plan, an inheritance or a lottery win," said Carrie Russell, senior vice-president of core banking and payments at TD Canada Trust. "The best way to quell those retirement fears is to take charge of your future now - instead of betting on the lottery, bet on yourself."
Bank of Montreal, meanwhile, put out a special report that debunked six commonly held assumptions on retirement planning. "There is no one-size-fits-all solution and common retirement savings theories should be carefully reviewed before being adopted," said Tina Di Vito, the director of retirement strategies at BMO Financial Group.
Here are the six popular retirement theories that she says need to be carefully considered:
1.) "I will have enough with the Canada Pension Plan/Quebec Pension Plan and old age security payments from the government." Government pensions are a good foundation but will not necessarily be enough to live on, depending on the kind of retirement lifestyle you want. Remember that government pensions are fully taxable and that for those accustomed to living with higher incomes, the payouts will replace only a small portion of what people were earning while working.
2) "I am fine. I have a company pension plan." Having a company plan will also not guarantee that you will have enough income for your retirement. For example, the kind of payments you will get from a defined benefit plan, as against a defined contribution plan (both of which pay pensions that are taxable) are different, so it is important to know what kind of features and benefits your plan has.
3) "I've heard I need to save $1-million." The $1-million figure is based on the assumption that you should have saved 20 to 25 times the annual income you will need once you are retired. But if you factor in government or company pensions, the sale of your house, or other additional income, you might only need $20,000 a year in personal savings. In that case, you would need to save just $400,000.
4) "I need 70 to 80 per cent of my pre-retirement income." Instead of fixating on your pre-retirement income, focus on what your expenses will be when you retire. For example, you may no longer have to make contributions to CPP/QPP and company pension plans. Some people find they can live on much less and others spend just as much or more during their retirement.
5) "I will be fine if I only withdraw 4 or 5 per cent a year from my savings once I retire." In some cases you have no choice in how much you withdraw. For instance, if you have a Registered Retirement Income Fund (RRIF), your withdrawals are based on your age. You can, however, keep money invested by contributing to a Tax Free Savings Account (TFSA). Also, many retirees spend more in the first few years of retirement, travelling and making major purchases. That, along with potential health or care-giving costs that might arise later in life might make running out of money later in life a reality.
6) "Delaying my retirement a few years will not make that much of a difference." On the contrary, delaying retirement even a few years can make a big difference in your savings and how long those savings will last, says Ms. De Vito. Not only are you allowing your retirement assets to grow because you are not making withdrawals, but you are also still earning income.
Roma Luciw is a writer and web editor of the Globeinvestor.com personal finance site. Please send any comments and story ideas to rluciw@globeandmail.ca.