The vast majority of Canadians say they contribute to their RRSPs and plan to again this tax year, but precious few actually sock away the maximum amount allowed, according to a new survey.
The Bank of Montreal's annual report on Registered Retirement Savings Plan intentions, released Thursday, found that only half of Canadians have a "rough idea" of the size of their annual contribution limit, while 16 per cent said they had no clue.
Meanwhile, only about one-third of respondents said they "usually" or "always" reach their RRSP contribution ceiling, and half said they don't plan to reach it by the March 1 deadline.
That means a huge swath of Canadians are potentially missing out on some hefty tax benefits.
"That's kind of worrisome," said Marlena Pospiech, senior manager with BMO's wealth planning group.
According to Statistics Canada, the median contribution nationally was $2,790 in 2010, a 4.1 per cent increase from 2009. Another BMO study, which was released last March, found that Canadians have contributed an average of $4,670 to their RRSPs.
The numbers are well below the top yearly RRSP ceiling of $22,970 for the 2012 tax year, which is based on 18 per cent of the previous tax year's earned income.
The maximum varies among individuals depending on their income, and unused room can be carried over.
Ms. Pospiech said maxing out RRSP contributions can result in a tax deduction that lowers an individual's tax liability. It also offers the power of compound growth in a tax-sheltered environment.
Often individuals don't have a financial plan in place or are too busy paying off other debts to consider retirement savings. However, Ms. Pospiech said sometimes taking out a low-interest RRSP loan makes good sense to bridge the gap of unused RRSP contribution room.
"A resulting tax savings may even be enough to cover the amount borrowed," she added.
Gordon Sick, a finance professor with the Haskayne School of Business at the University of Calgary, said there could be also be "good reasons" not to max out an RRSP.
"If a person is in a low tax bracket now and expects a high tax bracket later, it is best to wait to make an RRSP contribution," said Prof. Sick, adding that maxing out a Tax Free Savings Account might be ideal for people such as those young and early in their careers.
In general, he added, there are concerns that Canadians are not saving enough for retirement.
Indeed, a recent Bank of Nova Scotia poll found that taking money out of retirement savings plans is on the rise.
About one-third of respondents said they dipped into their RRSPs this year with the average withdrawal ringing in at $24,531. That's up from 23 per cent in 2005, when an average amount taken out was $10,716.
In some cases the money was used for daily expenses or to pay for vacations, but the top reason cited was to buy a first home, according to Scotiabank, which polled 2,013 people through a computer-assisted telephone survey last June.
The BMO poll also noted some nervousness among investors about the returns on their RRSPs.
The poll found that almost seven out of 10 respondents were at least "somewhat concerned" that the state of the economy and the volatility of financial markets could impact their retirement savings.
"This is a lousy economy for investing in, but at some point there's going to be an enormous economic boom," Prof. Sick said, "…Now is exactly the time to go in."
On the other hand, the poll found some positive signs.
It reported that 67 per cent of Canadians had RRSPs, up from 61 per cent the previous year. It also found that almost three-quarters planned on making a contribution to their retirement savings, up from 68 per cent the year before.
And of those, 72 per cent said they planned to contribute the same – or more – than they did last year.
The online survey of 1,000 Canadians conducted from Nov. 23-27, is considered accurate within 3.1 per cent 19 times out of 20.