'High portion of young Canadians are making choices to save for long-term goals,' says expert
After the financial hardships that 2023 brought, just over half (51%) of Canadians plan to contribute to their Registered Retirement Savings Plans (RRSPs) this year, according to a recent report.
Just about half of Canadians also said they plan to contribute to their RRSP in 2023, following a significant 55% spike in the number of Canadians who intended to make contributions between 2022 and 2023, reports Edward Jones.
"It's clear that amid the current economic climate, Canadians prefer to stick to what they know by contributing to their RRSP this year," says Julie Petrera, senior strategist for client needs at Edward Jones.
"RRSPs are a valuable retirement savings tool, in fact they can be used for saving for more than just retirement. I find it promising that a high portion of young Canadians are making choices to save for long-term goals and trust they fully understand the benefits of RRSPs, which can be used for a first home purchase, returning to school, and retirement. An Advisor can help determine the best way to use these accounts for each individual's unique situation."
Many Canadians (24%) nearing retirement are in bad shape financially, according to a recent report from the Ontario Securities Commission (OSC).
Where do most Canadians invest their money?
Nearly six in 10 (58%) Canadians aged 18 to 34 and 62% of those aged 35 to 54 are planning to contribute to their RRSPs, according to Edward Jones’ survey of 1,699 Canadians aged 18 or older, conducted Jan. 24 to 26, 2024.
However, just 21% plan to contribute the maximum amount, down from 23% in 2023.
The RRSP payment deadline is Feb. 29. Canadians could be eligible to contribute up to 18 per cent of their previous year's earned income, to a maximum of $30,780 plus unused carried forward room (subject to any pension contribution adjustments).
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And while 12% of Canadians cannot afford to contribute to their RRSP, 10% plan on investing elsewhere.
Among those looking for other investment options, 59% are considering other registered accounts like a Tax-Free Savings Account (TFSA) or First Home Savings Account (FHSA).
Meanwhile, 19%are considering non-registered investment accounts, and 8% are considering real estate.
"Retirement planning is not a one-size-fits-all approach. It's important to learn about the options available and the various benefits and restrictions they offer, both immediate and longer-term. With so many factors to consider for every account type and individual situation, partnering with a trusted advisor can help Canadians think differently about money and how they plan for retirement," says Petrera.
"And as one's needs and goals are constantly changing, it's crucial not to put a plan on autopilot and instead evolve investing strategies to address those changes."
Over six in 10 (63%) of Canadians with household investable assets of at least $100,000 are somewhat (49%) or strongly (14%) confident in their retirement prospects, according to a previous report from LIMRA.
How can I maximize my RRSP contribution?
One of the key advantages of an RRSP is that investment earnings aren’t taxed until withdrawn, which helps to accelerate savings and compound growth. And it would be a “big mistake” to let the money sit in cash, or rely solely on fixed-income investments, said Howard Kabot, vice president of financial planning at RBC Wealth Management, in a Yahoo! Finance report.
“I think you do need some equity exposure,” he said.
At the same time, Kabot advises caution because the money is ultimately meant for retirement. He suggests focusing on mainstream investments that aren’t too volatile and, ideally, working with an advisor for guidance.
Here are some additional tips to maximize RRSP savings, which Kabot and Trevor Skidmore, senior manager of tax and estate planning at IG Wealth Management, shared in the report:
- If your employer matches RRSP contributions, take advantage of this “free money.”
- Direct your bonus into RRSP.
- Allocate tax refund towards another financial goal, such as reinvesting into a Tax-Free Savings Account or paying down high-interest debt.
- Work with a professional.
Saving for retirement is far from being the top concern for Canadians at the moment, according to a previous report from the Canadian Imperial Bank of Commerce (CIBC).