MONTREAL - Canadians are likely to cut back on their RRSP contributions again this year as an era of restraint caused by economic uncertainty and personal employment anxiety keeps rolling on, industry experts say.
About 58 per cent of Canadians who do not plan to invest in a registered retirement savings plan said they don't have the money to invest after paying basic living expenses, according to an Investors Group survey done as the key buying season was set to get under way.
Many individuals face a real challenge to find the required funds, said Dave Ablett, director of tax and retirement planning for the Winnipeg-based company.
"For a lot of people in order to make an RRSP contribution they're going to have to make some real sacrifices — a vacation, delay buying a car or making improvements to the house or to a cottage."
At a time when people want instant gratification, that's often a tough sell. But Ablett suspects those who made contributions in the past will be looking to find the money to do so again this year because RRSPs are a valuable retirement planning tool.
Investor confidence may have taken a hit because of market volatility, but the economy is going to eventually improve, providing even more reason to continue saving for retirement, he said.
Even those worried about losing their jobs should contribute to an RRSP or tax-free savings account (TFSA) because they will have access to cash they may need if they become unemployed, Ablett said in an interview.
After peaking in 2000, the median registered retirement savings plan contributions since the 2008 recession have hovered at around $2,680, according to Statistics-Canada.
Nearly six million Canadians contributed to RRSPs in 2009, the last year for which statistics were available, representing $33 billion. Fifty-three per cent of men and 47 per cent of women made contributions.
The industry had high hopes last summer that the upcoming selling season would be promising, until markets started to "go crazy again."
"(Now) we assume it to be pretty much the same as last year and has been pretty much the same for the last four years," said Tina Di Vito, head of the BMO Financial Group's Retirement Institute.
Market volatility may scare some investors, but RRSPs can be directed at less GICs or bonds than the stock market, she noted.
As Canadians focus on their holiday spending, retirement investments are the last thing on their minds.
The author of 52 Ways to Wreck your Retirement...and How to Rescue It said the goal should be to "pay yourself first" by not making savings something that is done as a second thought.
"Last-minute planning doesn't work for long-term savings ...it's best to make it automatic and make it part of your basic spending pattern."
But many are forced to make difficult choices so they can boost their retirement savings, said Keir Clark, associate director of Wealth Management at ScotiaMcLeod.
"If people are discouraged with the returns in the retirement savings plans or are feeling uncertain about their employment situation, they would tend to hunker down and perhaps not invest for the long term," he said from Fredericton, N.B.
But Clark said it's not too late to start now. People can take money from their tax-free savings accounts or even borrow short-term to secure a tax refund.
That money could be used to make a balloon mortgage payment, repay the bridge RRSP loan, contribute to a TFSA or be put towards the 2012 RRSP limits.
"Given the current economic outlook and the times of restraint, it actually may be even more important now because for those of us still in the workforce we may find that we need to be even more self reliant in the future."
But each circumstance is unique. The focus shouldn't just be on the 2011 tax year, but on what can be done in a year's time to avoid scrambling to find funds for 2012.
The key is to establish contributions through automatic monthly deposits to avoid large lump sum payments and the hurried last-minute scramble.
Continually borrowing each year to make an RRSP contribution makes little sense because the interest paid is not tax deductible. One way to regularly contribute is through monthly payroll deductions.
For the most hard-pressed, forgetting RRSPs this year is a real possibility. If the choice is paying the mortgage or investment, the decision is clear: retirement gets deferred.
RRSPs also make little sense for the poor because their low tax rates provide no financial advantage. A better investment option would be TFSA's, which shelter investments from tax but don't provide tax refunds.
The young may have other priorities as they start families, but a valuable strategy would be to pay down the mortgage and use the savings from lower payments to invest for the long-term.
While the deadline for 2011 RRSP contributions is Feb. 29, investors should be mindful that some things must be done by Dec. 31.
— Individuals who turned 71 years of age in 2011 must collapse their RRSP by the end of the year and should make a final RRSP contribution if they have unused room.
— Depreciated investments outside RRSPs must be sold by Dec. 23 to offset other capital gains in order to reduce your overall tax bill;
— Registered Disability Savings Plan contributions for grants and bonds must be made by year-end.
— Dec. 31 is also the last day for grants and bond eligibility for beneficiaries turning 49 years of age, and the last day for contributions by beneficiaries turning 59.
— All charitable donations for the 2011 tax year must be made by Dec. 31.
— Withdrawals from TFSAs made in 2011 will result in additional contribution room in 2012.
Note to readers: This is a corrected story. An earlier version stated an Investor's Group poll suggested 60 per cent of all Canadians don't have money to invest after paying basic living expenses.