ABOVE: With the March 3 RSP deadline fast-approaching, some Canadians are contributing a lot more than others. And, as Sean O’Shea reports, financial advisors say the traditional tax savings vehicle may not be right for everyone anymore.
Audrey does everything right.
The 40-something bank director saves money on every paycheque, a habit she first picked up working part time at a job that helped her get through school 25 years ago.
She files her taxes early and tries to max out her RRSP contribution each year. She even pays off her one sole credit-card at the end of every month.
“It’s something that my father instilled in me. Saving for retirement should be your number-one thing, and he really frowned on accumulating any sort of debt other than your mortgage,” she said.
She would not give her last name.
“I have different buckets of friends – ones who are like me, very conservative, and other friends who love to travel and have all the toys. I don’t know their circumstances, specifically but I would think that they’re more willing to take on debt to go on those ski trips or Hawaii or whatever it may be.”
With many of us up to our eyeballs in debt these days, a significant number of Canadians are probably more like Audrey’s friends, booking that trip to Hawaii rather than focused on saving.
In Toronto, as in other cities, the numbers bear it out: Very little income is going toward RRSPs, even in the city’s most affluent neighbourhoods.
READ MORE: RRSP contributions for the country, mapped
Debt is playing a greater role than ever in crimping contributions, expert say.
Bev Moir, a financial planner for Scotia McLeod, has noticed a common theme among her clients this year.
“Across income brackets there is a higher level of debt clients are facing,” Moir said. “That’s definitely become an issue.
“You wonder if the lower interest rates have lured people into taking on more credit than maybe they should. Unfortunately if it ends up interfering with their ability to contribute to their RRSP, there’s a cost to that. Our need to save for retirement never disappears.”
And in poorer Toronto neighbourhoods, contribution rates are far lower than in more affluent areas of the city.
In Crescent Town, a landing pad for new immigrants to the country, the median contribution is $1,180 – but that’s only among the 4.6% of taxfilers to pay into RRSPs – the vast majority don’t.
Three quarters of the residents are new or aspiring citizens, says settlement worker Yasmin Ashif. Much of the savings they have brought with them go toward securing rents, which can be as much as six months up front if they lack a steady job and income.
But that’s not necessarily a bad thing. For many households in Crescent Town, says social policy analyst John Stapleton, an RRSP isn’t appropriate.
“Contributing toward and RRSP allows a person to lower their tax bill for the year,” Stapleton said. “But If you pay very low taxes or you don’t pay any taxes at all, the deduction is of no value to you.”
If you’re not making much, or you’re on a fixed income, Stapleton added, “the reality is that they can’t save for retirement.”
The dearth of savings is a central reason why the governments of Ontario, Prince Edward Island and others are contemplating new pension schemes to deliver more income to retirees in the coming decades.
In the meantime, because they don’t need that immediate income tax deduction, Stapleton says, “the tax free savings account is the ideal vehicle for people with low income.
“Everybody should save as much as they can.”
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