Does your financial plan allow you to live a long life? According to a recent release from StatsCan, barely a third of Canadians who were entitled to make an RRSP contribution last year did contribute, and their actual contributions were only 6% of what could have been. An Angus-Reid Public Opinion poll released in January by ING Direct showed that one in four Canadians (23%) don’t contribute to an RRSP at all.

Individuals apparently don’t plan to save for their retirement either because they are not able to or because they do not think it is needed. This is a disturbing trend in contrast to citizens of economies like China, India and other developing countries, where people do develop a decent savings habit.

It is important to save, be it for retirement or for any other goals. Canadians are fortunate to have some government retirement programs through Old Age Security (and the Guaranteed Income Supplement for lower-income individuals) and the Canada/Quebec Pension Plan. However, these should only provide people with a third of pre-retirement income. It may be sufficient for some, but for most, the remaining portion would have to come from their personal savings through RRSPs or their employer-sponsored pension plans, or from downsizing their personal residence.

According to Fidelity Research, Canadians over 40 are better prepared and, in particular, those 55 and older are on track to replace 59% of their pre-retirement income. This might be enough for some but falls short for the others. Older Canadians are somewhat on track while younger Canadians need to pull up their socks and begin to think about retirement, since their life span will likely be even longer than those of their parents.  

The most common savings vehicle for retirement is RRSPs, and mutual funds are still the most popular investment choice, followed by GICs, individual stocks and bonds. Employer-sponsored pension plans have gone through a significant change. The number of Canadians who participate in programs like this have dropped substantially.

Aside from the RRSP, we now have the new Tax-Free Savings Account. Some people are under the incorrect impression that it can only be opened at a local bank and are misled with the term “savings account.” It should have been termed as a “Tax-Free Investment Account.” It can hold the same mutual funds and other investments that you hold in your RRSP. It is a great flexible planning tool for Canadians 18 years of age or over. The limit is $5,000 for each year. The investment growth inside the plan and withdrawals from it are all tax-free.

According to StatsCan, 51% of near-retirees received financial advice from at least one source in the financial industry. Almost three in 10 (29%) did not receive any financial advice from any source. Individuals who do not receive financial advice are less likely to expect their retirement income to be adequate than those who receive advice. When seeking advice, ensure your advisor is well qualified. •

Jan Shah is a certified financial planner with Assante Financial Management Ltd. in Toronto. For personal consultation, prior to acting on the above article, he can be reached at 416-221-8566 or jshah@assante.com. The ideas suggested in this article are the work of the author and do not represent the opinions of Assante Financial Management Ltd.