The Real Story with RRSPs in Canada

Do you ever wonder how much is enough to retire or feel behind on what you have saved so far?  Don’t feel alone!

Some analysts claim 60% of Canadians are saving for retirement.  Of course these are surveys completed by companies that may only have a sample group of 2000 people. This 60 percent of Canadians number seems very high to me so I did a bit more digging…this time on the Stats Canada website.

What do Canadians and Kelowna residents really do?

The government of Canada collects data on how many contribute and how much is contributed. Read on to find out the results…

the real story with rrsps in canada

As of 2014, there were about 35 million people in Canada. However, only 6 million Canadians used their RRSP in 2014. That’s 17 percent of the country.

Now my next question is, how much did they contribute? The median amount contributed was $3000, meaning 50 percent of the contributors put in less than $3000, and the other 50 percent put in more than that.

I was then curious about what was happening in my backyard, Kelowna. The data shows that 29,000 out of 150,000 people (Peachland to Lake Country) contributed in 2014; 19 percent of Kelowna residents. The median amount contributed was the same as the country amount, $3000.

Here is a link to the Stats Canada website sharing RRSP details on other cities throughout the country. http://www.statcan.gc.ca/daily-quotidien/160226/t002b-eng.htm

(insert table)

Now that we know the above information for 2014 I would like to make some assumptions to see what one would need in order to be prepared for retirement. Below are the points to plug in to get how much would be saved at retirement and how much can be taken out each year while retired.

  1. 30-year-old with no savings or assets
  2. Starts an RRSP and contributes $3000 each year
  3. Contributes the same amount for 35 years until age 65
  4. Invests at a 6 percent annual return until 65
  5. Plans to use RRSP funds from 65 to 85, 20 years
  6. At retirement changes investment plan to a 2 percent annual return

At the end of the 35 years of contributing $3000 each year the 65-year-old retires with approximately $335,000.

The 65-year-old plans on living until age 85, 20 years. The income that can be provided each year is $20,450 over that period.

Is this enough to retire comfortably? I would say, No.

If half of the 17 percent RRSP contributors in Canada are contributing less than $3000 then many will be short on having a comfortable life. This is scary.

I have developed a program called “Abundance with Age” to help Canadians prepare for retirement.  As a financial coach I work with you on creating a realistic plan with three different options and support you in achieving the results.

I think it is so important to take the time to prepare one’s self for this last phase in life, not because you may necessarily want to stop working but if the worst case scenario happens and you have to stop due to health. I want Canadians to have a choice. The choice to stop or slow down if they need to, and, of course, if they want to.

Source: RRSP Calculator, http://www.getsmarteraboutmoney.ca

Happy contributing…

Shannon

P.S. There are also avenues one can use to prepare for retirement that have not been looked at, such as, TFSA, Real Estate, Pension, etc.