Each year around this time, most Canadians are faced with the same financial question: do I contribute more to my RRSPs this year? It's a hard question to avoid. We're bombarded with advertisements from banks reminding us to do so and offering loans to help maximize your investments. Despite the well documented challenges retiring Canadians will face in the coming years, including pension deficits and less ability to save, about 66 per cent of citizens here don't max out their RRSP or contribute at all, according to Statistics Canada.
There are many reasons why someone wouldn't need an RRSP, says financial expert Gail Vaz-Oxlade, author of several books including Money Rules and Debt-Free Forever. For example, people who are close to retirement and haven't used their RRSP, or people with good company pension plans, or people with literally no money to save, won't benefit much from the practice.
"But I'm a big believer that just about everybody else should be using an RRSP," she told CBC's Amanda Lang recently. "And I have a big bone to pick with the industry for telling young people that because they're in a low tax bracket they should skip the RRSP and go with the TFSA because that totally leaves out the fact that you don't actually have to claim the deduction. You can save the deduction for later."
One of the biggest impediments to people contributing to their RRSPs is that most of us think we can't spare the money. It's no surprise then that, just before the RRSP deadline, the banks make a major push to offer loan packages so people can use up more of their unused contribution room. Is this a good idea?
"The only time you borrow to put money into an RRSP is if A) you can pay off that loan in one year, B) you're in the highest possible tax bracket and C) you can also make this year's contribution at the same time. But if you're going to skip this year's contribution because you're busy paying off last year's contribution, then all you're doing is climbing on the hamster wheel. Don't bother. Instead, decide what you would have made as a payment against the loan and contribute that every month towards your RRSP."
It can be a daunting proposition to learn all the ins and outs of RRSPs and investing, so much so that people are tempted to avoid the headache altogether. But, as with debt reduction, Vaz-Oxlade firmly believes that saving every little bit helps.
"Start [becoming] a saver. Stop being a not-saver. And it doesn't matter if it's $5 a day, $50 a month, start. Once you start, the bug will bite you. Once that money starts to accumulate, you'll have a sense of 'look at what I'm accomplishing.'"