80% not confident their RRSPs will let them meet goals for Retirement
A third of Canadians have no RRSPs but even among those that do, 80% are not confident the investments in them will provide enough for Retirement, according to a BMO Financial Group survey being released today.
The survey, conducted by Leger Marketing, also finds nearly 50% of those with RRSPs do not feel they're contributing enough to meet their retirement goals.
Serge Pepin, Director of BMO Investments Inc. [pictured left] attributes this lack of confidence to the uncertain economic climate in the wake of the 2008 stock market decline. "There's still a mindset out there with Greece and other European countries that we're still in crisis," he says in an interview, "They're still making headlines so people are nervous about whether better economic numbers will happen or that things are getting any better. The mindset is very much that we're still in a very fragile environment."
BMO Financial Group director of retirement strategies Tina Di Vito agrees "a lot has changed over the last year … It's a good time for investors to re-evaluate how much volatility they can live with." Di Vito says people need to understand what kind of investors they should be before deciding on any investment to put into an RRSP. Naturally, the earlier one contributes the better but consistency is also important. "Spend the time to develop a retirement plan that focuses not only on the goal but also on a specific schedule to help them stay on track with savings."
One in four don't know how much they'll need to retire
The survey of 1,560 adults was conducted early in January and found 25% do not even know how much is required to achieve a comfortable retirement. 54% estimate they'll need at least $550,000.
Di Vito [pictured right] counsels against any "one-size-fits-all number until it's determined what kind of retirement lifestyle you wish to have. Take a look at the Retirement Rocks videos conducted last week with Heather Compton and you'll see figures of twice and four times that amount may be necessary for those wishing to replace annual incomes of $50,000 and $100,000 respectively [assuming no employer and government pensions.]
That's based on a relatively simple calculation: that you can earn a 5% return through bonds or perhaps a balanced fund. So if you need $50,000 a year, a $1 million nest egg spins off $50,000 a year at 5%.
TFSA launch in RRSP season adds to confusion
But BMO's Pepin says the average guy in the street doesn't think of it that way. "I don't think that's the mindset. There's still a lot of confusion and most think the government [pensions] will suffice. At a certain age, they find out that it may not suffice; that they may live longer than they thought."
What do you say to those people? "For those who have not saved or rely on Old Age Security etc. it will be extremely difficult. We work with them as best we can."
The launch of the Tax Free Savings Accounts in January 2009 — right after the crash and at the height of the annual RRSP season — further confused matters. "Some are confused the TFSA is the new RRSP," Pepin said, "There's still a lot of education to be done and a lot of information to absorb in a short period of time."
Automatic contributions best but few practice it
The survey shows the majority (56%) believe the key to successful RRSP investing is to contribute annually [22% said this] or monthly [34%]. But in practice, only 37% make these kind of regular RRSP contributions and 33% do not contribute at all. The latter fact Di Vito finds "troubling" in light of the declining coverage of traditional employer-sponsored pension plans. Those with neither employer pensions nor RRSPs cannot count on the Canada Pension Plan to meet all their financial needs in retirement," Di Vito warns.
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Source The Wealthy Boomer : Retirement
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