As the Feb. 29th RRSP deadline inches closer, a recent Scotiabank investment poll finds only two in five Canadians (39 per cent) say they plan to contribute to an RRSP for the 2011 tax season.
Among those who have thought about investing more often in their RRSP than they currently do, affordability (61 per cent) is the top reason for not contributing more often.
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Mike Henry, senior vice-president of Retail Payments, Deposits and Lending, Scotiabank in Toronto, says living in challenging financial times is all the more reason to speak to a financial advisor about how to find a way to build retirement savings.
"Our recent poll shows only two in five Canadians are planning to contribute to an RRSP for the 2011 tax season. We don't want to see people allow this savings opportunity to pass them by," he says. "Speak to an advisor. Find a way to balance things and take advantage of opportunities that RRSPs and TFSAs (tax free savings accounts) provide."
However, only 46 per cent of those polled reported having a financial advisor. When it comes to planning, 32 per cent of Canadians reported having a written financial plan and 39 per cent said it would be easier to save and invest with a five-year goal in mind rather than a long-term goal. Three in five (58 per cent) said they would be interested in a five-year plan.
"Canadians can sometimes be intimidated when it comes to speaking to a financial advisor and working on a financial plan," Henry says. "What Scotiabank wants to tell people is there's not a lot to it. It really as simple as sitting down with someone and talking about what things you're trying to accomplish financially.
"We recognize the challenges associated with trying to balance the need to live for today while saving for the future. Having a plan is an important key to doing that."
Meanwhile, for investors looking to minimize their exposure to market ups and downs, they may want to review the asset allocation in their RRSPs.
"We live in uncertain times and we definitely see people have some concerns about the economic volatility that's out there. The key to handling that is to understand what your time horizon is and what you're saving and investing for," he tells Yahoo! Canada Finance. "So if you have a long time horizon and if you've got an appropriate asset allocation for your investment portfolio, those are the keys to managing that volatility.
"To put it plainly: Invest early, invest regularly, and stay invested."
Interestingly, among RRSP holders, half (51 per cent) have thought about contributing more to their RRSP than they do now, unchanged from a year ago.
"Different investments behave differently and they have different returns," he continues. "Ensure you're comfortable with what you've got . . . ensure you've safe, secure investments in maybe GICs or high-interest savings accounts but then you want to make sure you've got some things that are a little more growth-oriented like different types of mutual funds."
Henry adds Scotiabank has seen a lot of growth in TFSAs (48 per cent of Canadians have a TFSA, according to the survey).
"It's up by about a third (from last year) so while we see 60 per cent of Canadians with an RRSP, 48 per cent have a tax free savings account and at the rate its growing those numbers should start to catch up," he says. "Only about 35 per cent of Canadians have both. The thing about TFSAs is you're contributing money that's already been taxed, so you're not taxed on it again. Anything you put in there grows tax-free."
Moreover, people are starting to use TFSAs as part of a longer-term investment strategy.
"The types of investments people are putting in their tax free savings accounts are starting to shift a little. Initially, people were holding mostly cash and it looked as thought it was being used as a bit of a rainy day fund," he notes. "Increasingly we're seeing people invest in mutual funds and other things that have a longer-term orientation. That suggests they're making the TFSA as part of a broader, longer-term strategy."
The survey also finds:
*Most Canadians say they have an RRSP (60 per cent), a drop from 79 per cent last year.
*More men (42 per cent) than women (35 per cent) plan to contribute to their RRSP for the 2011 tax year, while those aged 35-54 years lead in the age category (52 per cent) compared to those aged 18-34 (41 per cent) and 55 and over (21 per cent).
*Only three-in-10 (29 per cent) have set up automatic transfers or deposits into an investment plan (down from 34 per cent in 2010).
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