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Scared straight? More young people contributing to RRSPs

Al Emid

The good news is that thanks to medical advances, nutrition and improved lifestyles we are all living longer. The bad news? We're all living longer. Greater life expectancy means we have post-retirement years to enjoy the fruits of our earning years. It also means we have to take more personal responsibility to ensure that those years are well-funded.

Canadians between the ages of 18 and 34 seem to be getting the message. The cohort has increased their focus on retirement planning, according to the Royal Bank of Canada's 22nd Annual RRSP Poll.

Of the 4,135 individuals who responded, 43 percent in 18-34 age group owned an RRSP, up from 39 percent a year earlier --  a surprising development given the seemingly more immediate financial priorities for this age group, such as childrearing expenses, student loans and first-time home purchases.

This age group is in the best position to take advantage of year-over-year compounding of tax sheltered returns, a long-term planning horizon and the recent market pullback to build up retirement funding, explains Tina Tehranchian, manager of the Richmond Hill branch of Assante Capital Management (Canada) Ltd.

But Tehranchian cautions a long-term horizon does not mean unlimited time available. "The fact of the matter is that if you're 30 today and you want to retire at 60, you have 30 years which is 360 months. That's all you have to save money," she warns. "When you break it down to that reality, it helps it sink in faster."

But it seems not all Canadians are getting the message. In a separate CIBC/Harris Decima survey, 31 per cent of those aged 55-64 feel financially unprepared for retirement.

The results vary by region with 58 percent not feeling prepared in Quebec and 32 percent not feeling prepared in Atlantic Canada.

While no one doubts the seriousness of retirement planning and the very real shortfalls in many Canadians' retirement finances, accepting figures in this or any other survey might produce an inaccurate picture.

Some Canadians may be better off than they realize if they have not taken complete stock of all assets including home equity and pension streams.  "Most people don't have a clear idea of their net worth, and most people do not have a clear idea of what exactly they need to do to reach their retirement goals," Tehranchian suggests.  That could lead some to worry more than necessary.

By comparison, some individuals making regular RRSP contributions may be too content and believe that those contributions solve all retirement needs. In reality they may be doing far too little and headed for a retirement shortfall.

Both groups can resolve these blanks in the picture by constructing a net worth statement and financial plan and revisiting them regularly, Tehranchian says. An individual cannot accurately calculate his or her state of retirement readiness — and the need for alarm telegraphed in this or any other retirement survey -- without building and revising those documents regularly.

Al Emid is an author and financial journalist covering investing, banking and insurance. The opinions expressed are his own.