The problem with RRSPs
In case you've somehow managed to miss the relentless marketing campaigns and sales pitches, RRSP season is in full swing. With the contribution deadline of March 1 fast approaching, banks, credit unions, mutual fund companies and various other purveyors of financial products and advice are frantically clamouring to get your attention and your money.
That's a tougher proposition than ever — even if they are spending about $100 million to advertise their goods and services nationally. After all, the economy is still a bit wobbly and employment figures aren't snapping back quite as quickly as hoped. And then there's the whole personal debt thing.
We've been repeatedly scolded by the Bank of Canada and other quasi-parental institutions that we're all spending far too much. Canadians owe about $1.48 for every dollar they earn. That's up from just 90 cents 20 years ago and the trend shows few signs of reversing. Furthermore, it's not all "good" debt, as mortgages tend to be characterized. About 25 million of us owe $250,000 on a range of general consumer debt, most of which carries exceptionally high interest charges.
Even though the push to sell RRSPs is fundamentally at odds with the push to reduce consumer debt, however, no one seems prepared to challenge the mixed messaging.
And so every year, like clockwork, the harangue begins. We're inundated with veiled threats of a wretched, Dickensian old age. We're lambasted for the fact that collectively we use just over five per cent of our contribution allowance and the amount is dwindling every year, especially among younger Canadians.
Granted, fear is always a highly effective marketing tool. But could it possibly be that a retirement savings vehicle shaped and launched in 1957 is no longer relevant to the way we work, live and, ultimately, retire? We have profoundly changed our assumptions about so many other fundamental things over the decades since then — why not RRSPs?
For one thing, people no longer expect to retire on the stroke of age 65 and provincial mandatory requirements have been quashed across the country over the past few years. People are living longer and technology allows them to stay engaged in the workplace in more flexible ways for much longer, just as modern health care ensures they also live longer.
Let's not forget that the decision to set 65 as a retirement age was made in the late 19th century by a German politician (Count Otto von Bismarck, since you ask) who figured so few workers live until then, it wouldn't be much of a problem to manage.
The current demographic group heading into the traditional retirement zone, furthermore, is the first ever to do so while carrying debt. Early Baby Boomers (born from 1946 to 1955) are more than twice as likely to have about $50,000 in debt than the cohort that went before them. So why aren't saving and debt reduction in better alignment?