Why RRSP contributions are low in 2012?
Contributions to registered retirement savings plans in Canada are on track to shrink to a share of personal disposable income not seen since the 1970s, according to a report released by the Royal Bank of Canada.[/quote]
Well, my thoughts are that RRSP contributions come from Canadian’s disposable income. This means that Canadians will contribute to their RRSP with their after-tax dollars after they paid for their cars, shelter, food, and entertainment.
Here is a chart that shows the average home prices in Canada (even one line excludes Vancouver and Toronto). This was provided by RBC (January 2012)
You do not have to be an economics expert to see that prices have shot up in little time (almost doubled).
After you pay all your bills Canadians are finding little money to contribute to retirement. I understand many people will try to say that:
[quote]A main reason given is that as the country ages, a smaller proportion of people are in the peak-contribution age range of 45 to 54. [/quote]
That is still a small cohort compared the rest of the population that should be contributing (18-45 years old). In order to take advantage of compound interest, you need to contribute as early as possible.
Here is a chart that shows the family income (from Human Resources and Skills Development Canada)
Median after-tax income, by family unit, Canada, 1976-2007 (2007 constant dollars)
| 1976 | 2003 | 2004 | 2005 | 2006 | 2007 | |
|---|---|---|---|---|---|---|
| All families | 44,600 | 43,200 | 43,500 | 44,500 | 45,400 | 46,700 |
| Economic families | 53,300 | 56,700 | 57,400 | 58,400 | 59,600 | 61,800 |
| Unattached individuals | 20,500 | 22,200 | 22,500 | 21,800 | 23,300 | 24,200 |
You can see from the chart that household income has not risen enough to support this major boost in housing.
Another reason, is that the TFSA has gained in popularity and people with defined pension benefits are making contributions to their TFSA instead of RRSP to avoid the potential clawback.
I see that the reason Canadians without a pension aren’t contributing more to their RRSP is that there is no more money left to contribute.