Surge in Canadian retirement savings

Ruth Saldanha: It looks like more Canadians are trying to get retirement ready. BMO's 10th Annual RRSP study found that 69% of Canadians hold an RRSP account up from 60% the previous year. The survey also found that savings are on the rise, but most Canadians struggle to define financial goals for retirement. Robert Armstrong, Director of Multi-Asset Solutions at BMO is here today to talk about the survey and what some of the findings mean.

Robert thank you so much for being here today.

Robert Armstrong: Thank you for having me.

Saldanha: You found in the survey that not just the number of RRSPs, but also the amount held in the RRSPs has increased, from an investment standpoint, where is this money going?

Armstrong: Yes, well, when you think back to 2018, when the markets were a bit uncertain towards the end of the year, a lot of the money was going to shorter-term investment vehicles, such as cash and GICs. However, 2019 markets had a much better year. And what we found is there are more Canadians putting money in RRSPs than ever before, the average amount going into RRSPs has finally broken the $6,000 barrier. But in terms of where it's going, it's going into longer-term solutions such as ETFs and mutual funds. And to get even more specific, that balanced fund, which most of the money goes to, is still the most popular. But we're seeing a lot more uptick into the growth categories as well.

Saldanha: There is some fear in investors' minds, that there could be a potential downturn or even a recession. With that fear in mind, should there be any shorter-term changes to an asset allocation mix for retirement?

Armstrong: Yes. Well, whenever you look at it, there's always a reason not to invest, be it a recession, politics, what you hear in the media or even the length of the current bull market. But whenever you think about the RRSP. RRSP is truly a long-term solution. And you want to be thinking long term when you invest for a long-term horizon. I always get asked: should we go to the short term? Should we put on a short term trade? Because a recession may be coming. And I always try to change that sentence around. I say if you go short term, what has to happen for you, to put your money back into the market? Does your favourite team have to win the Stanley Cup? Does your aunt have to get married? Or does that recession have to end? And if someone says that recession has to end before I get back into the market, I would say, you're probably going to miss most of the upside. And so for me, that long term investment solution deserves a place in the RRSP. And I always say, avoid for short-term when you're investing for the long-term, use a long-term investment solution.

Saldanha: I'd like to talk about an interesting thing that the survey found. It was that women believe that they need to save less in retirement than men. Do you think this is a safe assumption for female investors to be making?

Armstrong: Yes, so when the survey said that women believe they need less money for retirement, the survey also found that men believe they need more money for their retirement years. So reality is, whenever you think about men and women, women typically live longer than men. And if you live longer than men, you typically will need more money. And so, I don't think that's a very safe assumption for a female or a woman to make in terms of their retirement. But I think you have to dig a little bit deeper. Because whenever you look deep into the survey, it found that two-thirds of Canadians, male or female, do not know how much money they need for retirement years. And for me, that is surprising, because that's probably one of the easiest things to find. All you have to do is get a financial planner, investment advisor, work through some assumptions, and you can actually arrive at that retirement figure that you should be aiming for. Having a number to aim for is the easiest part, finding the money to save for your retirement. That's where it gets difficult.

Saldanha: What are some of the ways to maximize the benefits that you can get from your RRSP?

Armstrong: So whenever you think about the RRSP, the number one objective of your RRSP is saving for your retirement, but there are many benefits of using the RRSP. And the first benefit is really about getting tax-deferred compounding on your returns, meaning whatever money is in your RRSP, you get it to grow tax-free, that's a significant benefit. Another potential benefit could be taking your RRSP deduction this year in a higher tax bracket. And when you're in retirement potentially you're in a lower tax bracket, so you save on your taxes. Another benefit can be if you're – have a spouse, using a spousal RRSP could be a benefit in your retirement years if there's a possibility to spread the potential tax burden amongst two individuals instead of one. And finally, I think whenever you've talked about the benefits of RRSP, it really lets you ignore the long-term movements in the markets and really focusing on a goal. And that goal is saving for that retirement age.

Saldanha: Thank you so much for joining us today, Robert.

Armstrong: Well, thank you very much for having me.

Saldanha: From Morningstar, I'm Ruth Saldanha.