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It's time for the annual RRSP guilt trip Add to ...

When Jarita Greyeyes reads stories about young Canadians not saving for retirement, she knows they’re talking about her, and it fills her with anxiety.

At 25, she has recently graduated from the University of Victoria with a master’s degree in indigenous governance, landed a good job in Saskatoon as a policy analyst and spent the past few months aggressively repaying $10,000 of the $38,000 she owes in student loans.

“Right now, that’s basically where all my money goes. I haven’t saved anything for retirement and, of course, RRSPs aren’t even on the radar,” she says.

Ms. Greyeyes is certainly not alone. Royal Bank of Canada’s annual RRSP poll, released last week, shows a steep drop in registered retirement savings plan use among Canadians aged 18 to 34. Only 39 per cent said they currently have an RRSP – that’s down from 62 per cent in 2006 and the lowest number in nearly a decade.

Start saving early, banks warn, or you can kiss your retirement dreams goodbye. Increasingly, however, that message is falling on deaf ears, as young Canadians choose to focus first on other priorities. According to the RBC poll, those under 35 said debt reduction, emergency savings and home ownership were their top three financial priorities, with retirement savings at a distant seventh place.

It’s frustrating to be told you’re not saving enough when you’re doing everything you can, says Ms. Greyeyes, who recently became engaged and is hoping to buy a home in the next few years. “If you’re going to make a jump into home ownership, it’s going to be too costly to do something else with your cash.”

It’s not entirely surprising that young Canadians are putting off saving for retirement, says Lee Anne Davies, head of retirement strategy at RBC. “They’re getting this incredible bunch of mixed messages coming at them, all of them with some very important insights that they need to consider, but then they also need to look at their own personal situation.”

On the one hand, the Bank of Canada keeps urging consumers to focus on debt, warning that low interest rates will not last. On the other hand, investing gurus say Canadians are not taking advantage of RRSPs and tax-free savings accounts. Assuming they even have money to spare (which 34 per cent of those polled said they didn’t), how do people decide what to do with it?

“People shouldn’t get unduly discouraged,” says Malcolm Hamilton, an actuary at Mercer Human Resource Consulting and an expert on Canadian retirement saving. The worst thing people can do is allow conflicting financial advice to paralyze them with fear.

“There are institutions and people who just instinctively believe that everybody from an early age should be saving a large per cent of their income and that’s just not the case. The average Canadian, especially if they’re going to buy a house, they need to pay their debts back. They need to get out of debt. It does no good to be saving for retirement while piling up mortgage debt,” Mr. Hamilton says.

Robb Engen couldn’t agree more. The 31-year-old business development manager used to make regular RRSP contributions, but recently decided to put those savings on hold in favour of contributing to his company’s pension plan and paying down the mortgage on his Lethbridge, Alta., home, while interest rates remain low.

“Interest rates, they can’t really get any lower, they’re going to rise eventually,” Mr. Engen says, “so I think it’s the prudent thing to pay down debt, especially if we are in a so-called real estate bubble.”

There are certain situations in which an RRSP contribution does not make sense, says David Trahair, a chartered accountant and author of Enough Bull: How to Retire Well Without the Stock Market, Mutual Funds, or Even an Investment Adviser. If you’re in a low tax bracket, for example, the tax refund you’ll receive now may be outweighed by the tax you’ll pay when you withdraw the money in retirement.

“Anybody with credit card debt at an interest rate of 20 per cent should not be making an RRSP contribution,” he adds. “It’s crazy. It doesn’t make any sense.”

Banks are in the business of selling investments, Mr. Trahair says, so people need to consider that the advice that comes from banks has a bias. “When it’s RRSP season, as it is now, it’s to their benefit for a poll to come out to say something like this, to try to shock people or convince people that they’d better start putting money in RRSPs.”

“There needs to be a balance,” Mr. Hamilton adds. “We just shouldn’t go out trying to terrorize everybody into doing the right thing on the assumption that the right thing is huge amounts of savings for middle-aged people with mortgages and children and not much discretionary income, because there’s nothing they can do at that point.”

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