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retirement and rrsps

The Bank of Nova Scotia’s Elaine Blades on why savings goals are individual targets: ‘Some people do not want to touch it, others will be happy to spend it.’JENNIFER ROBERTS/The Globe and Mail

How much is enough? When it comes to retirement savings, are Canadians putting too much or too little into their Registered Retirement Savings Plans?

According to a survey released by BMO Harris Private Banking this month, Canadians generally believe that, if anything, they need to keep putting money into retirement savings. Canadians, on average, said they believe they'll need at least $908,000 for a decent retirement; the perceived need tops $1-million in Alberta and British Columbia. At the same time, three out of 10 people aren't confident they can do this.

The results are from online surveys fielded by Pollara Strategic Insights among 1,000 Canadians during the second half of 2013. The margin of error for a sample of this size would be plus or minus 3.1 per cent, 19 times out of 20.

This doesn't necessarily mean that a third of Canadians are doomed, financial experts say. Some people actually do put away too much, too soon.

But you should think carefully about how much you actually want to save and how to do it.

Every person is different, says Elaine Blades, director, fiduciary products and services at Scotia Private Client Group. "I think there are people who say, 'I better get in as much as I can [into retirement funds]' and there are others who say, 'I can never get that in.' "

Ms. Blades says that the near-million-dollar figure is realistic in some circumstances, but it's based on the person who saves the money not touching the capital and living off the interest and investment earnings. Not everyone will do that, or want to.

"Some people do not want to touch it, others will be happy to spend it," Ms. Blades says.

"It's important to understand that saving for retirement is not a one-size-fits-all proposition in terms of the ideal amount you need to save," Yannick Archambault, vice-president and COO, BMO Harris Private Banking, said in a statement released along with his bank's survey.

Ms. Blades agrees, noting that determining how much you think you'll need is not just a lifestyle choice; it's also a question of what you want to do with your funds, both while you're alive and after you are gone.

She asks clients: "Do you care whether you leave anything at the end of the day? It can make a big difference whether you hope to leave a legacy during your lifetime or ... [leave it in] your will."

While Canada doesn't have estate taxes, assets you leave when you die are deemed to be "sold," and whoever inherits them can be taxed. For example, if you leave a family cottage to your children that you bought many years ago and the value has gone up, your children can be taxed on the capital gain.

You should also think about how long you expect to need the money for yourself, says Evelyn Jacks, financial author and president of the Knowledge Bureau, a national educational institute that focuses on financial education.

"During the Roman Empire you could expect to live to age 25. If you were born in 1961 in Canada your life expectancy is 71, and if you're born now it's 81," she says.

"Many of us now are living to 100. If those people retire at 65, they're facing a 35-year retirement. Just to live on the poverty line you'd need to have $645,000."

Another survey released last spring by the Bank of Montreal found that the average RRSP contribution in 2013 was $3,544, down $1,100 from 2012. We won't know whether average contributions will climb this year until after the 2013 tax year contribution deadline of March 3, but last year's numbers indicate that many ordinary Canadians may be struggling to max out their RRSPs again.

The maximum RRSP deduction limit for 2013 is 18 per cent of your income, up to $23,820. It's less if you and your employer contribute to a registered pension plan. You can find out exactly how much you can contribute from your last year's Notice of Assessment from the Canada Revenue Agency.

Banks and other financial lenders are happy to loan you the money to top up your RRSP contribution, but again, it depends on individual circumstances whether or not this is a good idea. A loan could work out well, for example, if it means that by contributing you'll get a large tax refund right after you file your taxes – you can use the money in that case to pay back a big chunk of the loan, and you'll have some tax sheltered savings in your plan.

On the other hand, you don't borrow like crazy just to build your RRSP, only to find that you don't have enough money on hand to do the things you want – or need – to do before you've retired.

Whether or not you're willing or able to maximize your RRSPs savings, it's important to work with a financial adviser to determine if the money is invested in ways that it will grow to meet your needs.

"Ideally, you want a portfolio that will sustain itself through a variety of market conditions, one that will protect you from volatility but still provide you with growth," says Neil Macdonald, managing director, Scotiabank Global Asset Management.

Everyone has to live within his or her own level of risk tolerance, but taking too little risk in the market can be risky too, because your money may not grow fast enough to meet your needs as you age.

"You don't want to be in a position at 65 where you take all growth off the table. At the same time, you also want some security and predictability, so that when you're 85 or 95 you're still seeing some stability even as your principal is depleted," Mr. Macdonald says.

No matter how much or how little you save, you should also look at the advantages and disadvantages of giving money away during your lifetime compared with leaving it in your will, Ms. Blades says. It can make a big difference, and it's seldom a straightforward decision deciding how much you need. She notes that life expectancies keep going up, and none of us know how long our own individual lives will last.

"The experts say that the first person who will live to 150 has already been born," she says.