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Retirement Planning > Saving for Retirement

Annual RRSP deadlines causes Canadians stress

By Warren S. Hersch

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A new study reveals that an annual deadline for contributing to a 401(k)-like retirement savings causes many Canadians stress as they scramble to find the money to make a contribution.

BMO Financial Group, Toronto, published this finding in a survey of 1,000 Canadians 18 years of age and older. The online interviews were conducted between Nov. 23 and Nov. 27, 2012.

The study reveals that most Canadians would feel less stressed if they switched their approach and made smaller contributions throughout the year. According to the report, while three-quarters of Canadians with a 401(k)-like Registered Retirement Savings Plan have already made or plan to make a contribution to their RRSP before the end-of-year deadline, 60 percent admit that the deadline causes them stress.

The BMO study suggests this may be related to the fact that almost half (49 percent) rely on making a lump sum contribution to their RRSP at the end of each year, rather than investing smaller amounts on a regular basis throughout the year.

When asked further about their views on contributing to an RRSP, more than half (54 percent) of Canadians said they would feel less stressed if they used a Continuous Savings Plan (CSP) to make smaller regular RRSP contributions throughout the year.

A CSP regularly and automatically withdraws a specific amount of money from an individual’s bank account and invests it directly into an RRSP. A CSP eases the cost of investing away from one annual deposit, and helps to increase savings.

For example, mutual funds fluctuate in value based on market conditions, so by investing the same amount in a fund each month, an investor can buy more fund units when the cost is lower. This can reduce the average price per unit an investor pays over the long term.

When informed about the benefits of a CSP, two-thirds of Canadians said they would be more likely to use a CSP in the future.

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