Why do Canadians Wait Until the 11th Hour to Contribute to RRSPs?

Back in the fall, Wayne Gretzky shared his insight on financial planning, advising to start young when it comes to saving for retirement. Some young professionals have indeed started RRSPs, while others have at least started to think about planning for the future, however far away it is. Young or old, there appears to be a growing trend among Canadians: despite having an entire year to contribute to RRSPs, the majority of us wait until the last minute to do so. This means that if past behaviour is any indication, 60 per cent of Canadians will contribute to their RRSP this year in the next two weeks. Many will leave it right down to the wire for the March 1st deadline according to the TD RRSP Deadline Poll. The poll found that 64 per cent of men and 56 per cent of women wait until the very end of February to contribute a lump sum to their retirement plans.

“Our research shows that 59 per cent of Canadians contribute annually to an RRSP. Those contributions offer tax benefits and are one of the most important steps you can take to secure your financial future,” says Kim Parlee, Vice President, TD Wealth Management. “Making regular contributions throughout the year, every year, is the most effective way to grow your retirement nest egg.”

Why are Canadians waiting until the 11th hour to contribute when it surely only makes their lives more difficult, resulting in a potential scramble for a lump sum? 

Misconception #1: “I don’t have enough money throughout the year to contribute.”
Of Canadians who wait until the last minute, 44 per cent said they didn’t feel they had enough money to contribute to their RRSP throughout the year. Twelve per cent said they meant to set up regular automatic transfers to their RRSP, but, like many things in our hectic lives, didn’t get around to it. 

“Creating an automatic monthly RRSP contribution is easy – and then you’re set for the rest of the year.  Your money is moved to your retirement savings before you have a chance to spend it on other things,” says Parlee. “Contributing smaller amounts throughout the year won’t have a significant impact on your lifestyle and you’ll avoid a last-minute scramble to come up with a lump sum at the end of the year.” 

That lump sum scramble may be daunting for young professionals, especially when we are already trying to save for things like down payments on first homes, weddings and unexpected car expenses. According to Statistics Canada, the median amount Canadians contributed to an RRSP in 2011 was $2,830 – quite a lot to contribute at once. “If you break that down, it’s only slightly more than $50 a week,” says Parlee. “That’s not a lot week-to-week, but it does add up over the long-term.”

Misconception #2: “It’s a better strategy to wait until the last minute to contribute.”
Twelve per cent of Canadians who waited until the last minute said they think it’s the best strategy for investing in an RRSP and 45 per cent who invest in an RRSP say they only contribute in lump-sum payments.

“If you wait until just before the deadline and make one lump sum payment, you’re missing out on the potential for compound interest throughout the year,” says Parlee. “While this amount may not seem significant, it adds up over time.”

Misconception #3: “I shouldn’t invest because of market volatility.”
Thirteen per cent of Canadians who waited until the last minute said they didn’t want to invest this year because of market volatility. 

“If you’re worried about the impact of ups and downs in the markets on your retirement savings, an advisor can offer advice to help you protect your investment portfolio over the long-term so that you have peace of mind,” adds Parlee. “He or she will look at the asset allocation that’s right for your risk tolerance and the number of years until you plan to retire.”

Have you ever considered that your organizational habits could be an indicator of how you save money for the future? Understanding your habits is the first step in planning for the future. Take TD’s Last-Minute Quiz to find out your retirement savings style. 

Don’t forget: the deadline to contribute to your RRSPs is March 1st!