RRSPs: Hunting Season
by Sandi Martin | Mat 21, 2013
The point: buying an RRSP sometime between January and March doesn’t mean you have a retirement plan.
Go into any bank between January 2nd and February 28th and you will be haunted by the specter of an underfunded retirement. You will be offered “retirement planning”, and – if you are scared enough of eating cat food when you stop working, and haven’t yet found your own Bankosaurus Rex – you will come away from the meeting convinced that “contributing to an RRSP” and “retirement planning” are the same thing.
They are not.
RRSP Season is to the bank what Valentine’s Day is to Hallmark: the opportunity to separate lots of people from lots of money while convincing them that what they’re doing is meaningful.
(Okay, taking advantage of rules that allow you to shift income from a year in which you’d pay more in taxes to a year in which you’d pay less isn’t exactly comparable to buying boxes of cards to throw away give to your kid’s entire class. Sue me.)
The retirement calculations that core clients of retail banks (read: you) are offered are the same ones you can use yourself by googling “retirement calculator”. They are pre-filled with assumptions about your rate of return, your possible CPP and OAS rates, how much money you’ll need, and inflation rates, and the people operating them have about as much training for using them as you do.
This means that your “retirement plan” will be based on these cookie-cutter assumptions: you’ll need 70% of your present income to live comfortably, you’ll receive a 5% return subject to a 2.5% rate of inflation until age 65, when you’ll receive the maximum possible amount from CPP and OAS.
The person sitting across the desk from you has zero incentive to help you figure out what the assumptions should be for you. Your appointment is only booked for an hour, right? And there are six more people he has to see after he talks to you. He’s not going to mess with the assumptions to make them actually resemble your life, because that would take more time than his manager is going to be happy with.
What the salesperson will have all the time in the world for is this section:
Despite the fact that anyone helping you to plan your retirement income needs to know how much you’ve got saved and really should be talking about your entire portfolio, rather than the slice that’s invested with them, is beside the point, which is: the financial industrial complex is leveraging “RRSP Season” to maximize your uncertainty, create fear, gather up your assets, and then forget about you.
Here’s the problem for you: a “retirement plan” consisting only of “I put some money into RRSPs every year because I was afraid of missing the deadline and my advisor told me I need to save more” is only by the sheerest luck going to afford you the luxury of retiring, let alone building any kind of meaningful wealth that will let you do more than just meet your basic needs once you stop working at the arbitrary age of 65.
The solution: back away (quietly) from the salesperson with the retirement calculator. Block your ears and sing loudly when you encounter the “how much should I save for retirement” articles that end in an actual number.
In my next posts I’ll show you how to ignore the “how much should I”s, figure out your own numbers, and stop being manipulated by the fear and hype of hunting RRSP Season.
This is part one of a six part series about realistic retirement planning. You can read the rest here:
- Avoiding the Useless Retirement Plan, Step One (figuring out what you mean by “retirement”)
- Numbers, Numbers, Numbers (how to calculate exactly what you’ll spend in retirement by figuring it out today)
- Incoming (how to predict your retirement income from public and private pensions)
- Fun With Retirement Calculators (how to make the best use of a faulty tool)
- Effective Retirement Planning is About Spending, Not Saving (And Sit Up Straight) (what to do if you can’t save enough)