How middle-aged Canadians can make up for lost time on RRSPs


Deanne Gage, Special to The Globe & Mail 

February 17, 2022  – With less than a couple of weeks until the annual deadline for contributing to registered retirement savings plans (RRSPs), advisors are helping some middle-aged clients play catch up on their retirement savings.

Kelly Ho, partner and certified financial planner (CFP) at DLD Financial Group Ltd. in Vancouver, has several clients in their 40s and 50s who have unused contribution room and want to accelerate retirement savings now that pricey items such as mortgages or child care are off their balance sheets. Various accountants refer these clients to her.

“These clients know they’re not retiring early and are prepared to work until 70 if necessary,” she says. “And the higher-income earners also want strategies to reduce their net income to lower their income tax bills.”

Strategies for middle-aged clients who want to catch up for lost time with RRSPs vary depending on circumstances and risk tolerance.

Ms. Ho runs cash-flow scenarios for clients to help them determine where they’re at now, the gaps, and the amount of savings required to up their retirement income.

RRSP loans might be considered for clients who want to beef up their contributions. But Ms. Ho says it’s a double-edged sword.

“It can be a very good strategy if the refund they get from the RRSP contribution will cover the majority of the loan and there’s a solid plan to pay it off within months,” she says.

“If there’s no plan, then the loan becomes a hit to their cash flow and now it’s another debt they have to deal with.”

Sometimes, an RRSP contribution may not even make sense, especially for clients who have lower incomes, Ms. Ho says.

A red flag for her is a client who wants information on RRSP withdrawals within a short time horizon and isn’t aware of the subsequent withholding tax. In that case, she says the tax-free savings account might be the better option.

A recent poll from Co-operators Group Ltd. found that 85 per cent of financial professionals believe that clients’ live-for-today attitudes are hindering them from placing a priority on retirement planning.

However, Jennifer Cook, financial advisor with Jennifer Cook & Associates Inc. at Co-operators Financial Investment Services in Kincardine, Ont., says this seems to be turning the corner in her experience.

She notes that with rising inflation and pandemic worries starting to ease a bit, clients are thinking more about their future financial goals.

For example, some clients may have a workplace pension but want to increase their RRSP contributions to achieve their desired retirement incomes. Ms. Cook then gets them to consider using their tax refunds toward other investments to keep compounding growth.

Going back to the beginning

Meanwhile, Nadège Koskamp, a senior financial planner and division director at IG Wealth Management in Kitchener, Ont., says she emphasizes proper financial planning as the first step for clients who are playing catch up on retirement savings.

“These clients are often in a rush, but it takes time to decide where we’re going to put the money,” she says. “We have to know what we’re working toward. What does retirement look like? How much do you need to fund that retirement? How much do they have to save?”

Only then can an advisor look at investment vehicles that might make sense depending on what tax bracket the client is in, she adds.

If the clients are new, they will also need to “establish new financial behaviours to get them to put money away consistently.”

Jason Desaulniers, president and CFP at Excalibur Executive Planning Inc. in Edmonton, tries to find “hidden money opportunities” that allow his clients to increase their investing.

For example, he advised one client to convert a rarely-used cottage into a short-term rental property and then use the profits toward retirement savings.

Mr. Desaulniers also says some clients have not signed up for their employer’s group RRSP, and in many cases, the employer matches the employee’s contributions.

“I always recommend taking advantage of free money,” he says. “And even if clients are in these plans, they often haven’t maxed them out.”