Article

RRSP Facts: Compelling case for increasing contributions

by Evelyn Jacks

According to Statistics Canada’s publication The Wealth of Canadians: An Overview of the Results of the Survey of Financial Security, the net worth of Canada’s 13.3 million family units reached $4.9 trillion in 2005, which was a 41.7% increase since 1999. Families in the top 20% saw their wealth increase by 18.5%,while those in the bottom 20% showed a 9.1% decline in their net worth, together with a 2.4% increase in their debt load for each $100 of assets. Nearly 70% of total net worth was held by those in the highest of the five groups ranked.

That means there is lots of work to do to shore up the wealth of the nation, particularly when it comes to tax sheltered pension savings which can be topped up with RRSPs up to and including March 1, 2007.

Contributing to an RRSP not only reduces taxes payable – creating a double digit return on investment generally within a couple of weeks of the investment when a refund is received (or tax liability reduced) – but also contributes to a reduction of clawbacks of refundable and certain non-refundable tax credits.

In 2005, only 58% or close to 8 million family units held RRSPs, LIRAs, and RRIFS with a median amount of $30,000 in them. While this seems like an incredibly low number, those in the age group of 55 to 64 years of age had the highest median savings of $60,000. The average value in RRSP plans was $76,600 for all family units and $124,500 for those in the 55-64 age group.

Note that the median net worth ranks all family units from highest to lowest net worth. Those in the middle supply the median net worth. The average or mean net worth is determined by dividing the total net worth of all family units by the number of family units. The more the average exceeds the median, the more the wealthiest family units in the country contribute to the increase.

More than half of those investments were in mutual funds and income trusts with the remaining investments in term deposits and GICs (21%), other Canadian bonds, including Canada Savings Bonds, foreign bonds and debentures, treasury bills (17.9%) and other Canadian and foreign traded stock (10.3%).

Evelyn Jacks is author of several of The Knowledge Bureau's tax courses in The Distinguished Financial Advisor (DFA) Program.

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