With the RRSP deadline quickly approaching, RRSP fever is running high!

Just last night, I watched an excellent episode of MoneyTalk titled “To RSP or Not RSP.” For those of you that have never watched the show, it is hosted by Patricia Lovett-Reid and sponsored by TD Waterhouse. It is a 30 minute show that airs weekly and discusses topics such as investing.

The guest was Malcolm Hamilton. An actuary from Mercer Human Resource consulting. And let me tell you, I agreed with (just about) everything he said. It was an excellent episode.

The show starts off with the host saying that every time she opens a newspaper, there are ads warning that you need $1 million to $2 million dollars in your RRSP if you want to retire comfortably. She asks if we really need that much to retire.

Malcolm says that “$300,000 to $500,000 for an average family would give you what the average retired couple in Canada has today. This would provide $30,000 to $40,000 per year when combined with government benefits.”

You are probably thinking that there is no way that you and your spouse could live on that kind of money. Remember, once you are retired, you don’t have debts like a mortgage or supporting your children. In fact, Malcolm says that retired Canadians really don’t spend a lot of money.

“Statistics show that Canadians very rarely get to 80 and are broke. In fact, it is the reverse. They are reluctant to spend their money cause they think they might live to 100.” Malcolm says that this is a problem in that retired Canadians need to learn to spend their money.

The host then asked a very loaded question, “Does the financial industry use scare tactics?” Malcolm was very diplomatic and said that he thinks the industry is misinformed but that the industry is being genuine in their belief that you need $1 million dollars.

Malcolm goes on to say that “Young people are being bombarded with a message that in their 20s, there is this once in a lifetime opportunity to save a whole bunch of money. And if they get it in when their 20, it will compound for 45 years and turn into a gazillion dollars. Most of that is excessive. There is no compelling reason why a Canadian in their 20s would save for retirement. The biggest challenge for most Canadians under 40 is keeping their debts down. You have accomplished nothing if you have $50,000 in your RRSP and $100,000 in debt.”

Malcolm suggests that Canadians should worry about paying down their debts by the time they are 40. Then, Canadians can concentrate on their retirements and there is plenty of time to save.

I disagree with Malcolm on the point of the financial industry’s use of scare tactics. I really do think that the financial industry is trying to scare Canadians into saving. If they manage your RRSP for 45 years, imagine the commissions they earn year after year after year.

Malcolm says that “people are saving money to the level that their current existence is not very pleasant and they will find out - ironically - that when they get to retirement, having done all of this saving to make sure that they aren’t poor when they are old, they’ll realize that the savings made them poor the whole time they were young. And now that they are old, they have tons of money and they have never learned how to spend it.”

I thought this was a very refreshing episode considering that the show is sponsored by a brokerage firm. If you would like to watch the episode, check out MoneyTalk. All the episodes are archived there for your viewing pleasure.

Date Aired: February 16, 2006
Guest: Malcolm Hamilton, actuary, Mercer Human Resource Consulting
Topic: To RSP or Not RSP?
Canadians should learn how to manage their expenditures and their debts before worrying about saving and investment.