Posted by Tim Stobbs on January 20, 2011
According to a recent RBC poll 45% those 18 to 34 are not saving for retirement and only 39% of this age group have an RRSP. Well given I’m doing both and in that age group I’ll point out a few thoughts on the matter.
When asked what this group’s goals were their top responses were: reducing or eliminating debt (56%), saving for a rainy day (45%) and home ownership (44%). Well as I recall graduating from university that would have more or less been my response as well. After all when you just get out you likely have some student debt, perhaps a car payment and you are focused on saving up a down payment for your first home. Now granted you could be saving up for a home within your RRSP, but apparently that isn’t being done that much by this age group since only 6% of them have used this option.
So what gives? Why aren’t young people saving for retirement? Well I’m not a mind reader for my generation, but I would suspect that the story goes something like this: You graduate from some post secondary with debt, that debt is too big to afford a home by yourself . So while saving up a down payment you are also have to pay off most, if not all, of your student debt. Then you meet ‘the one’ you get married, which means more debt. You pay that off and meanwhile house prices in major centers (where most of the jobs are) have spiked and your inflation adjusted wage has more or less been the same as your parents. So if you are lucky perhaps by the time you are 35 you finally own your home (complete with huge mortgage) and you finally start get serious about some retirement savings. Oh, but the kids start arriving, nuts, now we need RESP’s as well.
The above tale could have described most of people I know. The exact ages of events might have changed and the order of the sequence of events, but generally that is the story. About the only difference in that tale and what I did was I always took advantage of ‘free’ money from work and joined either the pension plan or group RRSP. That way I was saving something for retirement, even before the thought of early retirement had entered my head. Also I was one of those 6% that did use my RRSP to help buy my first home. My thought was why not use it to give my money a 25 to 30% boost from a tax refund and get me into a house that much sooner. It had nothing to do with saving for retirement.
So in general I get the reasons why people don’t save in this age group. You have a lot of your plate, but the reality is that isn’t an excuse. You could be saving something for retirement or getting that ‘free’ money from work. It might be a tiny amount, but the advantage of starting young is you have time for compound interest to give you a helping hand.
Now it’s your turn, if you are in this age group how close was your story to the one I told? If you are not in this age group what was it like when you left school, do you start saving for retirement right away?