Royal Bank of Canada

RBC Wealth Management survey sees rising living costs, unexpected expenses, as barriers to wealth for higher-income Canadians

September 26, 2019

A recent Royal Bank of Canada survey on wealth management, conducted by Ipsos, found there were a few new obstacles that were impeding even wealthy Canadians’ efforts to build wealth.

Save with SPP reached out to RBC Wealth Management to probe a bit more about these obstacles, and to ask if the study’s authors found any other surprises in their research. Their answers are here:

Q. Did the study and its authors find higher levels of debt to be a part of the “cost of living barrier” to building wealth, given the high record of household debt? Helping kids is also mentioned.

The study didn’t specifically ask respondents about levels of debt. After the rising cost of living, the next reasons that ranked highest on the survey were:

  • Unexpected expenses
  • Cost of raising children (survey did not specify what “helping kids” meant)
  • Home prices

Q. The survey says “traditional ways of building wealth” may not be doing the job like they used to. Is this referring to the volatile stock markets and the low-interest environment for fixed income? Are there any thoughts about new types of investment strategies/alternative categories that the study and its authors think could address this?

In the survey news release, Tony Maiorino, Head, RBC Wealth Management Services, says “regardless of income, many Canadians find themselves behind on their wealth goals as many of the traditional ways we build wealth have changed over the generations. With the added backdrop of market uncertainty, clients are voicing their concerns and looking for support using non-traditional methods of meeting their wealth goals.”

Howard Kabot, Vice-President, Financial Planning, RBC Wealth Management Services, elaborates, saying “things like tax strategies, insurance and retirement planning play a key role in building wealth today but I’m not surprised that so many respondents find them challenging. The financial landscape is always evolving and people have less time to research and learn about wealth management topics. Most clients need to explore a variety of tactics through a holistic lens to build and preserve wealth.”

The survey found that 81 per cent of Ontario respondents, 80 per cent of Albertans and 77 per cent of BC residents felt “building wealth now is more difficult than it was in previous generations.” Thirty-eight per cent of BC respondents (vs. 26 per cent for Ontarians and 20 per cent for Albertans) reported experiencing “poor investment performance.”

Q. Did the study indicate when respondents would use the services of a financial adviser like RBC? Did the study turn up any sense that people are having difficulty putting away as much as they would like for retirement, given the high cost of living, lower salaries, and maybe the lack of workplace pension plans?

The study found that three-quarters of higher-income Canadians were confident “they will reach their financial goals before retirement.” However, 41 per cent of the same group said they would “work with a financial expert to invest the money” if they experienced a windfall, such as an inheritance. Advisors might come in handy with things that “challenged” respondents, such as “staying on top of markets” (76 per cent) and “using… strategies to minimize taxes (71 per cent).”

The lack of a pension plan at work was cited by 20 per cent of those surveyed as one of the “unexpected expenses,” like the increased cost of living, raising children, lower salaries than expected and poor investment performance, that was a factor in respondents being less wealthy than they expected.

Q. Where there any other findings that surprised the authors?

The news release noted that it was surprising that respondents found it challenging to understand financial topics but still felt confident they would meet their financial goals.

The release noted that “of the 48 per cent of respondents who are not as wealthy as they thought they would be, almost three quarters (73 per cent) believe they will reach their financial goals before retirement.” This optimism seems to be at odds with their confidence when it comes to aspects of wealth management topics, with the majority agreeing the following topics are challenging:

  • Knowing which information to trust (78 per cent)
  • Staying on top of what’s happening in the financial markets (76 per cent)
  • Using tax strategies to minimize taxes (71 per cent)
  • Ensuring they don’t outlive their assets during retirement (70 per cent)
  • Understanding the use of insurance in a financial plan (66 per cent)

If you lack a workplace pension, and need a do-it-yourself solution for retirement savings, consider membership in the Saskatchewan Pension Plan. You can start small and gear up your contributions over time. At retirement, the SPP can convert those savings into a lifetime income stream – you won’t be able to outlive your savings. Check them out today.

Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock. He and his wife live with their Shelties, Duncan and Phoebe, and cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

Sep 23: Best from the blogosphere

September 23, 2019

A look at the best of the Internet, from an SPP point of view

Canadians “confused” about TFSA savings – poll

A new poll carried out for Royal Bank of Canada has found that Canadians “don’t know how to use a TFSA to generate wealth.”

The research, conducted for RBC by Ipsos, is reported on by the Baystreet blog.

It finds that “43 per cent of Canadians are misinformed about the funds, believing TFSAs are for savings and not for growing investments,” Baystreet reports, adding that a further 42 per cent of those surveyed use their TFSAs only for savings and cash. Just 28 per cent of those surveyed “hold mutual funds” in their TFSAs, along with 19 per cent for stocks, seven per cent for exchange-traded-funds, and six per cent for fixed income, the blog notes.

In plainer terms, people don’t realize that you can hold all the same types of investments – stocks, bonds, ETFs and mutual funds – in either a TFSA or an RRSP.

Yet, despite the fact that they tend to hold mostly cash in their TFSAs, the tax-free funds are more popular than RRSPs – 57 per cent of those surveyed said they had a TFSA, with only 52 per cent saying they have an RRSP, Baystreet notes.

The TFSA is a different savings vehicle from a registered savings vehicle, such as an RRSP. When you put money into a TFSA, there is no tax benefit for the deposit. However, the money in the TFSA grows tax-free, and there is no tax charged when you take money out.

With RRSPs (and registered pension plans) the contributions you make are tax-deductible, and the money grows tax-free while it is in the RRSP. However, taxes do apply when you take money out of the plan to use it as income.

While TFSAs are relatively new, some financial experts have suggested they might be well-suited for use as a retirement savings vehicle, reports Benefits Canada.

“While RRSPs have the advantage of deferring tax payments into the future, which TFSAs don’t do, the deferral may not be as important to low-income seniors, especially those who want to avoid clawbacks or maintain their eligibility for government benefits, like the GIS, after they retire,” explains the article.

A lower-income earner “might find it more advantageous to maximize their TFSA contributions, which is currently $6,000 annually and indexed to inflation going forward. Unlike funds withdrawn from RRSPs, funds withdrawn from TFSAs — including the investment growth component — aren’t taxable, and contribution room after withdrawals can be restored,” Benefits Canada reports. The article also talks about employers offering group TFSAs as well as group RRSPs.

Those taking money out of a RRIF might want to put the proceeds – minus the taxes they must pay – into a TFSA, where it be re-invested tax-free and where income from it is not taxable.

A key takeaway for all this is that you need to think about putting money away for retirement while you are working. The concept of paying yourself first is a good one, and one you will understand much better when you’re no longer showing up at the office and are depending on workplace pensions, government retirement programs, and personal savings for your income. No amount is too little. If you are just setting out on your savings journey, an excellent starting point is the Saskatchewan Pension Plan. Be sure to check them out today!

Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing, classic rock, and darts. You can follow him on Twitter – his handle is @AveryKerr22

Oct 15: Best from the blogosphere

October 15, 2018

A look at the best of the Internet, from an SPP point of view

Boomer pension crisis is “here, and it’s real,” says survey
Saving for retirement is a lot like eating your beets. You know they are good for you, all the literature talks up their benefits, and many say you’ll be sorry later in life if you don’t eat them now. But they are not everyone’s cup of tea, and many of us choose to ignore and avoid them.

Unfortunately, retirement is a bigger problem than not eating a beet.

A recent Canadian Payroll Association survey found that 69 per cent of working people surveyed in British Columbia save less than 10 per cent of their earnings, “well below recommended savings levels.” The CPA survey is covered by this ABC Channel 7 news article.

The article goes on to say that 40 per cent of Canadians surveyed are “overwhelmed by debt,” an increase from 35 per cent last year. Debt, the article says, is clearly a factor restricting the average person’s ability to save for retirement.

Research from Royal Bank of Canada that found that 60 per cent of Canadians were concerned “about outliving their savings,” and only 45 per cent of them are confident they’ll have the same standard of living when they retire. This research was covered in an article in Benefits Canada.

So, eat your beets – contribute to a Saskatchewan Pension Plan account and if you are already doing that, consider increasing your contributions each year. You’ll be glad you did down the line.

Many savers using the wrong long-term approach
Let’s face it – whether it’s hanging a new door on the shed, patching a hole in the drywall or growing our own vegetables, many of us prefer to do things ourselves rather than depending on others.

However, when it comes to retirement savings, there are “DIY” mistakes that people tend to make, warns The Motley Fool.

First, the article notes, people tend to avoid riskier investments, like stocks. But over the long term, bonds and fixed income assets “are unlikely to provide a sizeable nest egg in older age,” the article says. The stock market is a good long-term investment, the article notes.

You need bigger long-term returns to outpace inflation, The Motley Fool advises.

Finally, it is important to avoid “short-term” investment thinking; retirement investing is for the long term, the article concludes.

Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer, hopeful darts player and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Sheltie, Duncan, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22