Who are the big users of RRSPs? Not surprisingly, mostly men and older people

The RRSP franchise is slipping.

A declining percentage of taxpayers are contributing to registered retirement savings plans and those who do skew to an older, male-dominated demographic. Here are some insights on RRSPs that come out of the 2018 contribution data released recently by Statistics Canada. The deadline for contributing to RRSPs for the 2019 tax year is Monday, March 2.

RRSPS ARE LOSING MARKET SHARE

With a growing population of tax filers, you’d expect RRSP contributions to be on the increase. But the total number of people putting money into RRSPs fell 4.6 per cent from 2000 to 2018. That’s a drop to six million from 6.3 million.

Twenty-nine per cent of tax filers contributed to an RRSP in 2000, compared with 22 per cent in 2018. The 2009 launch of the tax-free savings account has something to do with this trend. In fact, the number of RRSP contributors had yet to recover to the 2008 level.

Home ownership may also have a role in the declining use of RRSPs. High house prices may leave younger households with less to save for retirement, while also giving people the sense they are building wealth for the future. Note: Houses are unhelpful for providing retirement income unless you downsize to a cheaper home or city to free up cash.

MEN CONSISTENTLY PUT MORE MONEY IN RRSPS THAN WOMEN

On the surface, there seems to be improving RRSP equality between men and women. Fifty-three per cent of contributors were men in 2018 and 47 per cent were women, compared with 55 per cent men and 45 per cent women in 2000.

But data on how much men and women contribute tell a different story. Economist Armine Yalnizyan said women’s share of RRSP contributions rose to 33 per cent from 23 per cent from 1979 to 1989. Almost 30 years later, women still only accounted for 39 per cent of RRSP contributions and men account for 61 per cent. Why? “Men still make more money,” Ms. Yalnizyan, the Atkinson Fellow on the Future of Workers, said by e-mail. “They are more likely to be employed, and employed full time.”

OLDER, WELL-OFF PEOPLE DOMINATE IN CONTRIBUTIONS

The average age of RRSP contributors has crept up to 46 from 43 since 2000. A more telling statistic on the aging of RRSP contributors is that almost one in three RRSP contributors in 2018 were 55 and older, compared with just 16 per cent in 2000.

Our population is aging, and older workers tend to have higher salaries. Statistics Canada analyst Derek Messacar says this helps explain why people with $80,000 or more in total income accounted for 69 per cent of RRSP contributions in 2018, up from 31 per cent in 2000. “Older workers are using RRSPs more,” he said.

Meanwhile, the idea of getting an early start on retirement savings with RRSPs seems to be fading a little. Forty-six per cent of contributions came from people aged 25 to 44 in 2000, compared with 30 per cent in 2018.

It does make sense for younger people to use TFSAs instead of RRSPs. Ideally, you’d use both savings vehicles. But if you must choose, RRSPs make sense in your peak earning years and TFSAs in the earlier, lower-income years of your career.

RRSPs work best when your current tax rate is higher than the rate you anticipate in retirement. That way, your tax deduction for making an RRSP contribution exceeds the tax hit on withdrawals from your retirement savings. TFSA contributions do not generate a tax deduction, but withdrawals of capital and investment gains in the plan are tax-free.

CONTRIBUTION AMOUNTS ARE BARELY RISING

Adjusted for inflation, total RRSP contributions increased to $43.5-billion from $40.9-billion between 2000 and 2018, which amounts to only 6.4 per cent in total. The inflation-adjusted median contribution amount was up 16 per cent cumulatively between 2000 and 2018 – to $4,377 from $3,775.

TFSAs have cut into RRSP contributions, without question. In 2017, the most recent year for which data are available, the average TFSA contribution was just more than $7,500. But here’s a question: RRSPs are a retirement-focused savings program, whereas TFSAs can be used for anything. Will TFSA contributions made for future use in retirement actually be available for that purpose in the years ahead?