For many Canadians, the weeks leading up to the annual contribution deadline for registered retirement savings plans (RRSPs) offer a chance to reevaluate their savings and investing goals.
But as the March 1 RRSP contribution deadline for the 2020 tax year approaches, those reevaluations may feel different for some Canadians this year as a result of the ongoing COVID-19 pandemic, and the effect it continues to have on the financial realities of millions of individuals.
In fact, according to a recent Ipsos poll conducted on behalf of TD, more than one in three (35%) Canadians report that the pandemic has impacted their savings and retirement plans, while one quarter (25%) of those affected said they needed to cut back on contributions or stop them altogether.
Even though the survey found that roughly 70% of respondents reported that they feel confident managing their finances, the survey also revealed that nearly six in ten (59%) Canadians are worried about the effect of COVID-19 on their savings and retirement plans.
According to the survey, 13% of Canadians have cut back or stopped saving for short-term or immediate purchases like vacations, clothing, home items, discretionary spending, or saving for a rainy day. A further 11% have reduced or stopped contributing to their long-term savings for larger purchases (e.g. buying a house, home renovations, a wedding, or a new car).
Whether your finances have been directly affected by the pandemic, or you've been able to continue working and saving, tax season is still a good opportunity to re-examine your financial goals and how they may have shifted over the past year, according to Julian Suk, a TD Financial Advisor in Richmond, B.C.
Below, Suk provides some insights into the benefits of RRSPs and tax-free savings accounts (TFSAs) and how proactive planning for your finances can help ensure your goals are reflective of your changing needs as the pandemic continues.
What are the most common questions customers are asking this year as the deadline approaches?
The most common question we get is always whether it's better to invest in a TFSA or an RRSP. Of course, the answer changes depending on the customer's situation, which is why I like to ask questions to learn more about my customers' needs and explain to them the difference between the two types of registered plans [Editor's note, for more information on the difference between TFSAs and RRSPs, please see this article on TD Stories]. Another common question we get is about when customers can take money out of their RRSP without being taxed. That's when we talk to them about programs like the Home Buyers' Plan and the Lifelong Learning Plan, which feature repayment periods of 15 years and 10 years respectively and which are subject to eligibility and conditions.
What's different about this year's RRSP deadline compared to previous years?
The deadline for contributions for the 2020 tax year is March 1, 2021, and as you might expect, it's shaping up to be a unique year for sure. To begin with, simply making contributions to your RRSP ahead of the deadline may look a little different this year at TD because of physical restrictions related to the pandemic. So, customers who do want to make their contributions in person will need to ensure they plan ahead. But, compared to previous years, there are more tools available for clients including the ability to book a virtual appointment with a TD Canada Trust advisor.
What advice do you have for those customers who are worried about their savings goals suffering as a result of the pandemic?
As you would imagine, many of our customers are worried about their investments right now. Even though I do have many customers who are satisfied with their contributions for 2020 and have been able to save for retirement, we recommend following up with your financial advisor annually to revisit your objectives. We are seeing that some customers are worried about their investments if they had more short-term priorities, but we do try and emphasize focusing on the long-term horizon and the importance of staying invested. Our approach has been to review their investment time horizon and their investment goals. It's so important to have conversations with our customers so that we can truly understand their situation, their needs and their concerns. If you're worried about your savings goals suffering, I would recommend meeting with a Financial Advisor who can conduct a goals-based review with you that can help you take the right financial steps towards your family's future.
For those customers who have managed to save money as a result of reduced spending, what should they be thinking about as the RRSP deadline approaches?
If a customer has been able to save money as a result of reduced spending, our advice would be similar to the advice we've provided in previous years. First, decide what your savings goals are, and, if they're more focused on short-term priorities – for example, making a major purchase – or longer-term priorities, like retirement. I also remind customers that any RRSP contributions they make in the first 60 days of this year can be applied to their 2020 taxation year.
About the survey
Survey results are from an Ipsos poll conducted online between Nov. 24 and 26, 2020, on behalf of TD. A sample of 1,002 Canadians aged 18 and over were interviewed for this survey. The sample included Canadians from across the country and is considered accurate to within ± 3.5 percentage points, 19 times out of 20, had all Canadians aged 18+ been polled. All sample surveys and polls may be subject to other sources of error, including, but not limited to coverage error, and measurement error.