Changing attitudes towards RRSP contributions in Canada: It’s complicated
That was the reasoning behind Schultz’s decision to pause his RRSP contributions. “I live clean, I don’t drink or smoke, but I have to be careful of other people. Right now, I want to stay alive and have money in case I get ill and can’t go to my work. I need to eat and bills need to be paid.”
It should be noted that Schultz’s employer takes the pandemic very seriously and practises good hygiene—but he’s a pragmatist and wants to be prepared for the worst-case scenario.
Inequality and a lack of financial pressure mean nothing changed
For some, the pandemic hasn’t had any real financial impact. Darryl Brown, an independent investment consultant at You&Yours Financial, found there hasn’t been a huge difference in his clients’ financial situations and didn’t think the survey results reflected them. “People who have income to contribute to their TFSAs and RRSPs haven’t really been affected by the pandemic,” he says. “It is a luxurious place to be—to not be struggling to pay your bills.”
He has noticed, though, that liquidity has become more important for his clients. And the pandemic has highlighted the need for a financial plan.
Opening RRSPs and TFSAs during COVID-19
Last year wasn’t entirely negative for some Canadians who started saving money in RRSPs and TFSAs for the first time. KJ Aiello, a freelance writer based in Toronto, started her retirement accounts due to the pandemic. “I am worried about a recession, which I think is coming, and since my husband and I are both self-employed, I don’t want to be in a position where bank accounts run dry.”
She started an RRSP because she thought at 41, it was about time, and also started a TFSA for protection when work dries up. “One of my clients isn’t sending too many briefs at this point because they’re in the construction industry in the U.S. That prompted me to start these accounts.”
The TFSA is her emergency account. Despite its name, a tax-free savings account lets you hold a wide variety of investments, including cash, bonds, securities, ETFs, mutual funds and GICs. The best part? Interest, dividends and capital gains earned on investments you hold inside a TFSA are not taxable, even when you make withdrawals.
Among the many benefits of contributing to an RRSP and TFSA is that interest compounds over time, so the earlier you start contributing, the more time you have to take advantage of compounding. Schultz does plan to et back on the RRSP wagon once he feels physically safe. For now, he says, pausing contributions “wasn’t a hard decision to make. You have to be strategic with your money but you also have to be tactical in the present.”