Canadians more positive, saving extra for retirement

Looking at the five-year performance of the TSX, it might be easy to forget how far the market fell after the tech bubble burst, but it seems few actually have. Two separate surveys released Wednesday suggest that despite the strong year on the Canadian markets, investors are more guarded they were back in 2000, but they are secure enough to save more for retirement.

It’s been long enough that the peak in 2000 has fallen off most charts, as has much of the slide. With the TSX sure-footed above 11,000 and within sight of its all-time high, one might expect investor sentiment would follow. But according to the latest Manulife Investor Sentiment Index, investors are nowhere near as positive as they were back before the market popped.

That’s not to say that investors aren’t positive. Investor outlook is at its highest level in more than four years, says Manulife. Seven of the 10 categories Manulife measures in its survey are up from September. RRSPs, RESPs, and investing in homes showed the strongest gains overall, while cash, investments in property and balanced funds recorded slight declines.

When Canadians were asked separately if they felt they were better off then they were five years ago, more than half said they were — although these numbers weren’t reflected in the overall poll. “The last several quarters reflect a strong focus on long-term savings and investment plans,” said Bruce Gordon, Manulife Financial’s senior executive vice-president and general manager in a release.

A report released by TD Waterhouse seems to back up Manulife’s findings. TD found that more Canadians now own RRSPs and that the size of contributions is climbing. More than four out of every five Canadians now has an RRSP, up from 78% in 2004.

The western provinces witnessed the most dramatic increase in RRSP ownership. In British Columbia, RRSP ownership climbed to 83%, up from 69% in 2004, while RRSP ownership in the Prairies jumped to 85% from 75% a year earlier. Quebec meanwhile experienced a slight decline.

B.C. also led in the average size of RRSP contributions in 2005, with the average person squirreling away $5,690, verses the national average of $5,100, which itself is 30% above the average contribution in 2002.

Still, the greatest disparity lies not with the provinces, but with the sexes. The average Canadian male contributed $5,930 to his registered-plan while the average woman saved only $3,990. The report did not provide any possible reason for this difference.

The amount of money needed to retire is also up. This year most Canadians estimate they will need nearly $900,000 saved up to retire, that’s up from $731,000 in 2004 and markedly higher than the $530,000 in 2003.

“Rising rates of RRSP ownership, higher contributions and higher targets for retirement nest eggs are all welcome trends,” said Patricia Lovett-Reid, a senior vice-president at TD Waterhouse Canada in a release. “The greater participation rate and more realistic targets will mean that more Canadians realize their goals.”

Still, TD cautions investors to plan ahead, especially with more Canadians counting on the equity in their homes to retire. Manulife’s survey tracked a similar trend. It found that investing in one’s own home, either through renovations or paying down the mortgage, is currently the most popular investment.

Almost 40% of the respondents to TD’s poll said they will rely on the equity in their homes to retire, up from 27% in 2004. “Real estate values fluctuate over time and by region, and the further you are from retirement age, the more risk there is that your home equity may not be as high as you expect when you retire,” warned Lovett-Reid. Moreover, she adds that people often find that when they retire they don’t want to move, so it is important for Canadians to keep their options open.

Filed by Mark Brown, Advisor.ca, mark.brown@advisor.rogers.com

(12/21/05)