Why Canadians aren’t pumped about saving

Study finds a disconnect between our beliefs and behaviours when it comes to retirement planning
Dianne Nice

Globe and Mail

Published on Sunday, Aug. 01, 2010 12:00AM EDT

Saving for retirement can be a bit like trying to get in shape: You need to start slowly, work at it regularly and don’t expect to see immediate results.

But like those fad-diet articles that line the checkout aisles, with their countless tips for losing weight, retirement savings options can be overwhelming. And when your tummy’s rumbling, it’s tempting to just buy a chocolate bar today and put off the diet – or the saving – until tomorrow.

The same psychological barriers that prevent us from shaping up may also be keeping Canadians from bulking up their retirement savings, according to a new report by the BMO Retirement Institute. The report, based on a Strategic Counsel survey of 2,034 Canadians 35 years of age or older, suggests certain behavioural roadblocks, including “paralysis of choice” and “immediate gratification,” are creating a disconnect between what Canadians believe they should be doing to prepare for retirement and what they are actually doing.

Almost 90 per cent of Canadians believe retirement planning should begin before the age of 35, according to the poll. Yet 40 per cent of non-retirees admit they have done no retirement planning at all. The problem isn’t ignorance, says Tina Di Vito, head of BMO’s Retirement Institute. “We know what we need to do, we know when we should do it, we just don’t make it a priority.”

More than eight in 10 non-retirees who have not started saving said they are more concerned about current needs, such as their mortgages and other debts, than their retirement.

This is particularly true for those aged 35 to 44, who are more likely to say they overspend (53 per cent), have debt (88 per cent) and worry about it (25 per cent). Of that group, half said they felt they had fallen behind in their retirement planning, and 44 per cent said they were dissatisfied with the amount they had saved.

“Clearly, this age bracket represents a period when people are buying houses, paying mortgages and raising children, and the thought of diverting funds to retirement takes a back seat,” the report states. “Yet it is also a crucial period of wealth accumulation – a stage of life still far enough away from retirement to permit the magic of compound interest to play its role.”

More than 40 per cent of non-retirees admitted they spend more than they should, saying they wanted the “good things in life.” And more than a quarter said they felt they should “eat, drink and be merry” because they may not live to old age.

Lower-income respondents were more likely to report that they felt overwhelmed by too much information, yet they also said they find pension plans, RRSPs and other retirement savings accounts confusing.

“The idea of starting a regular retirement savings program can be overwhelming for many people,” Ms. Di Vito said.

As with exercising, however, no pain, no gain. Once you establish a routine, your healthy habit can become second nature.

“The psychology of doing something puts you in the right frame of mind and helps to establish discipline,” Ms. Di Vito said. “When you can, increase the amount you set aside. The chances are, if you start something, like contributing to an RRSP, you’re going to keep doing it.”

Mortgage rates remain at lowest level in decades

Average rates on 30-year fixed mortgages unchanged at 4.57 pct, lowest level in decades 

Thursday July 15, 10:32 am ET

By Alan Zibel, AP Real Estate Writer

WASHINGTON (AP) -- Mortgage rates were unchanged this week at the lowest point in decades, but it hasn't been enough to jump-start the housing market.

Government-sponsored mortgage buyer Freddie Mac said Thursday the average rate for 30-year fixed loans this week was 4.57 percent. That's the same as a week earlier and the lowest since Freddie Mac began tracking rates in 1971.

The last time home loan rates were lower was the 1950s, when most mortgages lasted just 20 or 25 years.

Rates have fallen since the spring. Investors, concerned with the European debt crisis, have poured money into the safety of Treasury bonds. Treasury yields have fallen and so have mortgage rates, which tend to track yields on U.S. debt.

However, low rates have yet to fuel home sales and have sparked only a modest increase in refinancing activity.

The housing market has slowed since federal tax credits for homebuyers expired at the end of April. And the latest decline in mortgage rates is unlikely to boost the market.

Mortgage rates have hovered near record lows for some time, so most people who can afford to buy homes or qualify to refinance their loans have already done so in the past 18 months. Doing so again wouldn't be worth the cost for most.

Meanwhile, millions of Americans are unable to take advantage of the low rates. Many have seen the value of their homes plummet and have little or no equity. Or they lack good credit or steady income to get or refinance a mortgage.

Rates could go lower and still not budge the housing market, analysts say. That's because a person without a job can't afford a home and a person worried about losing their job is unlikely to do so either.

To calculate the national average, Freddie Mac collects mortgage rates on Monday through Wednesday of each week from lenders around the country. Rates often fluctuate significantly, even within a given day.

Rates on 15-year fixed-rate mortgages decreased to an average of 4.06 percent, down from 4.07 percent last week. Rates on five-year adjustable-rate mortgages averaged 3.85 percent, up from 3.75 percent a week earlier.

Rates on one-year adjustable-rate mortgages fell to an average of 3.74 percent from 3.75 percent.

The rates do not include add-on fees known as points. One point is equal to 1 percent of the total loan amount. The nationwide fee for all types of loans in Freddie Mac's survey averaged 0.7 a point.