RRSP or TFSA which is more popular and why?
Last year was the 50th year for Registered Retirement Savings Plan (RRSP). However is seems that the golden age for this retirement scheme is gradually but surely getting over. The popularity for the Tax Free Savings Account (TFSA) is in comparison is rising. It is true that the former has a larger number of contributors but the gap between RRSP and TFSA is becoming narrower. In fact it was seen that the Percentage of RRSP contributors in the age group of 25 years to 54 years declined by 16% from 2000 to 2013. In terms of dollar terms too, the RRSP contributions fell from 30 billion dollars in the year 2000 to $ 22.50 Billion in the year 2013.
The popularity of TFSA following its introduction
One major reason why the contribution towards RRSP is undergoing a fall is due to the reason that the TFSA scheme was introduced in the year 2009. It was seen that following the introduction of the TFSA Scheme the number of individuals who contributed for TFSA increased rapidly from 2 million in 2009 to over 3 million in 2013. The number of people who contributed to RRSP over the same corresponding period actually fell.
Why is TFSA more popular under current scenario?
One major benefit about the TFSA scheme is it is very flexible. This is why it is more popular. Apart from this the main reason for its popularity over RRSP is that, RRSP was designed mainly for the purpose of retirement. The TFSA on the other hand can help you to save for retirement as well as for a host of other things as well. These could include everything from buying a new home, a new car, a holiday or anything in the short term.
Another trend which emerged both for the RRSP as the TFSA is that back in the 1980s the household debt to personal disposable income has increased sharply from 66 % in the 1980s to 171 % right now. This makes it evident that Canadians are now having a difficult time saving in comparison to the past.
