The fact that proper retirement planning is necessary cannot be contested. However, the commercialization of the process has led to some inappropriate rules of thumb and retirement planning myths and misconceptions. Some of the common areas where these exist are discussed below.

Maximize Your RRSP
For a period of time and for certain individuals the recommendation to maximize your registered retirement savings plan (RRSP) contribution has been and continues to be relevant. However, for many this blanket statement is beyond their means, and for others it is beyond what is necessary.

If we are to consider the situation of a graduating university student who enters the technology area with a starting salary of $55,000, CCRA would allow that student to contribute a maximum of $9,900 (18% of earned income). The number alone sounds intimidating, but an analysis of expenses like rent, car purchase, living expenses, student loan payments, saving for a mortgage down payment, etc. would show the average individual starting out does not have the ability to contribute even 25% of their maximum.

If this individual were to make annual contributions for forty years at a ten- percent return, his/her retirement portfolio would grow to $4,381,000. Without getting into further planning it would be difficult to determine whether that large a retirement fund is necessary. Even it if is, it would be very burdensome in the early years of life to provide for the high income in later years.

A number of authors in recent years have criticized this type of strategy and made statements like "die broke... you can't take it with you". They suggest that with all the other stresses of life it is not sensible to overemphasize planning for a retirement which you may never live to see. Who knows? Maybe they have a point.

Despite the government incentives of tax deductibility for the contributions, many taxpayers simply cannot come up with the large payment. In the example above the individual would make the contribution of $9,900 by the end of February and then receive a tax refund of approximately 40% upon filing a tax return. This refund is a major incentive to many to contribute, but again people need to be committed to retirement planning and have the ability to contribute up front.

Although it is important to start saving early, it is not necessary to overdo it. In recent years individuals have often changed jobs several times throughout their careers. One needs to consider retirement impacts of this while planning career moves. Sometimes a move will mean improved pension plans or retirement assistance, while other times these benefits may be reduced. In any case, it will become necessary to plan for the likelihood of career and plan changes throughout life similar to other risk factors like inflation and investment return.

Make Spousal Contributions
The Canadian RRSP system allows spouses to make contributions to each other's retirement plans with deductibility of contributions going to the contributor and taxation of withdrawals in the hands of the spouse (after a two-year period). This system is one of the last major income splitting options available to families, however there are a number of taxpayers who simply do not understand the importance of proper planning and use of this tax strategy.

Unfortunately a number of situations have been noted where couples have decided to use the spousal RRSP improperly. In many cases it is beneficial for the higher income spouse to make contributions so that the tax benefit at the time of contribution is higher (if the tax bracket/marginal tax rate is different) and most people do properly follow this rule. However, these taxpayers at times make their entire contributions to the spousal plan.

In one situation, a couple had saved a considerable amount of funds and were near retirement before an advisor made them aware of a problem with their savings plan. The higher income spouse had no pension plan from work and had less than $10,000 in his own RRSP, but contributions to his spouse's RRSP had grown to nearly $2.5 million.

The result is that all of the income in retirement has to be taxed in the wife's hands. Due to marginal tax rates, the ultimate tax paid on the savings will be much higher than if the funds had grown to $1.25 million in each person's hands. The difference was basically a name on the contribution receipt, but it was too late fix the problem. The tax system provides no means to make a retroactive change to retirement contributions (to avoid abuse).

Solving the Problems
The situations noted above are just a couple of examples of commonly misunderstood areas of our retirement planning and taxation system. The keys to both of these areas are basic retirement planning fundamentals:

• Start Early - This principle is definitely important but the key is to start and not to focus on 'maximize'. A basic contribution of $100 per month starting at age 25 would grow to over $1 million at a rate of 12%. This seems like an excellent starting point for the younger investor.
  
• Invest Often - Following the principle of dollar cost averaging it is likely best for most retirement planners to follow a monthly or quarterly investment schedule over the long term.
  
• Plan - As with any investment strategy, proper planning and education can be extremely valuable. It is especially necessary to factor in lifestyle, career path changes, and retirement age goals when determining the appropriate retirement planning strategy. The plan needs to be revised at least every few years to adjust for goal changes, risk factors, inflationary changes, and tax reform.
  
• Review - For changes in growth - such as between spousal plans - it is necessary to focus on the future. At each point of review the current investment strategy needs to be reviewed with an objective to have equivalent retirement incomes and therefore minimize the future income taxes to be paid.
  
• Remember - you can only solve problems you know about so learn, plan, and review!