Going to miss the RRSP deadline? Blame evolution

With the Feb. 29 RRSP deadline looming, many Canadians find themselves rushing to their respective financial institutions to make last-minute contributions. They can blame part of their procrastination on evolution.

A recent RSP Deadline Poll by the TD bank, based on 664 responses, showed 58 per cent of Canadians who expect to make contributions to their RRSPs, have left it to the last two weeks before the deadline to contribute. That includes 15 per cent who contribute this way every year.

A similar survey by CIBC on Feb. 23, based on 876 responses, found that 25 per cent of potential contributors were yet to make a contribution and, of that group, half have said they would leave it right down to the wire and put it off until the 28th or 29th of February.

 What makes this interesting, says Geoff Dillon, senior director of retail and business banking at CIBC is "the deadline comes up roughly around the same time every year and yet we do find obviously that there are people at the last minute making contributions."

'25 per cent of Canadians say they still have to make a contribution to their RRSP for the 2011 tax year before the deadline.' —CIBC Poll

 This last-minute push, however, doesn't surprise Timothy Pychyl, a professor of psychology at Carleton University in Ottawa, and a leading expert on procrastination.

 He says it comes down to procrastination, what he defines as "a voluntary delay of an intended action despite knowing that you're probably going to be worse off if you delay."

Don't delay

Which is exactly the case, most financial experts will agree, when it comes to contributing to your RRSP.

'If you wait until just before the deadline and make one lump-sum payment, you're missing out on really making the most of your retirement saving.' — Cynthia Caskey, TD Waterhouse

"If you wait until just before the deadline and make one lump-sum payment, you're missing out on really making the most of your retirement saving," says Cynthia Caskey, a vice-president and portfolio manager at TD Waterhouse. 

"Thanks to the power of compounding, contributing to your RSP throughout the year, instead of just before the deadline, can really make a big difference."

For his part, Pychyl identifies a few basic reasons why we procrastinate when it comes to things like RRSP deadlines.

Chief among them is that "we like immediate rewards, so we give in to feel good by putting off things we find aversive," he says.

'We choose to reward ourselves in the short term and discount the future rewards.' —Tim Pychyl, Carleton University

More often, he adds, "we choose to reward ourselves in the short term and discount the future rewards."

Basically, we are more likely to choose something that will make us happy now instead of later because, as Pychyl points out, "we are very bad at delaying gratification and predicting future emotions.

"If you ask me how I'm going to feel tomorrow, I will usually base it on how I feel today."

What's retirement

Another way of understanding why we delay in making RRSP contributions is through something called temporal construal theory.

As Pychyl puts it: "If we think about things concretely, they seem to belong to the present, they have a sense of urgency to them, but if we think about things abstractly they belong to the future, then there is no urgency."

'Canadians have confided in us they don't really have a clear picture of what retirement is.' —Cynthia Caskey, TD Waterhouse

According to Caskey, "Canadians have confided in us they don't really have a clear picture of what retirement is."

She says "only 16 per cent have a clear idea, 44 per cent have a vague idea and 40 per cent have no idea at all".

According to temporal construal theory, people, events, outcomes, can be perceived as either close or distant and the further away they may seem, the less desirable they tend to be.

Evolutionary history

Pychyl further explains that this lack of a clear image of our future blurs our reality and is based on evolutionary history.

'Long-range planning is not built in us.' —Tim Pychyl, Carleton University

"We aren't programmed for long-term rewards," he says. "Our ancestors did not live like we live, so long-range planning is not built in us."

According to Statistics Canada, the average life expectancy in 1952 for Canadian males was 66 years and for Canadian women 71 years.

By 2030, that is projected to be over 80 for both males and females.

This means the average person will spend 20-plus years in retirement, but the idea of taking that first step can be daunting.

"Six in 10 people told us they feel behind when it comes to savings and investing for retirement," says Caskey. "Sometimes they don't even know where to start."

Experts like Dillon say "it's well worth the modest time investment to sit down with an adviser" and look at your options.

Pychyl agrees. "You have to plan," he says, "the remedy here is people have to start to plan more very concretely. This is why having a financial consultant can help."

Technology can help

Although technology can be a terrible distracter for many, it has also made it easier for people to invest. And that ease means more people are likely to do it, Pychyl says. "If I can do it in the park and from my iPhone, I'm more likely to get it done."

All of the experts agree and encourage you to think about making your contributions automatic.

Caskey says, "setting up automatic contribution is easy and then you're set for the rest of the year."

'If you make it automatic, you will adapt and you actually won't even notice it after a couple of months' —Preet Banerjee, Personl Finance Expert

Personal finance expert, Preet Banerjee, told CBC's Metro Morning "I've talked to numerous experts and they all say the same thing, 'if you make it automatic, you will adapt and you actually won't even notice it after a couple of months.'"

Researchers like Pychyl call this kind of technique "a creative commitment device," in this case, the best way being to have your RRSP contributions set as a default position on your paycheque so that they are directly deposited.

"For most people when it comes to long-term rewards, that's the way it has to be done," says Pychyl, because then "it's structured and it's not up to our individual will power anymore."

But if you are a first time investor and feeling a little anxious about the looming deadline, Banerjee says it may be best to hold off until next year.

"I don't want people rushing in to make bad decision at the last minute instead of taking their time to really think about what they should be doing and that would involve sitting down with a financial adviser."