Debt repayment or saving?

This is a hot topic these days. The Globe and Mail often covers this topic and recently highlighted a poll that suggests "that the number of people aged 18 to 34 who have registered retirement savings plans has fallen to the lowest level in almost a decade at 39 per cent." In a nutshell, I believe that psychologically you need to have savings. Get your debt interest payments as low as possible, contribute to an RRSP if your company matches and put what you can in a TFSA. Modify your spending patterns to be able to pay down debt while saving at least 2% of your gross income to start. This is a realistic strategy that allows you to see your progress in aggressive debt reduction and (very) modest savings. Once your consumer debt is eliminated, you can redirect that money to savings, equally hopefully 15%+ of your gross income.*

As RRSP "season" continues (there is no such thing but the banks like to use February to push top-up RRSP contributions for the previous year's tax deduction) people are conflicted with media and advertising hype. If you're not contributing 18% of your income to an RRSP will you be left penniless and destitute in retirement? Let's look at some factors here:

  1. What is "retirement"? The concept of working like a dog for 45 years then leaving work to play bridge and sit on the porch knitting is an out-dated one. The Baby Boomers are already redefining "retirement" and they were the generation who did start their careers early and many sacrificed family time to get ahead. Generation X and Y have no such delusions of sailing off into the sunset at age 65, pension in tow. Gen X/Y has a very healthy sense of work/life balance.
  2. Unlike the Baby Boomers, the younger generations are graduating with increasing debt-loads. I thought I had a hard time repaying my $25,000 of undergraduate debt. Little did I know I got off easy as many of my peers, especially those with Master's degrees, are up to their ears in debts of $50,000+. And the premise that the more education you have, the more you'll make? True for specialized degrees but in many cases competing for a job against someone the same age with an eight year head start in experience in the workforce is tough.
  3. How (and should?) you be saving? The great debate regarding debt repayment vs. RRSPs vs. TFSAs rages on. First, it's good to know what your monthly expenses are and what kind of spender you are. What are your financial goals (buying a house, etc.)? And how much do you really need, when you are able to start socking money away for retirement?

* This is broad generalized guidance for individuals living in Victoria. Your situation may not be applicable to the above.