Blogosphere
Mar 18: BEST FROM THE BLOGOSPHERE
March 18, 2024Those taking CPP at 60 worry about their health, finances: Wealth Professional
We frequently hear or read that waiting to take the Canada Pension Plan (CPP) later in life – say, age 70 – will lead to a greater monthly payment.
Yet, reports Wealth Professional, most people choose to start CPP at age 60, despite the fact that they will get a 36 per cent reduction on their payments.
“An informal survey conducted by The Globe and Mail found that the most popular age to take one’s CPP benefits is 60, with 34 per cent of the respondents saying so. This was followed by those aged 65 with 19 per cent and those aged 70 with 16 per cent. This coincided with the data from Statistics Canada that also found that nearly 40 percent of Canadians who were born between 1940 and 1950 began to take their CPP benefits at the age of 60,” Wealth Professional notes.
That’s despite having payments at age 60 decreased by “0.6 per cent every month (before age 65), amounting to 7.2 per cent annually and a maximum reduction of 36 per cent at age 60,” the magazine continues.
The article quotes recent research from Toronto Metropolitan University’s National Institute on Ageing (NIA) as saying “those who take their pensions at 60 instead of waiting until they turn 70 can possibly lose a total of $100,000 (in) retirement income.”
The NIA report found that a mere one per cent of us wait until age 70 to get the maximum benefit, which represents 42 per cent more than what you would get at age 65, Wealth Professional reports.
There are plenty of good reasons why people don’t wait for a greater benefit, the article continues.
“The Globe and Mail survey found that the reasons behind this included the need for financial coverage of living expenses, having health problems or family history of health issues with the expectation of not having a long retirement, as well as the uncertainty of life. Some were also concerned about the possibility of the CPP being compromised in the future, with many citing the departure of Alberta from the CPP for the Alberta Pension Plan,” the magazine reports.
Some used the “why turn down money on the table” argument, taking CPP at 60 and then hoping “they will be able to make more than the government will be providing them down the line,” the article notes.
Some felt taking a lower CPP payment would keep them in a lower tax bracket, the article adds. Those waiting to start CPP at age 65 and beyond “stated that the reason behind this was to increase the payout of their benefits.”
If you don’t have a workplace pension plan or personal retirement savings, you would have to keep working until 65 or 70 to get the greater benefit. If you aren’t working after 60 one would think the CPP would be an immediate need.
Since, as the article says, the maximum CPP benefit in 2024 is $1,364.60 per month at age 65 (that’s before taxes), you might want to be able to bolster that modest amount with your own savings. If you’re not sure how to grow your savings, fear not – the Saskatchewan Pension Plan is ready to help. You decide how much to contribute, and SPP does the heavy lifting of investing your hard-saved dollars in a professionally managed, pooled fund run at a very low cost.
When it’s time to collect, you have the options of choose a lifetime annuity payment each month, or the flexibility of SPP’s Variable Benefit, where you decide how much to take out in income.
Check out SPP today!
Join the Wealthcare Revolution – follow SPP on Facebook!
Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.
Mar 11: BEST FROM THE BLOGOSPHERE
March 11, 2024Do our brains work against us when it comes to saving?
Writing for CNBC, Jasmine Sukanin reports that our barriers to saving for the future may be all in our head.
What now?
“There are the many psychological pitfalls our minds are subject to when it comes to saving, investing and taking the actions that will benefit us long-term,” she notes.
If, she writes, retirement is something that is far away for you – maybe 30 or 40 years from now – “many would rather treat themselves to things they can enjoy right now instead of socking away money for a future that’s decades away.”
This, she explains, is called hyberbolic discounting, and refers to the fact that most of us prefer decisions leading to immediate rewards rather than decisions leading to future rewards.
Another factor that can cause our brains to reject a new plan, like starting to save, is that “people often have a tendency to stick with their current situation, since it is easier to keep things as they are than it is to take steps to make a change,” she writes.
This, she writes, is called the status quo bias.
“People tend to say, `yeah, whatever’ to situations where sticking with their default or current circumstance doesn’t immediately hurt them or cause a large loss. So they continue paying $10 for a gym membership they don’t use, let the dirty clothes pile up in the corner of their room and let the package sit until it’s past the return date,” she explains.
Summing up this one – it’s easier to do nothing than it is to start something new, even if that new thing is saving for retirement.
A related condition identified in Sukanin’s article is called the planning fallacy.
“We tend to underestimate how long it will take to complete a future task, often despite knowing that previous similar tasks have taken longer to complete than planned,” she explains.
In a retirement saving scenario, this results in people who “put off saving for retirement until their 30s and 40s, thinking that they should be able to amass as much as they’ll need for their golden years in just two decades.”
So, we think we can play catch up on retirement saving. But, Sukanin continues, that “catch up” thinking is joined by another problem, which is not knowing how much we need to save for retirement.
“According to the Journal of Accountancy, 54 per cent of (American) people underestimate how much money they will need to retire. Underestimating how much money you need for retirement and how long it will take you to save that money can be a recipe for an underfunded nest egg,” she warns.
So, we tend to live in the now with money decisions, don’t like making changes (like saving) and/or put our saving off until our middle years, making it hard to save enough. Phew!
It’s important to start saving for retirement, at any age. If you have a retirement program at work, be sure you are contributing as much as you can.
If you don’t, take a good look at the Saskatchewan Pension Plan. Once you join SPP, you decide how much to contribute, and SPP does the rest, providing low-cost, pooled investing with professional management and a sparkling track record.
And when you actually do retire as an SPP member, you can choose to receive a lifetime monthly annuity payment, or take advantage of SPP’s Variable Benefit, where you decide how much to take in income, and when!
Check out SPP today!
Join the Wealthcare Revolution – follow SPP on Facebook!
Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.
Mar 4: BEST FROM THE BLOGOSPHERE
March 4, 2024Follow these tips to help get yourself out of debt
There’s no question that personal debt is a barrier for those of us wanting to put a little money away for the future. But, writes Christopher Liew for CTV News, there are a few ways that can help kick-start your drive to leave debt in the rearview mirror.
First, he writes, you have to fully understand what your total debt is, and from all sources – student loans, credit card debt, personal loans, auto loans, and mortgages.
The interest rate on these debts should help you set priorities for paying them off, he notes.
“Mortgages and student loans typically have lower interest rates, so paying them off quicker may not make as big of a difference. As long as you’re making your minimum monthly payments, I would prioritize paying off high-interest debt first, as the compounding interest can cost you a lot of extra money in the long run. This is how credit card companies trap you,” he explains.
Liew offers up five debt-reducing strategies.
You can consolidate all your debts into one loan, “typically with a lower interest rate. This strategy can simplify your monthly payments and potentially reduce the total amount of interest you’ll pay over time,” he notes.
Another idea is to get a side job to make higher debt payments, he explains.
Side jobs that you could consider so you can pick up a few extra bucks include food or grocery delivery companies, being a ride share driver, waiting tables or bartending on weekends or looking for freelance jobs.
You can also, Liew writes, try to negotiate better terms with your creditor.
“Approach your lenders to discuss options like lowering interest rates, waiving fees, or modifying repayment plans. Be honest about your financial situation and be ready to present a case for why the adjustment is necessary,” writes Liew.
“Successful negotiation can lead to reduced payments or interest rates, making your debt more manageable and accelerating your journey to being debt-free,” he adds.
You could look at cutting your living expenses to free up more money to pay down debt, he writes.
A whopping “51 per cent of Canadians under 35 are living beyond their means,” notes Liew, citing research from the Healthcare of Ontario Pension Plan.
You can cut costs by trading in “your newer car for a more affordable used car,” cutting back on streaming subscriptions, “your personal shopping habits,” and “eating out and ordering in.”
The dollars you save by cutting back on life costs can be redirected to debt reduction, Liew explains.
Finally, you can always go ask your employer for a raise.
“One of the simplest ways to get out of debt quicker is to increase your income, and one of the easiest ways to increase your income is to ask your employer for a raise,” Liew writes.
“While some companies give out raises on a steady annual basis, others are a bit more stingy and wait for their employees to come to them first.”
Once you have taken control of your debts, you’ll have more money to put away for the future. An ideal place to put those hard-earned dollars is the Saskatchewan Pension Plan. Find out how SPP has been helping Canadians save for retirement since 1986! Check out SPP today!
Join the Wealthcare Revolution – follow SPP on Facebook!
Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.
Feb 26: BEST FROM THE BLOGOSPHERE
February 26, 2024Answer these questions to see if 2024 is your year for retirement: Ibbotson
Writing in the Winnipeg Free Press, noted financial writer Christine Ibbotson outlines ways you can confirm whether or not you are ready to hit the silk, and start your retirement.
She says she is frequently asked about retirement before 65 by folks who dream of “finally being free” of work – even the at-home variety.
But, she says, there are things to ask yourself before taking the retirement plunge.
“Is all your debt paid off,” she asks – credit cards, mortgages, lines of credit and car loans?
Next, she asks, “are you really ready to give up working, or are you just tired of your current position and need a change?”
A third thought is this – is someone else depending on your current income? “Will you need to support anyone other than yourself? If so, for how long, and how much will that cost annually?”
Do you have the flexibility to “downsize your residence or move to a less-expensive area to lower your monthly expenses,” she asks.
Are you clear on what your retirement income will be, she asks. “Will you have a consistent monthly revenue stream that is long-lasting and able to sustain you during times of uncertainty? Preferably in addition to Canada Pension Plan and Old Age Security government benefits.”
She asks if prospective retirees have any upcoming “large future expenditures” they have yet to save up for – and if the expense can be cancelled.
Do you have a realistic budget for retirement income, she asks – one that is as exact as possible, is costed out in today’s dollars, and factors in inflation and taxation?
Finally, she asks about socialization – do you belong to any clubs or social organizations, and have you factored in the cost? And do you have a plan on how to fill in your retirement hours? “Does your retirement partner want the same things as you and are they willing to make the same sacrifices to retire early?”
This is one of the best pre-retirement quizzes we have ever seen, and we sure wish we had read it years ago when we planned our own retirements.
We did get estimates from our pension plan at work about how much our retirement income would be, and they advised us to do a “net to net” comparison on income. This is key, since your pension is almost always less than what your work wages were – and usually is taxed at a lesser rate. So, know your take home pay after retirement to help you plan.
If you don’t have a workplace pension plan, don’t worry – the Saskatchewan Pension Plan may be just the thing you’re looking for. SPP is open to any Canadian with registered retirement savings plan room.
You decide how much to contribute each year – contributions are tax-deductible like an RRSP – and SPP does the heavy lifting of investing and growing your savings in a large, professionally managed, low-cost pooled fund. At retirement, your choices include the possibility of a lifetime annuity, or SPP’s Variable Benefit which allows you flexibility in how much income you want to collect.
Join the Wealthcare Revolution – follow SPP on Facebook!
Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.
Feb 19: BEST FROM THE BLOGOSPHERE
February 19, 2024Childcare workers in Nova Scotia get pensions, wage hikes
Licensed childcare workers in Nova Scotia are about to receive not only pay raises, but pensions and benefits, reports Global News.
The Nova Scotia Minister of Early Childhood Development called the move “a milestone in the professionalization” of the sector, Global reports.
“We understand that having a strong, stable early-learning … system means implementing programs and benefits that support the recruitment, retention and recognition of staff,” Minister Becky Druhan tells Global.
In Nova Scotia, the total cost of the wage/pension/benefits package is estimated to be $111 million, with the province providing $75.7 million and Ottawa providing the rest, the article notes.
Wage increases of “$3.14 to $4.24 per hour” will begin in April, and follow wage increases rolled out in 2022. The goal, reports Global, is “making working in childcare a more attractive option for those considering a career.”
The wage increases, reports the CBC, will help employees with their share of contributions to their new pension plan, operated by the Colleges of Applied Arts and Technology Pension Plan (CAAT). The benefits plan is operated by “the non-profit Health Association of Nova Scotia,” the CBC article notes.
“Once they’re enrolled, (early childhood educators) will contribute five per cent of their pay to each plan. Full-time child-care workers will see between $66 and $124 deducted for the new health benefits each paycheque, and another $80 to $100 for the pension plan,” the CBC reports.
CAAT’s DBplus pension plan is open to any Canadian employer. Save with SPP spoke with CAAT’s Derek Dobson on the progress of the new plan a couple of years ago.
Offering pensions and benefits to employees has long been viewed as a great way to attract and retain employees.
Did you know that the Saskatchewan Pension Plan’s voluntary defined contribution pension plan is not just for individuals, but can be offered as a company pension plan by Canadian employers?
With SPP, there are multiple options for employers who want to offer a pension plan for their team.
Employers can set up a “start up” pension plan, where a one-time employer contribution is made to individual employee SPP plans. Alternatively, you can set up a “employer match plan” where any contributions made by employees receive a matching employer contribution. There’s the “basic pension plan” option, where the employer offers the plan, and the employees contribute (no employer match), and the “performance pension plan,” an incentive-based retirement program.
Full details can be found here. Find out how SPP can help your employees save for retirement, with a flexible array of plan designs! Check out SPP today.
Join the Wealthcare Revolution – follow SPP on Facebook!
Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.
Feb 12: BEST FROM THE BLOGOSPHERE
February 12, 2024Avoid key mistakes that can cramp your style in retirement
When we’re slaving away in our cubicles (or, more often these days, from our dining room tables), retirement can seem a far-off, almost imaginary time when work won’t be necessary.
But CTV’s Christopher Liew warns that to enjoy a long and financially stressless retirement, there are several key planning mistakes you need to avoid.
He begins his article by noting that one in four Canadians will be over 65 by 2043, and that our country “is home to an increasing number of centenarians (those 100 and older) as well.” As recently as 1990, he continues, Canucks could expect to live to age 77. Today that number has jumped to 83.
“Canada’s senior population is growing larger and living longer,” he writes. “While this is great news, it also means the younger generations need to pay more attention to retirement planning.” So, what are the things we need to avoid?
First, writes Liew, don’t start saving for retirement too late.
“If you want to build a substantial retirement fund, time is your greatest ally. The longer your retirement savings have to grow and earn compounding interest, the more you’ll have when it’s time to step back and start your retirement,” he explains.
He then gives an example – Person A, who “opens a retirement account at age 25… deposits $1,000 and contributes $500 a month,” and Person B, who at 45 opens an account, deposits $10,000, and contributes a grand per month.
“By the time these individuals turn 65, Person A will have $731,838.63 and Person B will have just $423,324.43,” Liew explains, all thanks to the “magic of compounding returns.”
Another error to avoid is failing to diversify your investments, writes Liew.
“Putting all your retirement eggs in one basket can be a risky game. Diversification is key to balancing the risk and returns in your investment portfolio. Failing to diversify can expose your retirement savings to market volatility and specific sector risks, potentially derailing your long-term plans,” he notes.
A third mistake is underestimating your retirement expenses.
“Retirement often brings its own set of financial demands, ranging from healthcare costs to leisure activities. Underestimating these can lead to financial strain, potentially forcing you to dip into savings faster than you anticipated,” he warns.
Be aware – in advance – of “all potential retirement expenses, including healthcare, travel and hobbies,” he recommends. Plan for things like “home repairs or health emergencies,” and “consider the impact of inflation on your future expenses.”
Fourth on the list is not having a clear plan for your retirement.
“Without a defined strategy and vision for your retirement, you risk running out of funds, missing out on investment opportunities, or failing to account for expenses. A clear retirement plan helps you stay focused and make informed decisions,” he suggests.
Last, but not least, is not accounting for inflation.
“Failing to account for the gradual increase in prices over time can significantly impact the purchasing power of your retirement savings. What seems like a sufficient nest egg today might fall short in the future, especially with the rising costs of living,” he concludes.
Diversification is a key strength of the Saskatchewan Pension Plan’s Balanced Fund. All the eggs are in different baskets, including Canadian and U.S. equities, non-North American equities, real estate, infrastructure, bonds, mortgages, private debt and short-term investments. Check out SPP today – a made-in-Saskatchewan retirement program that’s open to all Canadians with registered retirement savings plan room!
Join the Wealthcare Revolution – follow SPP on Facebook!
Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.
Jan 29: BEST FROM THE BLOGOSPHERE
January 29, 2024Four in 10 Canadians not confident about retirement: TD survey
A whopping 43 per cent of Canadians say they are “not confident” that they will be able to retire when they initially had hoped to.
That’s a key finding from new research from TD Bank, reported on by Global News.
It looks like the increase in the cost of living is a key reason behind this lack of retirement confidence, the broadcaster reports.
“A majority (71 per cent) of the survey respondents also said that the high cost of living and inflation has made it increasingly challenging to meet their financial goals over the past year,” Global notes.
For its part, TD says the rocky economy is a good reason to consult professionals when thinking about personal finances, the article adds.
“Canada’s current economic climate continues to impact how Canadians approach their finances and investments, and that’s why it’s more important than ever to seek trusted advice,” Pat Giles, vice-president of saving and investing journey at TD, states in the article.
“In challenging economic conditions, the right financial support can make a significant difference, especially when balancing competing saving and spending priorities,” he tells Global News.
The article notes that the TD study follows a recent analysis by Deloitte Canada that discovered that “55 per cent of Canadians aged between 55 and 64 years will have to make changes to their lifestyles to avoid eating up all their savings during retirement,” the article continues.
Those responding to the TD poll said that “the high cost of living” has been holding them back from making contributions to their investments, such as registered retirement savings plans (RRSPs) and Tax Free Savings Accounts (TFSAs) this year.
Half (47 per cent) planned to make no contributions to RRSPs or TFSAs, and 46 per cent of that group specifically cited the higher cost of living as their reason to hold back.
More than half, or 54 per cent, have not set up a personalized plan to help them reach their savings goals, the article continues.
But it’s never too late to start, the article concludes.
“It’s a myth that you need to have a certain dollar figure to start prioritizing your financial future. No amount is too small to start saving or investing,” Giles states in the article.
One of the nice features of saving for retirement via the Saskatchewan Pension Plan is that you are in charge of deciding how much to contribute each payday, or each month. You can start at any level you like, and adjust your contributions as you go along.
Your contributions will then be invested in a low-cost, professionally managed, pooled fund. And when it’s time to retire and turn savings into income, SPP’s options include a lifetime annuity – you get a monthly payment for life – or the Variable Benefit, where you decide how much you want to withdraw in income, and how much you want to leave invested.
Check out SPP today!
Join the Wealthcare Revolution – follow SPP on Facebook!
Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.
Jan 22: BEST FROM THE BLOGOSPHERE
January 22, 2024Lack of savings, unexpected costs could make retirement tough sledding: Deloitte
A new report from Deloitte Canada finds that “nearly 55 per cent of near-retiree households will have to make lifestyle compromises to avoid outliving their financial savings.”
As well, reports the financial services firm in a recent media release, that number jumps to an alarming 73 per cent when “unexpected costs” are factored in.
The report, titled Running Out of Time: An Urgent Call to Fortify Canada’s Private Retirement Pillars urges the “financial services ecosystem” to “improve the quality and access of near-retirement advice and products, help retirees manage rising retirement costs, and help Canadians build healthy savings habits early on.”
In the release, Hwan Kim, Partner, Financial Services Information and Open Banking at Deloitte Canada, notes that “given roughly 40 per cent of retirement wealth inequality is due to a lack of financial knowledge, the financial services ecosystem must collaborate with the health care system and public sector to equip Canadians with accessible retirement advice, holistic near-retirement offerings, updated pension planning, quality health care, and new resources to retire confidently.”
The report had a number of somewhat alarming findings:
- “Only 14 per cent of three million soon-to-retire households can retire with confidence, while 31 per cent of near-retirees will require support in the form of the government’s public pension system.
- Only 24 per cent of private sector workers participate in employer-sponsored pension plans.
- 40 per cent of retirees have not purchased health insurance, of which 44 per cent cite expensive premiums as the primary reason for not doing so.
- 73 per cent of near-retiree households will be at risk of financial hardships
in later stages of life if they require long-term care. - 58 per cent of near-retiree and retiree households do not have a formal or detailed retirement plan in place.
- 44 per cent of working Canadians were dipping into their retirement savings to pay for non-retirement-related expenses.”
Getting the word out there about pensions and retirement programs is very important. Be sure you are aware of any retirement program that exists at your workplace, and even if you worry that taking part will be costly, your future you will be very glad you signed up. We know folks who decided against signing up for pensions and benefits, figuring they needed the money, who are now older and wiser, and missing that extra monthly income they might have had.
It’s also easy to ignore signing up for vision, dental, and drug plan benefits when you are young and still can see, chew, and get through a day without a bunch of pills. When you are older, however, these things won’t be as easy to achieve, and they are costly. Sometimes if you sign up for a group insurance plan at work you can remain in it after you retire, and again, your older self will be very glad you did.
Don’t have a pension program at work? Think about signing up for the Saskatchewan Pension Plan, a not-for-profit, open, voluntary defined contribution plan that’s been building retirement futures for over 35 years. SPP’s experts will invest your savings in a pooled, low-cost fund, growing them into future retirement income. You’ll have options when you retire, including the possibility of a lifetime annuity that pays you each month for as long as you live, or the Variable Benefit, which gives you flexibility on how much income you want to receive.
Join the Wealthcare Revolution – follow SPP on Facebook!
Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.
Jan 15: BEST FROM THE BLOGOSPHERE
January 15, 2024New life for an old rule of thumb – the four per cent withdrawal rate?
Let’s say you entered retirement with a large chunk of money – no monthly income other than government benefits.
How much can you afford to take out each year without risking running out of money in the future?
It’s an age-old question in retirement circles. Save with SPP once asked it of eminent retirement expert Dr. John Por who told us the answer is “unknowable,” since it would have to be based on “future interest rates, the stock markets, inflation, life expectancy and income needs.”
Writing for SmartAsset, Brian J. O’Connor says new research has found that the old “four per cent withdrawal” rule might be back in fashion.
So, what is the four per cent withdrawal rule, exactly?
“Created in 1994 by a financial planner named William Bengen, the four per cent rule posits that retirees can make a well-structured retirement fund last 30 years by withdrawing no more than four per cent of the balance in the first year of retirement, then adjusting subsequent withdrawals for inflation,” O’Connor explains.
With the volatile markets we’ve seen of late, some observers criticized the four per cent rule, arguing that in down markets, sticking to a four per cent withdrawal drives “returns risk.” In other words, if your investments are down, you are sort of “selling low” by withdrawing a set amount. Financial journalist Suze Orman, writes O’Connor, called for a more conservative three per cent withdrawal rate.
But, O’Connor continues, things are changing, and a recent Morningstar study seems to back the old four per cent idea once again.
“The investment analysis firm Morningstar has examined the safe rate of withdrawal for the first year of retirement for a few years running. Morningstar’s newest research finds that with the partial recovery of stocks, withdrawing up to four per cent is once again a safe starting point,” O’Connor notes.
Morningstar’s Amy Arnott tells O’Connor that these days, a four per cent withdrawal rate for today’s retirees has a 90 per cent chance of “still having funds remaining after a 30-year time horizon.” Research by Morningstar has made this safe withdrawal rate a moving target – in 2021, they recommended 3.3 per cent, and in 2022, 3.8 per cent.
As well, the research is based on a portfolio that has “20 to 40 per cent” exposure to stock.
The article concludes by noting that the shift in thinking to four per cent is driven by a drop in the long-term estimate for inflation and a rise in projected 30-year fixed income returns.
There’s another way of avoiding running out of money in retirement.
Members of the Saskatchewan Pension Plan can choose to annuitize some or all of their savings when they retire. With the annuity option, you can receive a payment on the first of the month, every single month for as long as you live. Want more flexibility? Check out SPP’s Variable Benefit, now available to all Canadian SPP members. You can take out as little or as much as you like with this option, and then can still consider annuitizing at a later date!
Check out SPP today!
Join the Wealthcare Revolution – follow SPP on Facebook!
Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.
Jan 8: BEST FROM THE BLOGOSPHERE
January 8, 2024The strategy that almost no one tries – starting CPP later to get a higher payment
We frequently read that folks aren’t saving enough for retirement, for a variety of reasons. There aren’t as many workplace pension arrangements out there anymore, and inflation and debt, both at decades-high levels, make it difficult to save.
There is a way to dramatically increase your retirement income, writes Noella Ovid in the Financial Post, and it’s a strategy that very few of us try – starting our Canada Pension Plan (CPP) later, at age 70.
“You can start CPP as early as age 60 or as late as 70, but the longer you wait, the higher your monthly benefit will be since it will cover fewer years,” states Jason Heath of Objective Financial Partners Inc. in the Post article.
“Generally speaking, if you live well into your 80s, you can come out ahead by deferring your CPP to age 70. The problem? Nobody does it,” Heath tells the Post.
Even though waiting gives you a significantly larger benefit, only five per cent of Canadians do, the article reports.
And there are other ways to boost retirement income, the article continues.
“The most successful retirees Heath has seen are those who have transitioned to retirement through part-time, consulting or volunteer work, avoiding the extreme change from a 40 to 50-hour work week,” the article notes.
“The earlier you start to plan retirement, not only from a financial perspective, but from a lifestyle perspective, can be really rewarding and improve the transition,” Heath states in the article. “In a perfect world, it’s planned, it’s slow, it’s steady.”
He does acknowledge that life can get in the way of a good retirement plan – corporate decisions, health setbacks and other unexpected events can derail the best of plans, the article notes.
Another idea for stretching your retirement dollars is to move somewhere that, ideally, has better weather and cheaper living costs.
“Expat destinations for retirement are an option for Canadians trying to save money on the cost of living. Heath tells the Post there’s opportunity in countries such as Panama, Ecuador, Costa Rica and Mexico which are trying to attract retirees from other countries. Some of the benefits include lower real estate prices, food costs and easier travel to exotic locations,” the article reports.
Now that we’re seniors in our mid-60s, the topic of start CPP comes up frequently. We do know of friends who waited until age 65 to start CPP, since their workplace pension plan had early retirement benefits that dropped off at that age. We know folks who started CPP at 60 while working full time, and are continuing to pay into it. Some of them banked the CPP, others needed it for day-to-day costs.
So, think carefully, look at your expected post-retirement income and expenses from all sources, and consider the pros and cons of taking CPP early or late. It wouldn’t hurt to get professional advice on the topic.
If you are an SPP member, you have a little more flexibility in age ranges. You can begin to collect your retirement benefits as early as age 55, and “no later than December of the year in which you turn age 71.” For full details, have a look at SPP’s Pension Guide.
Among your retirement income choices are one of several SPP annuities – all of which pay you a monthly income for life – and, new for all members, the Variable Benefit. Check out SPP today!
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Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.