June 2012 returns

SPP posted a return of 1.58% to the balanced fund (BF) and 0.063% to the short-term fund (STF). The year to date return in the BF is 3.65% and in the STF is 0.218%.

Market index returns for June 2012 were:

Index June 2012 return (%)
S&P/TSX Composite (Canadian equities) 1.10
S&P 500 (C$) (US equities) 2.48
(Non-north American equities)
DEX Universe Bond (Canadian bonds) 0.01
DEX 91 day T-bill 0.10

What if I move away from Saskatchewan?

By Sheryl Smolkin

If you’re age 18 to 71 years of age, you can join the Saskatchewan Pension Plan. Participation is not restricted by where you live or membership in other plans. However, you must have available Registered Retirement Savings Plan (RRSP) room to contribute to SPP.

As a result, you can continue to contribute to SPP even if you leave the province. As long as you live in Canada, your SPP contributions will be tax deductible and grow tax free within the plan. Any payments out of the plan after age 55 will be taxable income.

Because SPP participation is not restricted to provincial residents, it is a particularly good retirement savings vehicle for organizations with employees in more than one province. Whether you are transferred from one end of the country to another or move to take a new job, you can continue contributing to the plan.

If you move outside of Canada before or after retirement, the tax treatment of SPP contributions and withdrawals may differ. You should seek tax advice from a lawyer or an accountant in the jurisdiction where you plan to move, either when you are still working or you retire.

Also read:
Who can join SPP
SPP member guide

Talking to Derek Foster

Derek Foster podcast

Hi, my name is Sheryl Smolkin. I’m a lawyer and a journalist. Today I’m pleased to be continuing the Saskatchewan Pension Plan’s series of financial expert interviews, talking to Derek Foster author of six books including The Idiot Millionaire.

After spending his 20s backpacking across Europe, Australia and Asia, Derek left the rat race at age 34 when his investment strategy made him a millionaire. Today we are going to talk about his latest book, The Worried Boomer.

Welcome Derek.

Q1. Derek, you retired six years ago at age 34 and started a new career as a financial writer and motivational speaker. Was this all part of the plan? Did you ever imagine you would be so successful?

There was no a plan at all. The only thing I did was to begin investing religiously just before I started university. I put away $200 a month and it kept growing and growing. But as far as writing a book, once I retired I thought it was an interesting story so I wrote a book and it became a national best seller. I thought this was kind of great so I wrote a few more books.

Q2. Because you are your own boss, you have more time to spend with your family and do things you enjoy. How much time do you spend writing and speaking in a typical week or month?

It really varies depending on the season. I find I do a lot of my writing in the fall after summer vacation is over and the kids are back at school. But if I was to average it out, I would say probably around ten hours a week.

Q3. Everyone I talk to is worried that they will run out of money before they run out of time. How did you figure out how much money you had to save in order to retire at such a young age?

I think a lot of people put the cart before the horse. In other words, if you ask people how much money they need to retire, many will respond “oh you need a million dollars or two million dollars.”

But if you ask “how much money do you need to live on now?” they’ll generally say $50,000 a year or $100,000 a year. The interesting thing is that they tell me the annual income they need to live right now, but for retirement they fixate on this big lump sum of money.

I think you need an annual income when you retire. So essentially all you have to do is build up an annual income stream and once it equals what your expenses are going to be, you can stop working.

Q4. You have five children. You own a four bedroom, four bathroom house in Ottawa and your family has taken trips almost every year since you have retired on less than $40,000/year. How can you afford this lifestyle? What don’t you do?

I think the main thing I don’t do is that I don’t work. It’s going to sound kind of strange, but working is the most expensive way to make money in Canada. When you’re working at a regular job, you pay Canada Pension, you pay employment insurance, you also pay income tax at the top marginal rate. And those are just the direct costs of working.

There are a whole slew of indirect costs of working. You might need to pay for a wardrobe, union dues, commuting costs, parking costs or child care expenses if you’re at that stage in life. So I basically realized that working was too expensive and I couldn’t afford it so I stopped working.

That was a big part of it, and the other thing too is that I’m not really a “stuff” guy. I don’t find I buy a lot of gadgets. For example I’ve never owned a cell phone. In my twenties I spent a year travelling around Australia and New Zealand. I had the time of my life and all my worldly possessions were contained in one backpack. So I think that’s another part of it as well.

Q5. How would you respond to people who say that they are already living so close to the line that there is nothing left over for savings?

I think sometimes people look at saving enough money for retirement as if they have to achieve the whole thing all at once. Make it simple. Start with $2 a day. Take a toonie every day from your change and throw it into a jar. At the end of the month you’ll have sixty bucks. Keep doing that month after month. If you started when you were twenty and stopped at the traditional retirement age of sixty five, you’d end up with something like $628 000 just by saving toonies which is a pretty good start. If you up that to $5 a-day you’ll have one and a half million dollars which is very good start. So start small.

Q6. You invested in the stock market to make your million, yet so many people over the same period lost almost everything. What’s your secret? How do you pick stocks?

I am not really that smart a guy so what I did is I tried to copy other people. The absolute best investor in the world is a guy by the name of Warren Buffet, and I read a lot of what he had to say about investing and copied him.

And the approach, which is really quite simple, is invest in only companies that are easy enough for a six year old to illustrate with a crayon. You want companies that sell the same boring product year after boring year. An example would be Colgate toothpaste. I mean if I invest in Colgate toothpaste all I have to rely on is that you’re going to keep brushing your teeth, and I think that’s a fairly safe bet.

Now if you look at the company they’ve paid uninterrupted dividends since 1895 so basically for 117 years, anybody who has ever owned Colgate stock has received their dividends. Which is great, so focus on those kinds of companies. Forget the casino approach where you’re looking for the next hot thing. I mean ten years ago a lot of people chased Nortel and that didn’t work out very well. Again, keep it simple.

Q7. The Worried Boomer is a primer on various types of financial instruments in which people can invest their retirement savings for retirement, but you also devote a chapter to the Saskatchewan Pension Plan. What do you think are the advantages of saving in the SPP instead of in an RRSP?

There are a couple different advantages. The first one is it’s very easy. I enjoy sitting down and reading annual reports and considering where to invest, but surprisingly some people don’t enjoy that. But the SPP allows them to just make a contribution and forget about it. It’s basically a set and forget kind of plan, which is good for a lot of people.

The second factor that I really like is that the costs are really low. If you invest in traditional mutual funds you’ll pay much higher fees than you will with the SPP. The differences can be huge. We’re talking tens, and in some cases hundreds of thousands of dollars difference just by saving on the fees.

And the third factor is that it has a very good long-term track record. I think returns have averaged around 8% over the last 25 years which is really, really good. Also in the 2008 stock market downturn the SPP fund it went down much, much less than the overall markets did.

Q.10 Do you think your savings will last for the rest of your life or do you anticipate having to going back to work for someone else some day?

No I don’t anticipate having to go back to work because I rely on dividends. Let’s suppose my money is a seed and I’ve planted a tree with it. Now the traditional investor lets his tree grow for a few years and then he wants to chop it down for fire wood and make a big gain. I am not doing that.

What I’ve done is I’ve planted a tree that’s bearing fruit every year. Every year I harvest the fruit. The next year I do it again. That’s essentially what I’m doing with the dividends. The money just keeps re-appearing every year. It’s almost like I have a little printing press downstairs, down in my basement where I’m able to print new money every year as I need it. So no I don’t really anticipate ever really running out of money.

Thanks Derek. It’s been a pleasure talking to you. I’m sure listeners will be inspired by your story and look forward to hearing more about you and your family’s financial adventures in the years to come. The worried Boomer and Derek’s other five books can be purchased from his website at www.stopworking.ca.

May 2012 returns

SPP posted a return of -2.36% to the balanced fund (BF) and 0.046% to the short-term fund (STF). The year to date return in the BF is 2.04% and in the STF is 0.155%.

Market index returns for May 2012 were:

Index May 2012 return (%)
S&P/TSX Composite (Canadian equities) -6.14
S&P 500 (C$) (US equities) -1.46
(Non-north American equities)
DEX Universe Bond (Canadian bonds) 2.11
DEX 91 day T-bill 0.12

Understanding SPP annuities

By Sheryl Smolkin

For many years you have been focused on saving and investing for retirement by maximizing contributions to the Saskatchewan Pension Plan (SPP) and other retirement savings vehicles.  As you plan for retirement, you need to consider the best way to shift from accumulation mode to the decumulation phase of retirement savings.

You may choose an annuity from SPP and receive a pension for the rest of your life, transfer the funds to a locked-in account with a financial institution, or choose a combination of the annuity and transfer options. If your account balance is small you may be able to have your account paid to you in a lump sum instead of receiving monthly payments.

SPP members may begin receiving benefits from the Plan any time after age 55 and must be retired from the Plan by the end of the year in which they reach 71. At SPP, “retirement” simply means you are receiving pension payments. You can still be employed and receive a pension from SPP.

SPP annuity options

All SPP annuities pay you a monthly pension for your lifetime. The amount of your monthly pension is based on your account balance, your age at retirement, interest and annuity rates in effect and the age of your joint survivor (where applicable).  SPP annuity income qualifies for the pension income credit and for pension income splitting. Each annuity option treats death benefits differently.

If you decide to purchase an annuity, your individual account balance is transferred from the SPP contribution fund to the SPP annuity fund and a pension contract is established. The annuity fund holds investments in high quality long-term bonds.

Here are the kinds of annuities offered by SPP:

Life only annuity
This annuity provides you with the largest possible monthly pension for your life. When you die all payments stop.

Refund life annuity
This annuity pays you a monthly pension for the rest of your life. When you die any balance remaining in your account is paid to your beneficiary in a lump sum. If you name your spouse as beneficiary of your account, CRA allows death benefits to be transferred, tax-deferred, directly to his or her SPP account or to an RRSP, RRIF or guaranteed Life Annuity. Tax-deferred transfer options are also available if the beneficiary is a financially dependent child or grandchild.

Joint survivor annuity
The joint survivor annuity also pays you a monthly pension for the rest of your life. If you choose this option you must name your spouse as survivor. When you die, monthly payments continue to your spouse. If your spouse predeceases you, the payments stop with your death. Benefits are based on your age and the age of your joint survivor.

Pros and cons of SPP annuities

When you opt for an annuity which pays a fixed monthly benefit, you are buying peace of mind. You know how much you will receive and you can budget accordingly.  Because you purchase the annuity directly from SPP, there are no commissions or referral fees and you can be sure you are getting competitive rates.

Essentially, SPP assumes the risk associated with the investment and you receive pension payments for your life time.

With interest rates at historic lows, you may be reluctant to opt for an annuity. However, it is important to keep in mind that your benefit reflects an integrated blend of cash flows:

  • Interest on your money.
  • A portion of your contributions back.

Example: August 2012/Joint survivor is the same age as retiree/lump sum of $100,000*

Age 55 Age 60 Age 65 Age 70
Life only annuity $451 $494 $554 $637
Refund annuity $433 $464 $505 $561
Joint survivor annuity 100% $406 $434 $473 $529

* Your annuity benefits will reflect your own age, interest rates and the balance in your contribution account.

If you are considering retiring from SPP, call the toll-free line
(1-800-667-7153) for an estimate of your monthly pension based on the various annuity options available and your personal information.

Talking to Ellen Roseman

Ellen Roseman podcast

Hi, my name is Sheryl Smolkin. I’m a lawyer and a journalist. Today I’m pleased to be kicking off the Saskatchewan Pension Plan’s new series of interviews with financial experts. My first guest is Ellen Roseman.

Ellen is a journalist and author of five books who has been advocating for the consumer rights of Canadians for the past 35 years. She is a Toronto Star columnist, a fellow blogger on moneyville.ca and she has her own blog “On Your Side.” In January, she was featured on an episode of CBC Marketplaces called “Canada’s Worst Customer Service: Store Edition.”

But Ellen is also passionate about financial literacy and she has been teaching courses in investing and personal finance in the University of Toronto’s Continuing Studies Department since 2004. She also does Financial Basics workshops at Ryerson University. Financial literacy is what we are going to talk about today.

Q. Ellen, why do you think Canadians are so uneasy about their money skills?

A. We don’t learn much about money in school. In the past we used to learn from our parents but today many parents are uneasy about their money management skills and they’re not sure how to bring up their kids with good habits. It has also become a lot more complex and intimidating. For example, look at the number of retirement plans and many of the tax rules are getting more complicated

Q. How important is it to educate our children about money? When should parents start?

A. It’s probably good to start at a young age – like when children are younger, they tend to think that using the ATM is like the lottery and it’s free. You can also go to the grocery store and explain how much different items cost. It’s a delicate balance, but I think it’s a good idea to get your children used to using money and open a bank account at around 6, 7 or 8 years old.

Q. What resources are available to parents to help them educate their children about money?

A. The Canadian Banker’s Association put together a whole network of websites including their own and those of other financial institutions called “There’s something about money.” There are also a lot of financial institutions that have children’s resources on their own websites like Canada Saving’s Bonds. In addition, all the big banks are pretty good about having places where kids can read up and play money games. The approach is almost as entertainment rather than true education, because they learn through being interactive and playing

Q. The Federal Task Force on Financial Literacy recommended over a year ago that provincial and territorial governments put financial literacy into the formal education system. To what extent, if any has progress been made in the implementation of this recommendation?

A. British Columbia led the way even before the Financial Literacy Task Force because they have a compulsory course in Grade 10 and they make great use of the Financial Consumer Agency of Canada’s resource called “The City.” It’s interactive and it lasts for about 18 or 20 hours. Teachers use it in their classes

Manitoba and Ontario decided rather than one course in high school, they wanted to integrate financial education throughout the school system. So starting at about Grade 3 or 4 and going all the way to the end of high school, they introduce it it into things like math, economics and other courses. This process is harder and takes longer.

It’s going quite well in Manitoba, but Ontario is having some problems. A lot of teachers don’t feel very comfortable about teaching about financial issues.

Q. In one column you suggested that financial literacy means saying no to business interests in the schools. Can you tell me a little bit about why this is a concern and what the alternatives might be?

A. We already have a lot of business interests targeting schools. For example, Visa Canada wants to introduce a course about responsible spending. The course is totally sensible but the sponsor is aiming to get kids indebted by the age of 18, continuing for the rest of their lives

The Canadian Banker’s Association has a program where they send banker’s into schools to talk to students about money just as a one-time thing. But there is a little too much emphasis on RRSPs which really isn’t relevant to 16 or 18 year olds. There should be more about basic budgeting skills, deciding between a want and a need, and making sure not to overspend.

Q. Even if financial literacy programs become standard fare in high schools, how can we ensure the programs are engaging and interesting for young people so they don’t just tune out?

A. Make it relevant to people’s lives and the issues they’re experiencing at the moment.

Children in high school have some immediate needs. They need to know about the cost of post secondary education and how much that will be in dollars and cents. Who is going to pay for it? How do you manage a student loan? How do you pay for transportation? What’s the cost of all the gadgets they buy? Why it doesn’t make sense to buy with a credit card if you’re still paying it off a few years later and yet you’re ready to move onto the next device.

Q. You have been teaching basic investment concepts to adults for many years. What do you tell them about the role of a financial advisor, and the questions they should ask before signing on with one?

A. It’s very important for people to have a good financial advisor. Five to 10% of Canadians can actually be their own financial advisor but the rest need some financial advice.

Many of the people out there dispensing financial advice are working for big banks and other financial institutions. They are basically sales people who get incentives to accumulate as many assets under management and they encourage them to borrow to invest. Their whole expertise is about the accumulation phase, which is building up assets towards retirement but there’s a big gap once people retire or are about to retire. Many financial advisors are not skilled in how to keep more after-tax income in your pocket.

Check their references to make sure they’re registered. Do online research

Make sure they listen. If they’re diagnosing and recommending before they get to know you that usually means it’s some kind of off the shelf solution instead of a custom approach.

Finally, don’t get too friendly with them. Once your lives get too intertwined it’s pretty hard to fire them. Friendship should never interfere with a business relationship.

Thanks Ellen. It was a pleasure to chat with you. I know Saskatchewan Pension Plan members will be eagerly awaiting the release of your new book 99 Ways to Fight Back and they will also want to check out your Toronto Star articles and your blogs on moneyville.ca and ellenroseman.com.

How much can I contribute to my RRSP?

By Sheryl Smolkin

To contribute to the Saskatchewan Pension Plan you must have Registered Retirement Savings Plan (RRSP) contribution room.  Therefore it is important to understand what “RRSP contribution room” means and how is it calculated.

Your RRSP contribution room is the amount of RRSP contributions you can deduct for income tax purposes in a particular year. For 2012, RRSP contribution room will be the 2012 RRSP deduction limit appearing on the notice of assessment (or reassessment) you receive once you have filed your 2011 income tax return and it has been processed.

The RRSP deduction limit for each year is the lesser of:

  • 18 per cent of your previous year’s earned income,* and
  • The RRSP dollar limit for the year ($22,970 for 2012).

*Earned income is the annual total of:  employment income, net rental income, net income from self-employment, royalties, research grants, alimony or maintenance payments, disability payments from CPP or QPP and supplementary UIC payments.

However, if you belong to a workplace registered pension plan (RPP), your annual RRSP contribution room will be reduced by a Pension Adjustment (PA) representing the value of both employer and employee RPP contributions.

If you do not use up your RRSP contribution room in any year, it is added to the next year’s RRSP contribution room and carried forward indefinitely. When certain kinds of income are transferred to your RRSP such as a retiring allowance or an amount received from a deceased spouse’s RRSP, contribution room is not required.

If you want to calculate your 2012 RRSP deduction limit, use Chart 3 on the Canada Revenue Agency’s website.

The maximum annual contribution you can make to the Saskatchewan Pension Plan is $2,500, even if you have additional RRSP contribution room. You can also transfer an additional $10,000/year from another RRSP to the Saskatchewan Pension Plan.

Since you have already used up RRSP room when you made the original RRSP contribution, you will not need additional RRSP contribution room to make an RRSP/SPP transfer of up to $10,000 each year.

Also read:

RRSPs and other registered plans for retirement

RRSP contribution limits

Frequently asked questions: RSPs

April 2012 returns

SPP posted a return of -0.41% to the balanced fund (BF) and 0.042% to the short-term fund (STF). The year to date return in the BF is 4.51% and in the STF is 0.109%.

Market index returns for April 2012 were:

Index April 2012 return (%)
S&P/TSX Composite (Canadian equities) -0.60
S&P 500 (C$) (US equities) -1.77
(Non-north American equities)
DEX Universe Bond (Canadian bonds) 0.13
DEX 91 day T-bill 0.05

May contest: Get to know SPP

Thank you to everyone who entered the April contest. The winner will be contacted via email.

Get to know SPP by entering our contest on this blog.

All you have to do is answer one simple question about SPP and your name will be entered for a chance to win one of the following books:

The Wealthy Barber Returns by David Chilton

Retirement’s Harsh New Realities by Gordon Pape

Count on Yourself by Alison Griffiths

The Worried Boomer by Derek Foster

Or a $20 gift card.

There are 3 separate contests (March, April and May) each with a different question. Answer the question and enter for your chance to win by clicking here!

You can even get additional chances to win by telling a friend about the contest.

Please check out the contest today!


Q. What investment options does the Saskatchewan Pension Plan offer?

A. Saskatchewan Pension Plan (SPP) offers its members two investment choices:

  • The balanced fund (BF)
  • The short-term fund (STF).

Members are permitted, but not required, to choose how to direct their contributions in the Plan’s funds. The default fund is the BF – if a member does not give us directions, contributions are deposited to the BF.

Q. What are the objectives of the balanced fund?

The objective of the BF is capital accumulation – growing member accounts to provide them with retirement income in a prudent, risk-controlled manner.

The BF diversifies investments between several asset classes including bonds, equities, real estate and short-term investments. As a further diversification tool, the assets of this fund are divided between two investment managers.

Q. What are the objectives of the short-term fund?

The objective of the STF is capital preservation. Therefore, the money is invested in one asset class – Canadian money market instruments. The STF benchmark is the DEX 91-day T-bill Index. This fund operates on a cost-recovery basis.

STF returns will likely be lower than the BF as the objective is to preserve account balances rather than provide long-term growth.

Q. Which fund should you choose?

A. To answer this question you have to gauge what level of risk you’re willing to accept in a given investment. Factors that will influence this include your investment goals and your retirement timeline. Here are some questions and statements to consider when choosing between the BF and STF:

Balanced Fund Short-Term Fund
Is my main investment goal to seek higher returns and build up the value of my account significantly? Is my main investment goal to make sure I preserve the money I already have in my account?
Do I prefer a mixed portfolio of stocks, bonds, and short-term investments? Am I willing to accept a smaller return in exchange for less investment risk?
How long do I have until I retire? How long do I have until I retire?
If my pension plan takes an unexpected loss, do I have enough time to recover from it before I retire? If my pension plan takes an unexpected loss, do I have only a short amount of time to recover from it before I retire?
Am I comfortable with risk in my portfolio? Do I need more certainty in my portfolio?
Can I tolerate a moderate short-term loss and remain focussed on my long-term goals? Will a moderate short-term loss seriously jeopardize my future plans?
“I’m a long-term investor who can comfortably tolerate a moderate level of risk and can accept a short-term loss along the road to long-term gains.My goal is to steadily increase my account balance through consistently investing in a balanced portfolio over a long period of time.” “I’m a short-term investor who can willingly trade the opportunity for higher earnings for a less risky investment. My goal is to guard my money and keep my account intact. I am less concerned about earning a high rate of return.”

It’s a good practice to re-visit these questions periodically when monitoring your investments to ensure that you are still matched with the correct fund. If any of your answers to these questions change, consider whether you want to remain in the fund, or whether a switch would be more suitable. You may wish to seek the guidance of a financial professional for assistance in making your decisions.