A look at the best of the Internet, from an SPP point of view

Debt begins to gnaw away at Canadians’ wealth

For the first time since 2008, reports Advisor’s Edge, Canadians’ wealth is in decline.

And unlike 2008, when a global financial crisis routed the markets and shuttered a number of financial institutions, another more insidious factor is to blame this time, at least in part – personal debt.

Advisor’s Edge, citing data from Toronto research firm Investor Economics, reports that “discretionary financial wealth – including deposits, investment funds, and securities holdings – fell by one per cent to $4.4 trillion.”

While the markets had a bad last quarter in 2018 (markets have recovered thus far in 2019), debt is becoming a problem that people have to deal with, the article notes.

“This has translated into a sharper focus by Canadian households in diverting discretionary financial assets toward lowering personal debt with associated adverse impacts for the retail financial services industry,” states Investor Economics president and CEO Goshka Folda in the article.

In plainer terms, financial assets under management are being cashed in to pay down personal debt. Money once earmarked for long-term wealth or savings is going on the credit card or line of credit.

An eye-popping $45 billion of wealth was diverted towards debt repayment in 2018, the article notes.

Worse, Investor Economics predicts slower growth in financial wealth over the next 10 years.

With debt at all-time highs, should we be surprised that people are raiding their savings to cut down on creditor calls? For many of us, our biggest pool of cash is our retirement savings – should we crack into that?

The Hoyes-Michalos website warns that cashing in RRSPs is a very poor strategy, for several reasons. First, the debt-relief site notes, since you are withdrawing tax-sheltered funds to pay debt, the withdrawn funds “will be added to the income you make this year, and you may find that you owe quite a bit more in taxes than you expected. By using the money to solve one problem, you have created a new tax debt once you file your income taxes.”

As well, Hoyes-Michalos notes, when you take out money from an RRSP there is also a withholding tax applied. You won’t get the full amount you want to take out.

Next, the site advises, by “putting your retirement savings toward debt repayment, you will have to start saving for retirement all over again with less time and money to do so.” And if your debt has you in a precarious financial situation, the site notes that “RRSPs are protected in a bankruptcy.”

If your goal is to have your retirement savings in a secure cookie jar that you won’t be able to hack into, the Saskatchewan Pension Plan has a unique feature you should be aware of. Because SPP is a defined contribution pension plan, and not an RRSP, the money you deposit in your SPP account is locked in until you reach age 55, the earliest age you can begin to receive your pension (the latest age is 71). The cookie jar, in a sense, is welded shut until you get that gold watch – these days, that’s probably a good thing!

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, classic rock, and darts. You can follow him on Twitter – his handle is @AveryKerr22

A look at the best of the Internet, from an SPP point of view

After the saving comes the tricky part – turning savings into income

Writing in the Regina Leader-Post, noted financial commentator Jason Heath saves that while most people agree saving is a great idea, “how much to set aside and how to set your targets are up for debate.”

He notes that when RRSPs were first rolled out back in 1957, you were allowed to contribute up to 10 per cent of your earnings, to a maximum of $2,500, each tax year.

“The percentage limit was doubled to 20 per cent in 1972. In 1991, it was decreased to the current 18 per cent of annual earned income for the previous year, to a maximum of $26,500 for 2019. Unused RRSP room from previous years accumulates each year as well,” he explains in the article.

So, he asks, can we assume that the “right” level of savings is somewhere between the two RRSP limits of 10 and 20 per cent?

The argument for putting away 10 cents of every dollar you earn was most recently popularized by author David Chilton, Heath writes. But the World Economic Forum suggests we save “10 to 15 per cent” of earnings,” he notes.

Having a savings target – let’s say 15 per cent – is only half the battle, the article continues. When you’ve saved up all that money, how much should you be withdrawing each year as retirement income?

Heath notes that in 1994, financial planner William Bengen proposed the so-called “four per cent rule,” meaning that “four per cent was a sustainable withdrawal from a balanced investment portfolio for a 30-year retirement even if stock markets subsequently had a bad 30-year run,” Heath writes.

But a 2017 Morningstar paper suggests “three to 3.5 per cent may be more appropriate,” assuming high investment fees and today’s relatively low interest rates, both factors that weren’t the same 25 years ago.

“If you assume a 3.5-per-cent withdrawal rate, you can work backwards from retirement. For example, a 65-year-old who needs $35,000 per year of withdrawals indexed to inflation would need to save $1 million. And a 45-year-old starting from scratch to save towards that same $1-million target in 20 years would need to save about $25,000 per year indexed to inflation (assuming a return of four per cent and two-per-cent inflation),” Heath writes.

As Heath notes, the math here is somewhat head-spinning, but the concept for setting a savings target is actually fairly simple – how much income per year do you want to have? From there, do the math backwards and figure out how much to put away.

He goes to explain that there are other programs that can help. You have the newer option of saving for retirement in a tax-free savings account (TFSA), and most of us will receive money from the Canada Pension Plan, Old Age Security, and even the Guaranteed Income Supplement to top up the income we’ve created from savings.

When people roll out this sort of stuff, it’s somewhat akin to finding out that your “ideal” weight is 100 lbs less than what you are walking around with right now. A lot of times, knowing that you will need to put a lot of effort into fitness and diet is so daunting that you take yourself out for a cheeseburger and fries to dull the mental pain. But like anything else, a long-term journey can be achieved by making many small steps. It’s the same with retirement savings. Start small, gradually increase what you save, and in a few decades you’ll be happily surprised at your balance. But start – don’t suffer analysis paralysis.

And a great place to start the retirement savings journey is the Saskatchewan Pension Plan. They have everything you need to set up your own plan, make regular contributions, and watch as they are professionally invested and grown. At gold-watch time, you can get them to start making regular, monthly payments – for life – to the account of your choosing! So if you’re on the sidelines and not quite ready to put your toe in the water of retirement savings, check out SPP – the water’s fine!

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, classic rock, and darts. You can follow him on Twitter – his handle is @AveryKerr22

A look at the best of the Internet, from an SPP point of view

Canadians “confused” about TFSA savings – poll

A new poll carried out for Royal Bank of Canada has found that Canadians “don’t know how to use a TFSA to generate wealth.”

The research, conducted for RBC by Ipsos, is reported on by the Baystreet blog.

It finds that “43 per cent of Canadians are misinformed about the funds, believing TFSAs are for savings and not for growing investments,” Baystreet reports, adding that a further 42 per cent of those surveyed use their TFSAs only for savings and cash. Just 28 per cent of those surveyed “hold mutual funds” in their TFSAs, along with 19 per cent for stocks, seven per cent for exchange-traded-funds, and six per cent for fixed income, the blog notes.

In plainer terms, people don’t realize that you can hold all the same types of investments – stocks, bonds, ETFs and mutual funds – in either a TFSA or an RRSP.

Yet, despite the fact that they tend to hold mostly cash in their TFSAs, the tax-free funds are more popular than RRSPs – 57 per cent of those surveyed said they had a TFSA, with only 52 per cent saying they have an RRSP, Baystreet notes.

The TFSA is a different savings vehicle from a registered savings vehicle, such as an RRSP. When you put money into a TFSA, there is no tax benefit for the deposit. However, the money in the TFSA grows tax-free, and there is no tax charged when you take money out.

With RRSPs (and registered pension plans) the contributions you make are tax-deductible, and the money grows tax-free while it is in the RRSP. However, taxes do apply when you take money out of the plan to use it as income.

While TFSAs are relatively new, some financial experts have suggested they might be well-suited for use as a retirement savings vehicle, reports Benefits Canada.

“While RRSPs have the advantage of deferring tax payments into the future, which TFSAs don’t do, the deferral may not be as important to low-income seniors, especially those who want to avoid clawbacks or maintain their eligibility for government benefits, like the GIS, after they retire,” explains the article.

A lower-income earner “might find it more advantageous to maximize their TFSA contributions, which is currently $6,000 annually and indexed to inflation going forward. Unlike funds withdrawn from RRSPs, funds withdrawn from TFSAs — including the investment growth component — aren’t taxable, and contribution room after withdrawals can be restored,” Benefits Canada reports. The article also talks about employers offering group TFSAs as well as group RRSPs.

Those taking money out of a RRIF might want to put the proceeds – minus the taxes they must pay – into a TFSA, where it be re-invested tax-free and where income from it is not taxable.

A key takeaway for all this is that you need to think about putting money away for retirement while you are working. The concept of paying yourself first is a good one, and one you will understand much better when you’re no longer showing up at the office and are depending on workplace pensions, government retirement programs, and personal savings for your income. No amount is too little. If you are just setting out on your savings journey, an excellent starting point is the Saskatchewan Pension Plan. Be sure to check them out today!

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, classic rock, and darts. You can follow him on Twitter – his handle is @AveryKerr22

There’s a lot of meat in Pat Foran’s book The Smart Canadian’s Guide to Saving Money.

The CTV “On Your Side” reporter covers a lot of ground. He starts by asking the rich and the famous about their personal money tips. The late Alberta premier, Ralph Klein, states “never spend what you do not have. It is far better… to put off a purchase for three months until you can afford it than to spend the next six months paying it off.” Don’t, Klein notes in the book, “line the pockets of your bank… line your own!”

Noted financial author David Chilton tells Foran that “as corny as it sounds, what people have to do is stop caring so much about stuff.” He adds that as he gets older “the more I realize that good financial planning is less about the intricate knowledge of the stock market and forecasting future interest rates, and more and more about discipline and not wanting so much stuff.”

And Ben Franklin once said “the borrower is a slave to the lender… be industrious and free; be frugal and free.”

But how to get there?

Foran’s book covers all the bases. Everyone, he writes, needs to track their expenses. “The most important thing you can do is monitor the amount of money that is flowing in and out of your life every month,” he notes, providing a sample worksheet to get you started.

After looking at the importance of having a spouse who is your financial partner, he talks about tackling debt. Consolidation loans aren’t always the best approach, he warns. “Consolidating various high interest rate balances into one easy-to-handle payment is often just a quick fix to roll your `junk debt’ into a bigger pile,” he notes. He defines `junk debt’ as debt “that has been rolled around so many times you can’t remember what you originally went into debt to buy in the first place.”

So, he suggests, cut back on “bad spending habits,” such as smoking and excessive drinking. A case of beer a week costs you $1,872 each year, he writes. Even $4 a day spent at Timmy’s can add up to $1,460 per year, Foran writes. Other “money wasters” that make his list are dining out often, expensive clothes and jewellery, premium gas, dry cleaning clothes you could wash yourself, buying a brand-new car, flying first class, and so on. With all such expenses, he suggests, one should first ask “can I afford it.” If not, perhaps there are cheaper ways to go, he notes.

Credit cards, write Foran, need to be paid off and cancelled. “Once you have paid off a credit card, you must let it rest in peace! You have to call your credit card company and say… please cancel my credit card.”

After mastering debt, you need to look at saving, and the power it has. If you were to save $20 a week for 50 years, you’d have $1.4 million in your pocket. “Imagine saving your own jackpot…. Even a small amount, just $20 a week, can become a fortune over time,” he explains.

Other good advice in this book – those saving via mutual funds or other investment vehicles need to take note of the fees charged. A $10,000 investment in a mutual fund with a high “management expense ratio” of 3.1 per cent would cost you $1,029 over three years – three times more than a similar fund with a one per cent fee, he notes. “That’s a huge difference,” Foran warns.

If you are saving in an RRSP or similar vehicle, Foran suggests you should “reinvest your tax refund, which most of us don’t.” RRSPs and debt reduction are both part of a “well balanced retirement plan,” he writes.

This is a great, easy-to-understand book that covers so many bases we don’t have room to explore them all here.

If, like Pat Foran suggests, you are looking for a low-fee retirement savings vehicle, be sure to check out the Saskatchewan Pension Plan. SPP will grow your money and the fee is typically only 100 basis points, or about one per cent. Check them out today.

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. He and his wife live with their Shelties, Duncan and Phoebe, and cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

A look at the best of the Internet, from an SPP point of view

Three things we can all do to boost our savings: Motley Fool

If you’re just getting on the Retirement Savings train – or if you’re packing up your desk for the last time and getting ready for the main event of retirement – the Motley Fool Canada offers three tips on how you can improve your retirement savings.

According to an article posted on Yahoo! Finance Canada, the tips are billed as something “every single Canadian can do to help prepare themselves for a smarter, happier, and richer life in retirement.”

The writers at Motley Fool point out a fact that many of us tend to ignore – “the only way to consistently save money is by spending less, on average, compared to what you earn.” So if you are, for instance, earning $2,500 a month but spending (thanks to credit cards or lines of credit) $3,000 a month, you are in trouble.

The article says that the best way to ensure you are running your ship of state in the black is by preparing a budget, and sticking to it. The budget should not only include your usual repeat monthly items like rent, light, heat, gas, and other bills, but should factor in money for your vacation and other one-time events, the article says.

With budget in hand, the article recommends, you can follow savings tip number one – to “set aside at least 10 per cent to pay yourself at the end of every month or after each paycheque.”

By paying yourself first, you will grow your savings quickly and efficiently, the Motley Fool observes.

The second tip on offer is to “use Canada’s tax-incentivized savings programs to your benefit,” the article states.

The article cites the availability of the RRSP program, pointing out that contributions to such programs are tax-deductible. As well, money within an RRSP grows tax-free until that future time when you crack into it for retirement.

The article also notes the existence of TFSAs. While you don’t get a tax break on money you put into these savings vehicles, there’s no tax on investment returns and growth, “including capital gains and dividend or interest income,” the writers note.

The last tip from the Motley Fool Canada is a good one for those of us who invest in stocks.

“By investing in the stocks of high-quality businesses in which you possess a firm understanding — those run by experienced and competent management teams that companies that consistently pay their shareholders a regular monthly or quarterly dividend — investors can go a long way toward avoiding the mistakes that so often challenge those just starting out,” the article states.

Recapping the article, it’s important to include a strong commitment to savings in your budget, to take advantage of tax-sheltered savings programs, and to keep quality in mind when investing for the long term.

A nice addition to your retirement toolkit would be a Saskatchewan Pension Plan account. The contributions you make are, just like RRSP contributions, tax-deductible. You can “pay yourself first” by setting up automatic contributions that go from your account directly to SPP. And the money you earmark for savings is invested at a low fee by a highly competent plan with a strong track record of growth. Win-win-win.

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, classic rock, and darts. You can follow him on Twitter – his handle is @AveryKerr22

A fear one has when picking up a financial self-help book is that the advice it contains will be so confusing and complex that you’ll feel less financially literate than before.

That’s not the case with A Canadian’s Guide to Money-Smart Living, by Kelley Keehn. In fact, her book – a slender volume – is designed to break down big ideas into small, digestible ones. And once you’re done, you feel that maybe yes, you will go out and follow some of the things you’ve learned.

Keehn begins by saying her mission is “to make Canadians feel good about money.” She says her mom, who as a single parent was an excellent manager of money, would probably change her view that “money doesn’t grow on trees” to “money doesn’t grow in plastic.” Keehn says her mom saw credit cards as being for emergencies – and that they should be paid off in full, every month.

Yet, Keehn writes, even though someone making $51,000 a year will see, in his or her life, “over $2 million past through (their) hands,” why are so many Canadians “living from paycheque to paycheque… burdened with excessive debt… and not better off when it comes to retirement?”

Keehn’s advice is simple. We need to take control of our finances by spending less than we earn, and by paying ourselves first – saving before you spend. “Do not look upon savings as something left over after you’ve spent everything else. Save first, live and budget within the net amount.”

Your goal, she writes, should be “a comfortable life.”

“I’m not talking about applying some complex budget plan to your paycheque that requires you to watch every penny in order to squeeze out something at the end of the month to be put away and called `savings.’ I’m talking about setting aside something from every paycheque before you do your spending,” she writes. The goal should be 10 per cent of your gross earnings, she advises.

You and your partner also need to do a little goal-setting to get on the same page, she writes. Define your goals, establish a “needs and wants” list, check your progress, talk about next steps, make changes, and “take action and get help,” she recommends.

The book reviews major spending categories and offers specific tips to manage each. In the mortgage chapter, her advice is to “seriously consider your options to speed up the mortgage amortization,” so that your biggest expense is paid off as quickly as possible.

In the chapter on credit cards, she notes that most Canadians have a “household debt to disposable income” ratio of around 170 per cent. She cuts to the chase here, recommending people carry no more than three credit cards, and to avoid department store cards that carry higher interest and “are a temptation you should resist.”

Interestingly, she says debit cards can be expensive “unless you have a no-fee arrangement with your institution,” so consider carrying cash to avoid debit card fees.

With any type of consumer debt, remember that when interest rates go up on a loan or line of credit, so do your payments – and you still “have to pay back the entire principal.”

There’s a chapter on retirement savings that walks you through the rules of RRSPs and RRIFs. For RRIFs, she says when you withdraw money each year, it “doesn’t mean you have to spend it, all you have to do is report it as taxable income.” So that money could be reinvested in a TFSA or non-registered account, she says. She explains Old Age Security, noting that depending on your income in retirement, you may have to pay back some or all of the OAS payments you receive. (A good reason to bank it until tax time.)

This is a great book that makes you feel energetic about winning back control of your wallet. It’s a highly recommended addition to your retirement planning library. And a great destination for the money you save is a Saskatchewan Pension Plan account!

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. He and his wife live with their Shelties, Duncan and Phoebe, and cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

When David Chilton came out with The Wealthy Barber decades ago, it was remarkable in that was a financial self-help book that was fun to read and easy to understand.

His follow-up book, The Wealthy Barber Returns, does not disappoint. It’s friendly, clear, and helpful, and is not mired in overcomplicated examples, tables, and worksheets. It feels more like you are benefitting from the experience of a good friend who’s bested some of the financial headwinds that have you mired down.

He begins with the “painful truth” that unless you come from money or marry into it, “you’ll have to learn to spend less than you make,” a message that “clearly hasn’t sunk in with the majority of Canadians.” Because of that, he continues, “a disturbing number of us aren’t saving enough to fund our future goals, most notably, a reasonable retirement.”

People, Chilton writes, think saving “requires sacrifices today” that somehow lessen life. “Surprisingly, it’s quite the opposite! People who live within their means tend to be happier and less stressed,” he notes.

One way to spend less is to avoid going to places where you like to spend money, or to leave credit cards at home. “Giving into temptation is only a mindless swipe away,” he warns. Currency users look in their wallets and see “a finite amount of cash – the ultimate forced discipline.” Those with credit and debit cards carry “virtually unlimited funds,” which may explain why average Canucks have $15,000 to $25,000 in credit card debt, Chilton writes.

“Credit cards allow us to act wealthier than we are, and acting wealthy now makes it tough to be wealthy later,” Chilton points out.

Another way to ramp in spending is to learn the phrase “I can’t afford it,” he notes. He cites the example of home renovations, which almost always go overboard. “More than half of the people I know who are in trouble with their lines of credit… arrived there via excessive home-renovation expenses,” he observes. If you are going all out on the house with borrowed money while neglecting your RRSP or your kids’ education, Chilton warns, “yeah, that’s an issue.” Instead of paying for heated marble floors, buy slippers, he adds.

Lines of credit “are helpful, yet insidious…. when drawing from your line of credit, always remember this incredibly basic but ultra-important fact. It’s not your money, it’s the bank’s,” he writes. Be careful at the bank with credit lines, because if you ask for a $30,000 line you may get approved for much more. “Just say no,” he writes. “You are your own credit-control board.”

You don’t want to take debt into retirement, Chilton states. “It drains cash flow, creates worry, and is subject to interest rate risks that will most assuredly follow Murphy’s Law,” he adds. He’s also leery about reverse mortgages.

In a chapter on retirement, Chilton says that most experts recommend that you put 10 to 15 per cent of your gross income away for retirement. “Don’t despair, though,” he writes. “A relatively small cutback in your spending rate can dramatically increase your savings rate.”

He concludes by reminding readers to “pay yourself first” by directing a set portion of your earnings to savings. The Wealthy Barber Returns is a great read, an insightful overview, and is non-threatening. You won’t feel like you’re a financial failure after you read it, but you will learn to recognize (and correct) your own bad habits.

If you are thinking of paying your future self first, why not set up an account with the Saskatchewan Pension Plan? The amounts you contribute will be carefully invested, will grow, and will be harvested in the form of a future lifetime pension. It’s an option worth checking out!

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. He and his wife live with their Shelties, Duncan and Phoebe, and cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

As co-founder of Hoyes and Michalos, a debt relief firm, and a commentator on personal finance, Doug Hoyes has seen it all when it comes to debt.

And he has a straightforward view on why Canadians aren’t saving much for retirement, telling Save with SPP that these days, “people don’t save for anything.”

The savings rate, he notes, was as high as 15 per cent in 1980 and has plunged to “less than one per cent” today. In other words, people are saving less than a penny of every dollar they earn.

“People don’t save anything; it’s just not a thing we do anymore,” he explains. “I think the cost of living is high and job security is low.” The old “job for life” days are long gone, and people now expect to have multiple jobs through their working career, he explains.

“You are seeing sporadic employment, contract work – it is hard for people to put down roots and save. And house prices are rising sharply, and everything costs more. We’re not able to save, and we are seeing more people using debt to make ends meet,” he says.

Those who do try to save tend to be punished for their efforts – savings account and GICs pay interest in the low single digits, and if savers look to invest in mutual funds “there are high fees, and they take on risk,” he explains. Since low-interest lines of credit are so prevalent, for many people, debt has replaced savings, a practice that Hoyes says just isn’t sustainable in the long term.

Save with SPP asked how this lack of saving affects retirement plans.

“It’s become uncommon to have a pension plan (a traditional defined benefit plan) at work,” he says, “unless you work for the government. It’s just not a thing newer companies offer.” He says that from an employer’s point of view, “it is a hassle to set them up, and there is a potential for liabilities that need to be funded, and more money needing to be put in.” Sears and Nortel show the potential downside for employees and DB pensioners if the parent company runs into financial trouble, he notes.

So traditional pension plans in the private sector have generally been replaced with things “like a group RRSP, where there is zero risk (for the employer).” Employees are satisfied with a group RRSP because they “know they are not going to be there, at the same employer, for 50 years,” and a group RRSP is portable and easy to transfer, Hoyes explains.

With more and more working people dealing with debt, it’s not surprising to Hoyes that more seniors are retiring with debt, a situation he says can lead to disaster.

“In retirement, your income goes down, and while some of your expenses that were related to work go down, others will go up,” he explains. “Your rent doesn’t go down when you retire, so your cost of living is about the same.”

Retired seniors, living on less and still paying down debt, face other problems, he says. It’s more common for retirees to divert savings to “helping their adult kids.” Examples of this might include a divorced child moving home, or college and university graduates, unable to find work, staying home instead of moving out. So the seniors may use up their savings or borrow to help the children, “as any parent might,” but that drives them into a financial crisis, he explains.

With debt to pay and possibly little to no workplace pension, many seniors are heading back to work. Others, Hoyes notes, are starting to have to file for insolvency.

“Maybe you only have CPP and OAS coming in, and you have a $50,000 debt that you can’t service – you may need to file for bankruptcy and make payments through a trustee,” he explains.

We thank Doug Hoyes for speaking to Save with SPP.

If you don’t have a pension plan at work, consider opening a Saskatchewan Pension Plan account. It’s like setting up a personal pension plan. The money you set aside is invested for you at a low fee, and when you are ready to collect it, it’s available as a lifetime pension with several survivor benefit options.

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. He and his wife live with their Shelties, Duncan and Phoebe, and cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

If you’re looking for a thoughtful, fact-filled and interesting guide to planning for your golden years, then Retirement in Canada by Thomas R. Klassen is a wise addition to your retirement reading collection.

Retirement, writes Klassen, is a complex issue both financially and demographically. He notes that the huge wave of retiring baby boomers is unprecedented. “Two-thirds of those 65 and over who have ever lived are alive today,” he writes.

For this huge group, he asks, will traditional definitions of retirement still work? “Retirement typically involves a substantial and sustained reduction in the amount of time spent in paid employment,” he explains. “Yet such a definition fails to include the many Canadians who spend decades in unpaid labour, such as working at home to care for children or other relatives.” What, he asks, does retirement look like for that group, “those who have not worked for money for an extended period of time?”

The old idea of retirement was ending employment at age 65 and never working again. However, Klassen notes, “it is relatively rare for retirement to mean the complete and irrevocable stoppage of work.” There is, he continues, “nothing magical about 65,” and Canada’s very first old-age pension program started at 70. Women, he writes, can still give birth after age 65 through in vitro, a 100-year-old completed a marathon in 2011, students graduate university in their 80s and 90s, and “workers in a range of occupations remain employed years, and in a few cases, decades past age 65.”

Canadians are now living longer. In the 1920s, life expectancy for Canadian men was 59 and for women, 61. These days, most Canadians will live to at least 85.

Will the burden of paying for all these retirees fall upon younger Canadians?

Klassen takes issue with the old-age dependency argument, the “impression of a future world in which a relatively few younger workers will have to support a multitude of retired people.” First, the retirees depend “on savings, such as pensions, accumulated during decades of employment,” rather than on younger workers. Second, such thinking assumes that everyone 15-64 “is employed – that is, they are workers – and that everyone 65 and over is retired and not employed. This is clearly not the case.”

In fact, he writes, older Canadians work past age 65 in ever-larger numbers, either because “they have no choice but to continue earning employment income,” or because “they live to work, rather than work to live.”

The idea behind mandatory retirement at 65 was “to press for adequate pensions from employers and for state programs for older citizens,” he writes. A related idea was to clear the decks for younger people to take the jobs vacated by retirees. When mandatory retirement was ended, Klassen notes, this thinking was revealed as “a fallacy,” based incorrectly on the assumption that the number of jobs in the economy is finite.

While government retirement income programs generally work well, the other main savings vehicles – RRSPs and workplace pensions – aren’t running at maximum efficiency. Klassen notes that only 39 per cent of workers had access to a workplace pension plan in 2010, and that only 25 per cent of those eligible for a private pension joined.

An issue, he suggests, might be affordability. Families in their 30s have significantly less wealth than those in their 60s, who are living in mortgage-free homes and are experiencing their highest levels of income.

So, given all this, will retirement be a good thing for most of us?

Klassen concludes by noting that “most Canadians can expect satisfaction with, and in, retirement after an initial period of adjustment.” He adds that “there is no magic transformation that occurs upon retirement,” so “those with higher levels of satisfaction with life before retirement will likely continue to be fortunate and fulfilled in retirement.”

If you are someone who has not joined a workplace pension plan, or don’t have access to one, the Saskatchewan Pension is well worth checking out. You can start small, and make contributions when you can, and then ramp it up as your income improves over time. It’s a flexible plan that is a sensible retirement savings ally.

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. He and his wife live with their Shelties, Duncan and Phoebe, and cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

A look at the best of the Internet, from an SPP point of view

Tax-free pension plans may offer a new pathway to retirement security: NIA

With workplace pensions becoming more and more rare, and Canadians generally not finding ways to save on their own for retirement, it may be time for fresh thinking.

Why not, asks Dr. Bonnie-Jeanne MacDonald of the National Institute on Ageing, introduce a new savings vehicle – a tax-free pension plan?

Interviewed by Yahoo! Finance Canada, Dr. MacDonald says the workplace pension plan model can work well. “Workplace pension plans are a key element to retirement income security due to features like automatic savings, employer contributions, substantial fee reductions via economies of scale, potentially higher risk-adjusted investment returns, and possible pooling of longevity and other risks,” she states in the article.

Dr. MacDonald and her NIA colleagues are calling for something that builds on those principles but in a different, tax-free way, the article explains. The new Tax-Free Pension Plan would, like an RRSP or RPP, allow pension contributions to grow tax-free, the article says. But because it would be structured like a TFSA, no taxes would need to be deducted when the savings are pulled out as retirement income, the article reports.

“TFSAs have been very popular for personal savings, and the same option could be provided to workplace pension plans. It would open the pension plan world to many more Canadians, particularly those at risk of becoming Canada’s more financially vulnerable seniors in the future,” she explains.

And because the money within the Tax-Free Pension Plan is not taxable on withdrawal, it would not negatively impact the individual’s eligibility for benefits like OAS and GIS, the article states.

It’s an interesting concept, and Save with SPP will watch to see if it gets adopted anywhere. Save with SPP earlier did an interview with Dr. MacDonald on income security for seniors and her work with NIA continues to seek ways to ensure the golden years are indeed the best of our lives.

Cutting bad habits can build retirement security

Writing in the Greater Fool blog Doug Rowat provides an insightful breakdown of some “regular” expenses most of us could trim to free up money for retirement savings.

Citing data from Turner Investments and Statistics Canada, Rowat notes that Canadians spend a whopping $2,593 on restaurants and $3,430 on clothing every year, on average. Canadians also spend, on average, $1,497 each year on cigarettes and alcohol.

“Could you eat out less often,” asks Rowat. “Go less to expensive restaurants? Substitute lunches instead of dinners? Skip desserts and alcohol?” Saving even $500 a year on each of these categories can really add up, he notes.

“If you implemented all of these cost reductions at once across all of these categories, you’d have more than $186,000 in additional retirement savings. That’s meaningful and could result in a more fulfilling or much earlier retirement,” suggests Rowat. He’s right – shedding a bad habit or two can really fatten the wallet.

If you don’t have a retirement plan at work, the Saskatchewan Pension Plan is ready and waiting to help you start your own. The plan offers professional investing at a low cost, a great track record of returns, and best of all, a way to convert your savings to retirement income at the finish line. You can set up automatic contributions easily, a “set it and forget it” approach – and by cutting out a few bad habits, you can free up some cash today for retirement income tomorrow. It’s win-win.

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, classic rock, and darts. You can follow him on Twitter – his handle is @AveryKerr22