Over the last 6+ years I have had the privilege of blogging for the Saskatchewan Pension Plan twice a week. That means there are over 500 articles archived on this site that you can access on topics that range from retirement savings to income taxes to how to save money.
Whether you have recently started following savewithspp.com or you have been with us from the beginning, you may not be aware of the wealth of information in our archives. Therefore, beginning with this week, on an occasional basis I will offer links to some of my favourite “blasts from the past.”
Today’s selection includes a series of savewithspp.com podcast interviews.
I interviewed SPP General Manager Katherine Strutt in both January 2012 and February 2015. “The SPP gives members access to top money managers they may not be able to access on their own. SPP also gives members a strong investment product at a very low price,” Strutt said in the most recent interview. “The costs of running our plan are around one percent or less, and this compares to fees in a retail mutual fund that can be anywhere between two and three percent.”
In a July 5, 2012 podcast Derek Foster, author of several books including The Idiot Millionaire and The Wealthy Boomer explained how he retired at the young age of 34 and supports his wife and five children on $40,000/year. He also talks about the advantages of saving for retirement with SPP as opposed to an RRSP.
The Wealthy BarberDavid Chilton spoke to us in October 2012 long before he joined and then left the popular CBC series Dragons’ Den. He offered strategies for cutting down on discretionary savings to free up more money for savings. Using cash instead of mindlessly swiping a debit or credit card is one of his favourites.
The 2014 series of podcast interviews featured financial bloggers including Retired Syd who left work behind at age 44. Her original budget for retirement turned out to be overly generous, partly because she was kind of careful the first few years since she was so nervous watching the stock market go down. But as of the date of the interview, she and her husband were still spending less than their original retirement budget.
And finally, after I read most of the books in the Joanne Kilbourne mystery series, in March 2015 I interviewed the author and Saskatchewan success story Gail Bowen. Also a retired professor and playwright, Bowen’s writing career did not begin until age 45. She is still writing in her 70s – truly a role model for all of us who are pursuing encore careers.
Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere?” Share the information on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.
Written by Sheryl Smolkin
Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.
As part of the SaveWithSPP.com continuing series of podcasts with personal finance bloggers, today I’m talking to Mark Seed, author of the popular blog My Own Advisor.
Mark’s day job is Senior Designer of Quality Management Processes at Canadian Blood Services in Ottawa, but he is passionate about personal finance and investing. He started investing in his early twenties after reading David Chilton’s, The Wealthy Barber.
For the last five years, Mark has blogged about a broad range of topics ranging from asset allocation, to investor behavior, to retirement, to travel.
Thanks for the opportunity, Sheryl. It’s great to talk to you.
Q: You have a demanding day job. You enjoy golfing, biking, hiking, and travel. When do you have the time? Why did you start a personal finance blog?
A: Good question. I try to find the time. I started off blogging because I wanted to share my story about saving and investing towards financial freedom. I figure running my own blog and sharing my own story could help people that are both new to investing and saving and those who are more experienced.
Q: How frequently do you post?
A: Probably two to three articles a week. I have a demanding but also very exciting day job, so in the evenings I write and then I post the next day.
Q: Do you have kids?
A: No, we don’t.
Q: So, how do you decide what you’re going to write about from week to week?
A: I get inspiration from quite a few sources, Sheryl. Sometimes it may be a workplace conversation, or it could be a chat with family and friends outside work. Often there’s a news headline I can play off and add my own perspective.
Q: That feeds well into the next question which is: what subjects do you like writing about the most?
A: Fixed and dividend investing — I practice that approach as you know. Taxation and insurance are also subjects I like to write about. And of course the travel stuff and investor behavior are fun subjects.
Q: There’s probably over a dozen well-known personal finance bloggers in Canada. What’s different about your blog and why do you think it’s a must-read?
A: I think it’s a must-read because I believe I am taking a holistic, DIY approach to investing and saving. I think people can relate to that quite well. I certainly don’t pretend to be an expert in every single field but I’m learning as I go.
Q: How many hits do you typically get for each blog?
A: I’m getting about 1,000 to 2,000 hits per article, which is great. So in some months that translates to maybe 50,000 hits a month.
Q: That’s fantastic! How long did it take for it to build?
A: Early on – I would say the first couple of years – it was really slow. There has been an upward trend in the third, fourth and fifth year and now there is an income stream from the site.
Q: You have to be patient though
A: You have to be patient, absolutely. It takes time.
Q: Tell me about some of the more popular blogs you’ve posted.
A: I think my article earlier this year about driving a fourteen year old car got a lot of hits and comments. The essence of the story was I don’t need a new car so why should I buy one? It works fine and it’s not costing me money. Why spend money on a nicer ride when I can put it in my RRSP or TFSA?
I also got a lot of attention when I wrote about why I’m no longer investing in costly mutual funds and paying fees I don’t understand for underperformance. There have also been well-received blogs about my passive investment strategy and some mistakes I’ve made, like when I paid the wrong bill.
It happens, right? And I think if you publicize those things people go, “Everyone is fallible, nobody’s perfect” and it’s funny to read these things.
Q: Right. So you’ve focused on dividend investing – why do you embrace this strategy and how does it work?
A: I’ll try to keep it fairly short and sweet. One reason is I like having an income stream is because as a shareholder of an established company with a track record of paying dividends, I basically get paid to be an owner of that business. And that dividend payment is very real, because I see the cash coming into my brokerage account every month or every quarter.
The second main reason is that some of these established companies have paid dividends for many years – decades upon decades, in fact, maybe even a generation or more – so they tend to increase their dividends every year as their net earnings go up. So the amount I receive tends to grow over time which is a pretty good inflation-fighting strategy.
The global financial crisis from 2008-2009 was very bad for many people. But most of the companies I owned or started owning and buying at that time paid their dividends even when their stock prices went down 30, 40 or 50%. So there’s value sticking with those companies through thick and thin.
And even though I’ve adopted both indexing and dividend investing, I think it’s the blend that’s important. I’m getting the best of both worlds.
Q: What’s a DRIP account and what are some of the pros and cons?
A: A DRIP account stands for a dividend reinvestment plan, and really it’s an approach to reinvesting dividends paid by the companies that you own free of charge. Not paying transaction fees is huge in my opinion.
There are really two types of those dividend reinvestment plans. One is called “a full DRIP” and the other is called “a synthetic drip.” You can read about how they work in more detail on my blog.
Q: Many investors have multiple accounts: RRSPs, TFSAs, unregistered investment accounts. As a rule of thumb, what kind of securities should they hold in each account and why?
A: Very good question, actually. I do follow some of those rules of thumb. In the RRSP accounts we hold both Canadian and U.S. ETFs but we also own a few U.S. stocks.
The reason why is that we escape withholding taxes applied to some U.S. listed securities. So putting U.S. stocks or U.S. ETFs in an RRSP, a locked-in retirement account or a RRIF is tax effective.
Because there is a 15% withholding tax if U.S. stocks are held in TFSAs (and also RESPs), in our TFSAs we hold basically Canadian content, including Real Estate Investment Trusts, ETFs and some blue chip stocks.
And in our non-registered account we only hold Canadian dividend-paying stocks because those stocks are eligible for a Canadian dividend tax credit if they’re not in registered accounts.
Q: Do you have a favorite personal finance blogger that you read religiously?
A: I have a few, actually. Million Dollar Journey is one guy that really inspired me to create my own blog. I’m a big fan of Dan Bortolotti’s site, Canadian Couch Potato. I think he’s a very gifted writer and certainly one of the strongest advocates I’ve met in terms of the interests of the retail investor. And I also like a Canadian living in the U.S., Mr. Money Moustache.
Q: What, if any, money-making opportunities or spinoffs have there been as a result of your blogging career?
A: You know, there have been a few, which has been great. I think the blog has certainly opened doors to meet some great people, folks I would probably have normally not met. In recent years I’ve managed to develop excellent partnerships with folks in the insurance industry and the mortgage industry as well.
Rob Carrick at the Globe and Mail has very kindly referenced me in a number of articles. I’ve also been interviewed on the radio and I’ve been quoted in MoneySense Magazine,
What does the future hold? Who knows? I’ll keep writing. I’ll keep sharing my stories. I’m certainly passionate about personal finance and investing and I enjoy interacting with others who feel the same.
Q: If you had only one piece of advice to readers about getting their finances in order what would it be?
A: Spend less than you make. It may sound utterly boring. But I think when it comes to finance and investing, boring works because you can’t invest what you don’t save and if you’re not saving then you’re obviously spending every dime you make. So spending less than you make and having money for your future is a pretty good plan.
Q: Thank you very much Mark, it was a pleasure to talk to you.
A: Thanks again, Sheryl, this was a lot of fun. I appreciate it.
This is an edited transcript of a podcast you can listen to by clicking on the link above. You can find the blog My Own Advisor here.
Every family has multiple financial priorities. If you have small children and a big mortgage it is often daunting to think about saving for anything more than a family night out at a local fast food restaurant.
But one way to manage your money is to pay yourself first by allocating specific amounts to savings and having these amounts moved into different jars (or accounts) as soon as your paycheque is deposited into your account.
In Part 2 of the series “how to save for retirement” we will focus on several of the tax-assisted or tax–deferred savings plans available to you and some tips for using them effectively.
Government benefits: Every working Canadian must pay into the Canada Pension Plan or the Quebec Pension Plan until age 65. In addition, Old Age Security is payable to Canadians or legal residents living in Canada who lived in the country at least 10 years before age 65 and Canadians or legal residents living outside Canada who lived in the country at least 20 years before age 65. Lower income OAS recipients may also be eligible for the Guaranteed income Supplement (GIS). But changes to government benefit programs mean you can take benefits later or in some cases earlier (with a penalty). When developing a retirement savings plan you should understand how these programs work and the benefits you can expect to receive. You also need to decide when it makes the most financial sense for you to start collecting CPP and OAS.
Saskatchewan Pension Plan: The Saskatchewan Pension Plan is a defined contribution pension plan open to all Canadians with registered retirement savings plan (RRSP) room. You can contribute up to $2,500/year or transfer in up to $10,000/year from another unlocked RRSP. Low fees (one percent/year on average) and consistent returns (average of 8.13% over 28 years since inception) make SPP an excellent investment. The program is very flexible because how much you contribute and when is up to you. Funds are locked in until your selected retirement date, between ages 55 and 71.
Registered Retirement Savings Plan: In 2014 you can contribute 18% of your previous year’s income to a maximum of $24,270 to your RRSP minus specified amounts contributed to other registered savings accounts. Unused contribution room can be carried forward. You can find your RRSP limit on line (A) of the RRSP Deduction Limit Statement, on your latest notice of assessment or notice of reassessment from the Canada Revenue Agency.
RRSP withdrawals: One weakness of an RRSP as a retirement savings vehicle is that you can withdraw money at any time. If you do withdraw RRSP funds you will pay tax on withdrawals at your normal tax rate, the contribution room is lost and you lose the benefit of future tax-free compounding. However, the Home Buyers’ Plan and the Lifelong Learning Plan permit you to withdraw amounts from your RRSP in specific circumstances without triggering a tax bill and require you to repay the money, usually over 15 years.
Tax deductible: Contributions to SPP, RRSPs and other registered pension plans are tax deductible. If you participate in one or more of these plans and have not already arranged to have less tax taken off at source, you may get a hefty income tax return. There are lots of ways to spend this windfall including taking a vacation or paying down debt. However, in his book The Smart Debt Coach, author Talbot Stevens says reinvesting your tax returns into an RRSP is the best way to get the full benefit of compounding in the plan.
Deferring tax deduction: There is no minimum age for an RRSP. In order to make contributions to an RRSP account, a minor needs to have earned income the previous year and have filed an income tax return. If a thrifty young person or anyone with a low income makes RRSP contributions, deferring taking the tax deduction until they are in a higher tax bracket means they will get a bigger bank for their savings bucks. The last RRSP contribution a taxpayer can make is in the year they turn 71.
Tax Free Savings Account: A Tax Free Savings Account (TFSA) allows you to currently save $5,500 a year. Contributions are not tax deductible, but investment earnings accrue tax free in the account. If you withdraw money, you can re-contribute the amount to the account in the next or subsequent years without any penalty. You can only begin making contributions at age 18 but there is no upper age when you have to stop contributing. How do you decide if a TFSA or an RRSP is best for you? Gordon Pape says TFSAs are better for short-term savings goals and if you don’t want to undermine possible eligibility for government benefits like the GIS. But if your income will be lower in retirement he suggests saving in an RRSP.
Automatic withdrawal: Whether you participate in a company pension plan, SPP, RRSP, TFSA or a combination of all or some of the above, set up automatic withdrawal so a specified percentage of your income is moved into these accounts every payday. David Chilton made “pay yourself first” a popular mantra in The Wealthy Barber, first published in 1989. If savings are skimmed off the top, you will learn to live on less while you get on with the business of day-to- day living. And when you do retire, you will have a significant part of the nest egg you need to live on.
Automatic escalation: To find out how much you need to save for retirement, you need a financial plan. But in a recent column in the Globe and Mail, personal finance expert Preet Banerjee suggests that in the absence of a plan, the rule of thumb should be at least 10% or as much as you can save. In other words, you are not going to have enough if you keep saving a flat dollar amount each year. But if you select a percentage of income and ensure you increase your contributions every time you get a raise, it is more likely that you will reach your retirement savings goal.
Consider insurance: Nobody expects to become disabled or die young, but it happens more often than you think. Regardless of how much you are saving for retirement, an unexpected loss of income can derail all of your short and long term goals. You may have some life insurance, disability insurance and maybe even critical illness insurance at work. Review your coverage with a financial advisor to determine if you need more individual coverage or if you can afford to self-fund the risk.
In Part 3 of this series we will focus on some basic investment principles that will help you grow your retirement savings.
Talbot Stevens is so confident that his book “The Smart Debt Coach” can save you money, that he is offering a free refund to anyone who doesn’t think they can save at least $1,000 by applying the basic principles he discusses.
The book is written in the style of a “self-help novel” like David Chilton’s The Wealthy Barber and Jon Chevreau’s Findependence Day. The main characters are Joe, Michelle, their friend Kim (physician and single mom) and financial advisor Bruce.
When Joe’s sister Lisa asks his family to join them on a Caribbean holiday, they are reluctant to do so because it will mean further maxing out their credit cards. Then Joe realizes Lisa saved the money in advance for the trip and he wants to learn more about how she accomplished this on a lower family income.
She explains that on the advice of their parents (which Joe ignored at the time) for over 10 years she and her husband have been working with Brian, a financial advisor. Since his death they continue to get similar advice from his nephew Bruce.
It turns out that Bruce (a widower) is the parent of one of the kids on the hockey team that John and Michelle’s son plays on. Kim (divorced) is also a hockey mom. While watching the games week after week, they quiz Bruce on basic financial concepts and eventually John and Michelle retain him privately.
And so their journey to a better financial future begins.
Bruce goes through a goal setting exercise to help them establish priorities and negotiates a contract which clearly sets out the responsibilities of both the financial coach (Bruce) and the clients (Joe and Michelle).
One of the first strategies Joe and Michelle learn about is “Debt Swapping.” Essentially this means if you have high interest credit card debt plus unregistered investments, you can cash in your investments, pay off the debt and then borrow at a lower rate to re-populate your investment account.
This is a win-win because they will pay less interest on the investment loan and they can write off the interest expense against any investment income.
But based on the maxim that “a penny saved is a penny earned,” Bruce also illustrates how avoiding credit card debt and other unnecessary expenses represents real money in their pockets. Furthermore, their advisor demonstrates they are not getting the full benefit of their RRSP contributions if they spend their tax return instead of topping up RRSP accounts.
Like the wealthy barber, Bruce encourages John and Michelle to “pay themselves first” by setting up automatic withdrawal of monthly RRSP contributions and increasing contributions every year by a specified percentage. He says that in most cases saving 8% of income and inflating deposits yearly by 3% produces a larger retirement fund than saving 10% without ever ramping up savings.
He also motivates them to be more frugal in other areas and buy a slightly used truck instead of a new one to reduce monthly car payments. Some more complicated strategies recommended later in the book include taking out short-term loans to top up RRSP contributions and using a second tax refund from RRSP top ups to fund registered educational savings plans for their children.
In addition there are chapters on other smart debt strategies, a common sense way to beat the market and how being a landlord can pay dividends.
However, by the time I read about 80 pages I found myself skimming to try and pick out the relevant financial information without having to wade through the somewhat contrived story. I was also disappointed that there was not a point form checklist of the basic ideas I could use for future reference.
The book is extremely readable and the advice is good. While it is far from a romance novel I was not surprised that after all those hockey games (spoiler alert), Bruce and Kim are a couple by the end of the book.
Unless you are already doing everything Stevens suggest (and few of us are) it is unlikely that you will be able to honestly collect on his money back guarantee for the book. Even if you don’t read it cover to cover, you will discover some new strategies you can use to map your own road to a healthy financial future.
You can purchase The Smart Debt Coach for $15.67 on the Chapters Indigo website.