JUL 13: BEST FROM THE BLOGOSPHERE

Pandemic a bigger challenge to retirement saving than Great Recession: report

Unless all your retirement savings are invested in low-risk securities like GICs or government bonds, you’ve probably spent a lot of time watching the pendulum swings in the market since March.

A new report from Fidelity Investments Canada says it’s clear that today’s pandemic-influenced markets are worse for savers than the shaky markets of the “2008-2009 Great Financial Crisis.”

“Data shows Canadians near and in retirement are more negatively impacted by COVID-19 than the Great Financial Crisis,” states Peter Bowen, Vice-President, Tax and Retirement Research in a media release from Fidelity. “However, we are in this together and there is help. By seeking financial advice and writing down an action plan, Canadians can feel better and navigate the uncertainty,” he states in the release.

The data was gathered for Fidelity Canada’s annual Retirement 20/20 survey, which gathered data from Canadians “already in and approaching retirement.”

Here are some of the key findings mentioned in the media release:

  • 40 per cent of retirees reported “a negative outlook on their life in retirement,” the worst score in this category since 2014.
  • 40 per cent said their earnings had decreased owing to the pandemic, and 50 per cent said that fact, in turn, means they are “reducing the amount of money they are able to save.”
  • Those (80 per cent of pre-retirees and 92 per cent of retirees) with a written financial plan felt “positive about their (future) life in retirement.”
  • Eighty-five per cent of those with a plan said they worked with an advisor.

What’s different about this market rollback from the 2008-09 crisis?

According to Nicolas Samaan of Manulife, interviewed by Wealth Professional, this crisis has a different element to it.

“You’ve seen on LinkedIn people posting about losing their job and people helping each other,” Samaan tells Wealth Professional. “You see that human interaction, not just financially but in general, people making sure others are okay.

“It’s more about wellness – that is so much more important. I’ve always said to people, if you don’t have the health to do your (personal projects), it’s not going to work. In that sense, this crash was very different than what we’ve seen in the past,” he states in the article.

Samaan is right. The last crisis was scary but on a strictly economic basis – will banks fail, will the economy tank? This one has the overlay of a worldwide health crisis – will we find a way to cope with, or become immune from, this virus, and will the economy be able to hold on until that happens?

Picking stocks when markets are uncertain is not something for the faint of heart. Having professionals handle the investing is especially valuable at times like these. It’s nice to realize that the Saskatchewan Pension Plan has averaged an eight per cent rate of return since its inception in the 1980s, a period of time that included the Tech Wreck in 2000-2001 and the Great Financial Crisis a decade or so ago. The pros can make adjustments when markets take an unexpected turn, and can look at alternative ways to grow your money. Check out the SPP 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

The CAAT is out of the bag – any employer can now join established “modern DB” plan

We often hear how scarce good workplace pensions are, and how many employers, notably those in the private sector, have given up on offering them altogether.

But, according to Derek Dobson, CEO and Plan Manager of the Colleges of Arts and Technology (CAAT) Pension Plan, there is an option for any Canadian employer that doesn’t want to go through the effort and expense of managing a pension plan for their employees. That option is CAAT’s DBplus plan.

Dobson tells Save with SPP that there are three main themes as to why some employers – with or without their own pension plan – might want to look at DBplus.

Running what is called a “single employer” defined benefit (DB) plan means the risk of ensuring there’s enough money invested to cover the promised benefits rests on the shoulders of one employer. In a multi-employer plan, however, many employers are there to shoulder the load – the risk is shared.

As well, he notes, it might be a chance to upgrade pension benefits. “A lot of organizations want to have access to something better for their people… some employers offer nothing, or a group RRSP. Now they can move to a modern DB plan,” Dobson explains. One study by the Healthcare of Ontario Pension Plan (see this prior Save with SPP post) found that most Canadians would take a job with a good pension over one that pays more, Dobson notes.

A final benefit, he says, is the ability that DBplus has to move all employees to a common retirement benefit platform. “In many organizations, you may find that one group of employees has nothing, one has a defined contribution plan, others have a DB plan that is now closed to new entrants… DB plus allows you to put everyone on the same platform,” he says.

Noting that another large pension plan – Ontario’s OPSEU Pension Trust – has launched a similar program for non-profit organizations, Dobson says the idea of leveraging existing pension plans to deliver pensions to those lacking good coverage “is great…the long and the short of it is that there’s a general belief that these larger plans want to put up their hands to help where they can.”

“It’s the right thing to do,” he says.

Why are pensions so important?

Dobson points out some key reasons. “The average person these days will live to age 90, and on average, they retire at age 64 or 65,” he explains. “That’s 25 years in retirement. So having a secure, predictable income, one with inflation protection and survivor pensions, and that is not being delivered for a profit motive – that’s why these plans are so powerful.”

Another great thing about opening up larger plans to new employers is that it addresses the problem of “pension envy,” Dobson says. Instead of pointing out who has a good pension and who doesn’t, now “everyone has access to one, to the same standard.”

Those without a pension have issues to face when they’re older, he warns. “The Canada Pension Plan and Old Age Security systems weren’t designed to be someone’s only source of income,” he explains. “We had a three-pillar system in the past – CPP, OAS, and the third pillar, your workplace pension plan and your private savings,” Dobson says. But a large percentage of Canadians don’t have pensions at work, and a recent study by Dr. Robert Brown found that the median RRSP savings of someone approaching retirement age is just “$2,000 to $3,000,” Dobson says. Yet the same study found Canadians are willing to try and save 10 to 20 per cent of their income for retirement.

Dobson says he is energized by the goal of bringing pensions to more Canadians. “It’s a way of making Canada better,” he concludes.

Here’s a video about how the CAAT pension plan delivers on benefit security.

We thank Derek Dobson for taking the time to speak to Save with SPP.

If you don’t have a workplace pension, or the one you have offers only modest benefits, don’t forget the Saskatchewan Pension Plan. SPP allows you to decide what your savings rate will be, grows those dollars at a very low management rate, and can convert the proceeds to a variety of lifetime pensions when you retire. 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

JUL 6: BEST FROM THE BLOGOSPHERE

New research from the World Economic Forum, reported by Corporate Advisor, suggests the “savings gap” between what we should set aside for retirement, and what we actually have, is on track for monumental growth.

“Globally, experts are concerned many people could be sleepwalking into retirement poverty. The World Economic Forum (WEF) highlighted that the gap between what people save and what is needed for an adequate standard of living in retirement will create a financial black hole for younger generations,” the Advisor’s Emma Simon reports.

The WEF looked at the some of the world’s largest pension markets, including Canada, the U.K., Australia, the U.S., the Netherlands, China, India and Japan, and concluded “the gap” could reach a staggering $400 trillion U.S. in 30 years.

But, the article says, there is still time to do something to avert a crisis.

“With ageing populations putting increasing pressure on global pension and retirement plans, employees, employers and governments need to take more responsibility and act to prioritise pensions and savings,” Simon explains.

Countries around the world have done some interesting things to boost retirement savings.

In the U.K., the article notes, “automatic enrolment” was rolled out in 2012. This means that new employees are automatically signed up for their workplace pension plan, with an option to opt out. Thanks to this, there are 10 million more pension plan members in the U.K., although there are concerns about 9.3 million who aren’t in plans because they were too old for auto-enrolment, the article explains.

In Australia, the Superannuation fund system was made mandatory “in 1992 for all employees older than 17 and younger than 70 earning more than $450 (AUD) a month.” So this means everyone is saving on their own – but with the current maximum contribution of 9.5 per cent (soon to rise to 12 per cent), there are questions as to whether they are saving enough.

A Benefits Canada article from a couple of years ago raised the same question – are Canadians saving enough for retirement on their own? While Canadians had accumulated an impressive-sounding $40.4 billion in RRSPs as of 2016, the article notes that the median contribution annually was just $3,000.

As of 2018, reports the Boomer & Echo blog, the average Canadian RRSP was an impressive sounding $101,155. But if someone handed you $100 grand and then said “live off this for 30 years in retirement,” it wouldn’t sound quite so great.

There’s no question that saving needs to be encourage in Canada and around the world. The Canada Pension Plan and Old Age Security both provide a pretty modest benefit, and most of us don’t have a workplace pension. So steps should be taken to encourage more access to pensions, to look at increases to government benefits, and to encourage more saving.

If you don’t have a workplace pension plan, the Saskatchewan Pension Plan may be just what you’re looking for. The SPP is a defined contribution plan. You can contribute up to $6,300 a year, and your contributions are carefully invested at a very low fee. When the day comes that work is no longer a priority, the money you’ve accumulated through growth and ongoing contributions can be converted to a lifetime pension. 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

Book lets pictures, not words, tell the story about personal finance

Years ago, a colleague opened our eyes to the idea of “infographics,” nice, visual little charts and graphics that take far less time and space to tell a story than simple words alone.

Nowadays, you see many long reports, like corporate annual reports or white papers, that are packed with visuals. This thinking is precisely what authors Michele Cagan, CPA, and Elisabeth LaRiviere had in mind when they produced The Infographic Guide to Personal Finance.

The results are impressive. The book navigates just about every financial situation there is via 50 different infographics. The authors point out that “personal finance is one of the most important life skills to master, yet it’s one of the few topics rarely covered in school.” Their very educational book helps address that knowledge gap.

The overview of budgeting, for instance, suggests a plan based on “50 per cent needs, 30 per cent wants, and 20 per cent savings and investments.” As well, the book suggests, you need to set goals, know your income, and total your monthly expenses “to create a realistic budget” that you should revisit frequently. Got to know what’s coming in, what’s going out, and what’s left, the images show us.

An infographic dedicated to saving shows the earlier you start, the better, the book says.

“Let’s say you contribute $2,000 a year” to your retirement savings fund, at six per cent interest, the book notes. “If you start at age 25, by the time you’re 65 you will have $328,101. But if you wait until you are 45 to start contributing that $2,000 a year, you’ll end up with $77,986 – less than a quarter of what you’d have if you started at 25.”  The book stresses the importance of an emergency fund “to cover three to six months’ worth of living expenses.” Such funds are best tucked away in no-fee, high interest savings accounts that aren’t easily accessible.

While the book is intended for U.S. readers, its advice on what to do with a tax refund is helpful. First, the book recommends, “beef up your retirement accounts.” Next, target credit card debt. Build up your emergency fund or save for the future, consider buying some stocks, and finally “invest in yourself” and improve your education and skill sets through training.

If you’re reading all this and thinking, yeah, but who has extra money for saving, the book has anticipated your thought with a two-page chart on how to cut expenses. Turn your thermostat down or up, the book suggests. Check out the books and videos that you can get free at the local library. Get a water filter and give up on expensive bottled water. Other tips include cutting the cable cord, switching to LED light bulbs, buying things via online auctions, thrift stores and garage sales, and buying produce in season – frozen when it’s not.

The book’s thoughts on retirement savings are also worth sharing. If your employer offers a retirement savings program with an employer match, be sure not to leave money on the table – take the match. Contribute as much as you can to any employer-sponsored retirement program. Start as soon as you can, and be sure to diversify the investment options you are given – don’t put all your eggs in one basket.

If there’s no workplace pension program for you to access, don’t despair – the Saskatchewan Pension Plan may be the answer. You can contribute up to $6,300 each year, and can transfer in a further $10,000 a year from any other registered savings accounts you may have. SPP will grow your money – since the plan’s inception, the growth rate has averaged an impressive eight per cent – and when you retire, you’ll have the option to receive a monthly lifetime pension. That’s making the most of your savings, so 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

JUN 29: BEST FROM THE BLOGOSPHERE

It’s not what you save, but how you manage money, writes Catherine Brock

Is there some sort of magic solution that will help us gear up for our eventual retirement?

Writing for the Magic Valley blog, Catherine Brock says you don’t necessarily need magic. She sees four specific things that you need to have locked down before entering life after work.

First, she writes, you need to be able to “budget confidently.”

“Budgeting doesn’t mean you know generally how much you spend each month. It means you know exactly how much you spend,” she explains. This will force you to live within your means, and if you want to buy something that’s over your budget, you will have to save up for it, Brock notes.

The next thing is to have “control over spending.”

Once you are following a budget, you can focus on your spending, and if you can save a few dollars, those savings are real. “You’ll probably find that focusing on your spending naturally creates savings by eliminating mindless purchases. And then you can get creative, cut back, price shop, and even freeze spending temporarily to uncover additional savings,” she explains.

An emergency fund is a third “must” for retirement readiness, Brock writes.

“Experts recommend keeping at least three months of living expenses on hand in a cash account. Heading into retirement, it’s a good idea to target more than that, say six or 12 months of expenses,” she points out. Without an emergency fund, you’ll need to tap into your retirement savings for your emergencies, a losing strategy that can cause trouble later, Brock notes.

The last category is a big one – eliminating revolving debt.

She says that if you are on course for the first three categories, then getting rid of debt should be your focus. A good approach is, after you have paid off one debt (credit card or line of credit), to use the money you were paying on it to help target the next one. Repeat the strategy until you are debt free, she advises.

She concludes by saying that mastering these four skills is as important as what the balance is in your retirement savings account. In plainer terms, it’s not what you save, it’s how you manage it that wins the retirement race.

If you haven’t heard how the Saskatchewan Pension Plan can help grow your retirement savings, you should check them out today. This professionally managed open defined contribution plan can invest your contributions, grow them over time, and convert them to a lifetime income stream when you turn in your ID badge at work.

SPP is especially helpful if you don’t have a pension plan at work – if you work part-time, casual, or via the so-called gig economy, you can contribute at a rate that works for you. You can turn SPP into your own personal retirement savings system.

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

Important to support local restaurants as they struggle to re-open

As we glide along, waiting for things to be “normal” once again on the health front, it’s interesting to see the changes in how Canadians interact with restaurants.

Until very recently, restaurants were restricted to take out or delivery. Now we’re seeing them reopen, usually with limited seating, perhaps expanded patios, and so on. Things are still not back to where they were in early March, and may not be for a long time. Save with SPP took a look around the Internet to see what people are making of this.

There’s no question that the restrictions have been very, very tough on Canada’s restaurants, reports Retail Insider. Citing research from Restaurants Canada, the magazine reports that “seven out of 10 restaurants in the country are either worried or extremely worried that they won’t have enough liquidity to pay vendors, rent and other expenses over the next three months.”

While the many restaurants still open “for takeout and delivery have demonstrated an exceptional level of responsiveness and innovation while continuing to ensure the health and safety of their staff and everyone they serve,” notes Restaurants Canada’s Shannon Munro in the article, their efforts may not be enough to stave off “insufficient cash flow and insurmountable debt.”

Some provinces are realizing that restaurants have been placed in a very tough spot. In Ontario, reports CTV News, provincial officials plan to get rid of the usual red tape so that it is easy for restaurants and bars to expand their patios, so long as social distancing rules are accommodated.

“We want to make sure we get rid of as much red tape and as much cost as possible to allow people to serve their patrons,” Ontario Attorney General Doug Downey tells CTV.

Many jurisdictions that previously restricted or prohibited alcohol delivery and take-out (the latter is known as off-sales in Western Canada) have dropped those rules. In Ontario, Blog TO reports that Premier Doug Ford is considering making alcohol delivery and takeout from restaurants a permanent thing – one that benefits restaurants. “There’s going to be a lot of things, as we say, the new way of doing business — and not only in government, but in the private sector, too,” Ford states in the article.

If there’s a takeaway from all of this, it is the need to support our local businesses as much as we can during a very tough period. Besides ordering for yourself, another great idea is to get gift cards from restaurants to give out as presents to friends and family. Like other parts of the economy that have been slammed by this healthcare crisis, every dollar we spend on local dining helps a local business to stay afloat until better times return.

While you can’t buy gift cards for the Saskatchewan Pension Plan, you do have a lot of flexibility as to how you can contribute. With SPP, you can either set the plan up as a bill and contribute via online banking, can set up direct deposit from your chequing account, or you can use SPP’s online form to contribute via your credit card. 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

JUN 22: BEST FROM THE BLOGOSPHERE

What to do when the markets tumble

Every once in a while, the financial markets will throw you a curve ball. That’s the nature of investing – what goes up can come down. But what should one do during a downturn?

A recent article in the Financial Post  says the “days of turbulence” this year may have some folks thinking of giving up on stocks altogether, and stuffing “money into a shoebox under your bed” instead.

But, the article advises, that would be the wrong approach. Markets tend to bounce back after setbacks – they are resilient.

Quoted in the article, investment professional Dan Tersigni says staying the course, rather than bailing on stocks, is the wisest approach. “The odds are overwhelmingly in your favour,” he tells the Post. But patience is a must, the article says, as it can take four or five years for markets to fully recover from a slide.

The next tip from the Post is to remember what your investment goals are. If it’s retirement down the road you’re saving for, “the worst thing is to go off track by ditching investments when stocks take a dive,” the article notes.

“You still have time on your side, and you really don’t want to be making short-term decisions,” Tersigni tells the Post. Retirement can be a multi-decade journey with time to make up short-term losses, the article states. If you are up at night fretting about volatility in your investments, perhaps should look at a more diversified portfolio, the Post reports.

Finally, remember that down markets can often be a good time to buy, the Post tells us.

“Normally when the stock market takes a pounding, you shouldn’t focus on what you’re losing but instead on what you could be buying. A market plunge or `correction, makes stocks cheaper,” the article notes. However, the Post says, getting it exactly right on timing – buying at the lowest point – is extremely difficult. A better plan is to automate the process, and buy a set amount of investments every month, the article says.

“That way, you’ll get the best performance from your money – even during the worst of times,” the Post concludes.

So to recap – don’t panic and sell everything at a loss. Focus on the longer term goals – you may have more time than you think until you are actually dipping into those savings as income. And making regular investments, a practice called “dollar cost averaging,” lets you take advantage of dips without getting into the risky business of timing the market.

A nice feature of the Saskatchewan Pension Plan is that you can automate your savings by setting up a periodic direct withdrawal from your bank to SPP. This accomplishes two goals – as discussed, you are now doing dollar cost averaging. And as well, you are paying yourself first, and directing money into your savings before you start paying the bills. 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

What do experts see as the three best ways to save money?

Saving is such a broad topic. Books, TV programs, podcasts, educational courses and many other helping resources all exist to help us learn how to save.

But wading through all that audio, video and text can be pretty daunting. Save with SPP decided to do a quick combing of the sands of the Internet to search for a few nuggets of saving wisdom.

At the How Stuff Works blog, there are actually 10 top ideas presented, but let’s focus on the top three. First, the blog says, you must “make your money work for you.” The blog suggests that money left over after all the bills are paid can be invested in interest-bearing accounts and savings vehicles.

“You define the terms — how long it will take to mature — and that money goes away. When it comes back, it brings more money with it,” the blog explains.

The second tip offered here is “making – and sticking to – a budget” so that you know where the money you spend is actually going. You need to be honest, and fully aware, of “the money you make and the money you spend,” we are advised.

Coming in at number three is the importance of having an emergency fund. We all know all about that.

It’s a similar tale over at the Modern Mix Vancouver blog.

This blog advises that we “plan ahead; and look back.” A budget is great – if you are following it. So review your expenses every month, and plan as much as you can in advance. “Stock up on non-perishable items when they are on sale, like jars of pasta sauce, dried noodles, canned beans and chickpeas… and shop for fruits and veggies that are in season,” the blog suggests.

A second tip is to use loyalty cards. The author cites Starbucks, Sephora and Shoppers PC Optimum points as examples of where you can earn points to redeem on free stuff simply by signing up.

The third tip here is to “live credit-free and avoid interest fees.” Don’t carry a balance on those cards and if you have done so, work hard to pay off your debt – the interest you pay is significant.

At the My Canada Payday blog, the advice is tailored towards those of us who are struggling with our finances. Their first tip is to try and stretch your precious dollars.

“While saving money can be difficult when funds are low, there are generally certain steps that can be taken to truly get the complete bang for one’s buck,” the blog suggests. Look for a bank that offers low fees, the blog suggests – you’ll be surprised how much you can save.

A second idea is to sell off any items you’re not using, either online or through a yard sale. “Upon attaining these extra funds, putting them aside is a proactive way of getting used to saving money,” the blog advises.

Finally, if you’re having trouble making ends meet, the blog suggests looking for a way to “increase (your) earnings.”

You might be able to become an Uber or Lyft driver, delivering people or groceries, or you could look for online freelance projects, the blog suggests. This added income may be enough to lift your prospects, the blog concludes.

These are all sound ideas. Save with SPP will add one additional one that has worked over the years, and that is the concept of “paying yourself first.” Direct money from your paycheque into savings, whether it’s a retirement fund, an emergency fund, or a savings account, and then let that money grow. It doesn’t have to be a huge amount – you will be surprised how quickly the dollars will pile up.

The Saskatchewan Pension Plan permits automated savings. You can set things up so that an amount is automatically transferred to SPP from your account at regular intervals, such as paydays. That way, you’ve done your savings before you have a chance to spend the money. Check out SPP 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

JUN 15: BEST FROM THE BLOGOSPHERE

60 per cent of pension plan members report barriers to retirement saving

New research from Benefits Canada magazine shows that even folks who are in retirement plans say they’re finding barriers to saving – all thanks to the impacts from the pandemic.

The magazine’s annual CAP (capital accumulation plan) Member Survey was carried during the start of the crisis, from March 30 to April 1.

A capital accumulation plan is any type of savings vehicle where members put in money – sometimes matched by the employer – over their working lives. At the end of work, the total amount saved for retirement is then either paid out to them via an annuity, drawn down from a special locked-in RRIF, or a combination of both.

The folks at Benefits Canada asked people in these types of plans how the pandemic was affecting their spending and saving habits.

The research found that Canadians “are continuing to juggle their financial priorities. More than half (54 per cent) of CAP members are prioritizing day-to-day expenses, followed by paying the mortgage or rent (47 per cent), paying off personal debt (38 per cent), enhancing personal savings (34 per cent) and saving for retirement (28 per cent),” the magazine reports.

A fairly low number of respondents – 41 per cent – “described their current financial situation as excellent or very good,” the magazine notes. A further 40 per cent said their finances were “adequate,” but 19 per cent said things were “somewhat poor or very poor.” A whopping 60 per cent said “they’re unable to save as much as they’d like for retirement due to other financial debts, such as credit cards or student loans,” Benefits Canada reports.

Debt is definitely a barrier to saving, the magazine reports. “I think the big thing we need to start to get across to workers, savers, Canadians . . . is that having too much credit card debt is the opposite side of insufficient retirement savings,” Joe Nunes, executive chairman of Actuarial Solutions Inc., states in the article. “It comes from too much spending. We have to get better at educating people that they need to keep the spending in check to get the savings in order.”

The problem, however, is that the pandemic is making Canadian household debt even worse.

“You don’t need to be a psychic to predict that over the next weeks and months, the country will see an increase in personal bankruptcies, while household debt is going to soar,” reports Maclean’s magazine. “Well before COVID-19, there was growing concern over the country’s personal finances, with debt-to-income ratios topping 176 per cent in the third quarter of 2019, which means for that every dollar of income we earn we owe $1.76.”

With so many people off work and receiving CERB benefits, which may equal only about half of what they were making at work, credit cards and lines of credit will feel the strain, the magazine predicts.

Let’s face it – at a time when just staying healthy and avoiding COVID-19 is the new national priority, followed by keeping a roof overhead and food in the fridge, retirement saving is going to get bumped to the bottom of most people’s to-do lists.

But remember that with some capital accumulation plans, like your RRSP or your Saskatchewan Pension Plan account, you can reduce your contributions and put in what you can. If you can’t chip in what you did last year, put in less. Any contribution, however small today, will benefit you in the future, thanks to the professional investment growth it will receive over the years. You can ramp things up again when better times return.

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

Guaranteed income even more valuable in times of market chaos: Alexandra Macqueen

Save with SPP recently had a chance to ask retirement expert Alexandra Macqueen, co-author of Pensionize Your Nest Egg  and a frequent financial blogger, for her thoughts on the state of retirement in Canada.

Q: Can you expand a bit about why annuities may start looking more appealing to retirees and and those who are soon to be retired? Is it because the markets are so volatile and negative due to the pandemic? And the idea that you have a steady lifetime income (with an annuity)?

I have two reasons for thinking annuities might start looking more appealing to today’s and tomorrow’s retirees ­– one practical and one more theoretical.

The first, practical reason is just that when markets decline precipitously – like we’re seeing now with the COVID-19 pandemic – then the value of a secure, guaranteed income that is protected from market risk is more appealing.

My own feeling is that over time, the economic effects from the COVID-19 pandemic will be viewed differently than the last big market event, the global financial crisis.

The 2008-09 financial crisis was much more constrained to a single (albeit big) sector: “finance.” The pandemic, in contrast, stands to upend so much more than the financial world and I think that, over the long term, it could reorient how we think about income and risk in retirement. Of course, it’s easy to make predictions; only time will tell!

The second, more theoretical reason is that the COVID-19 pandemic has changed what you might call the “volatility of longevity” – and somewhat counterintuitively, if longevity is MORE uncertain, people should be willing to pay MORE to hedge that risk.

If your house was at increased risk of burning down, for example, you would pay more for fire insurance – but you would also value that insurance more, because you know you were at increased chance of actually needing it!

So even though the COVID-19 pandemic might actually “decrease” life expectancy “on average,” it also increases the range of possible outcomes (I might live fewer years than before the pandemic, and the uncertainty about how long I may live has increased).

In theory (but maybe not in practice), this means people “should” be more willing to “insure” against the uncertainty, and annuities are the most efficient way to do so.

Q. Do you think people may stay away from equities and look more at bonds, GICs, and that sort of thing for the same reasons – fear of market volatility?

Yes, but with rates near zero – and potentially going even below zero – it’s hard to make bonds and GICs work for retirement income. You get security, but very, very low yields.

For people who are risk-averse (many of us!), the solution isn’t to load up on more equities. What are the alternatives? If you’re looking at products with similar guarantees to GICs, then annuities again should be on your radar screen – and annuity yields, especially at more advanced ages, compare very favourably to GICs.

Q. The ideas in your recent MoneySense article about people working later, and being less likely to retire early, were great. Do you feel work will be harder to find, jobs harder to keep, so it’s less likely that folks will leave at 55 because they may have nothing to go back to in this market? Could you expand a bit on why you think folks won’t retire the way they have been?

Here, what I’m thinking about is that for years I’ve heard people say, “if my retirement doesn’t work out, I’ll go back to work in some capacity.” But what if you’re not able to “go back to work,” because there’s no work to go back to?

It will take a long time for the effects of the pandemic to be felt in all areas of society, including work – but my thinking is that the “easy” fallback of “I’ll find work” will no longer be available. And if that’s the case, people may think longer and harder about leaving the work situations they’ve got. More uncertainty – about work, about income, about home values, about longevity – equals fewer changes and less risk-taking.

Q. We love the idea of more focus on debt, and less assumption on “harvesting” the value of the house. Hopefully this won’t lead to more reverse mortgages, but do you think we are seeing the end of the tendency for boomers to fund their lives with home equity lines of credit (HELOCs)? 

It feels like all eyes are on “what will happen with home values” right now!

There are two ways that “funding our lives with HELOCs” might end: home values might drop, so that the value isn’t there to “harvest,” and lending standards might tighten, so that HELOCs aren’t available even if the value theoretically is.

I’ve been hearing about tightening lending standards for HELOCs in recent weeks – meaning lenders may be “calling” the loan, or “tightening” the lending terms (often this looks like reducing the amount of available credit).

There doesn’t seem to be any consensus about the future direction of home prices. I feel as though for every article I read suggesting values will drop, I read another saying values will hold steady. And keep in mind that in Canada’s large markets, even a reasonably large “drop” in value will just take prices back a few years.

The rise in home values that we’ve seen in the last decade or so – particularly in the GTA and the GVA – have no historical precedent. I don’t think we, as a society, have collectively grappled with how to integrate what economists might call this “shock” into our personal financial plans. The growth in home equity is a positive shock, but a shock nonetheless! In this area, like in so many others, I think we will need to wait and see what trends emerge. It may be that lenders make the decision for homeowners to put an end to using your house “like an ATM.”

Q. Do you have any other thoughts?

My main thought is that it’s really important to recognize the diversity of situations that people entering retirement are in.

It’s very tempting to provide generalized advice based on preconceptions about what retirement is and what “retirees” are like. But retirees and soon-to-be retirees are an incredibly diverse group, with varying views on what they need and want in life, and retirees enter the retirement stage of life with highly varied situations, from their health status to their expectations about how long they’ll live and what they’ll do in retirement.

“Retirement” as we know it is a fairly young concept, and so much has changed since the idea of retirement was first introduced. We’ve collectively never been here before, with so many people transitioning into the retirement phase – which is itself changing under our feet. Thinking about and digging into what “retirement” means is what gets me up in the morning! I’ll never get tired of wondering what life has to offer.

We thank Alexandra Macqueen very much for taking the time to answer Save with SPP’s questions!

If you haven’t thought about including annuities in your retirement plans, a fact to be aware of is that if you are a member of the Saskatchewan Pension Plan, you will be able to choose from a number of life annuity options when it’s time to turn your savings into income. Check out SPP 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