Take a break from social and don’t keep up with the Joneses: Worry Free Money

Everyone, writes Canadian financial author Shannon Lee Simmons, is worried about money. But her excellent book, Worry Free Money, provides a roadmap to a life where you can enjoy your financial life – and Spend Happy — while living within your means.

She starts by citing a few examples from clients she’s worked with – “there is always something, and we can’t seem to move ahead,” says one. “I’m sick of being broke,” says another. “Why am I falling so far behind,” laments a third.

On paper, she notes, “these people are not actually, numerically `broke.’ But being broke and feeling broke are two different things.”

There’s a way out, she writes:

• Understand the underlying reasons for why you want to overspend.
• Understand what you truly can and cannot afford, without budgeting.
• Spend money on things that make you happy.
• Say no to overspending (and yes to saving).
• Stop comparing yourself to others.

She talks about the risk of the “F*ck-it Moment,” when “you feel as if there’s no point in trying to be financially responsible and you end up overspending.” Examples – “I can never actually afford a vacation, but I need one. F*ck it, life is too short. Swipe.”

In another example, a single mom who can’t afford to buy her son a PlayStation feels forced to do so when his friends come over and mock him for not having one.

Later,she talks about creating Life Checklists as a way of avoiding what she calls “the Inadequacy Influence” (keeping up with the Joneses) which in turn leads to “F*ck It Moment” rash spending. As an example, such a list might include your goals you are proud of – a job with a good pension, and owning property – and your own lifestyle expectation you yourself want to meet – a nice car, a job you like, running a marathon, travelling, getting married, etc.

You then look at the expectations on your checklist to identify goals “you’ve achieved… and where you may feel you are falling behind.” This process helps you to find “the non-negotiable goals, the ones that are truly important to you. Once you know what those goals are, you’ll also recognize the expectations that may not be financially realistic – the boxes that can sabotage your happiness.”

Further on, she talks about having a “Social Media Detox” to prevent yourself from being tempted to overspend on things you may not need. Her rules:

• Two weeks fully off social media. No cheating.
• Unsubscribing from all favourite retailers that currently send notifications to your inbox.
• Deleting credit card information from all apps and online stores.

“Ignorance is bliss when it comes to sales…. Unfollow any lifestyle brands or retailers that trigger you to overspend,” she recommends.

Interestingly, she is not a believer in traditional budgeting.

Budgets usually mean you “track your historical spending, categorize your expenses, forecast your monthly spending, set spending targets based on that historical data and then (you) try to live within those limits.” This approach is “totally unrealistic for modern life… (they) have too many rules and involve far too much work.”

She prefers the Hard Limit – four categories, including Fixed Expenses, Meaningful Savings, Short-Term Savings and Spending Money. There are charts and examples to show how you can move to this simplified, four-bucket approach. She also recommends that you consider putting your spending money in a separate bank account from any saving money, so there is less chance of overspending!

You need to be conscious about how you use your spending money, she adds.

“Your spending money is an investment in how much you enjoy your life. That’s why cutting back can feel so hard and frustrating… if you’re cutting back on the wrong expenses it can feel like you’re divesting from your happiness. It feels like none of the money you earn is for you,” she notes.

This is a great, insightful and well-written book this is thought-provoking and provides easy-to-follow self-help tips. By following the advice, you can be on the road to Happy Spending, she concludes, a place where “no one has to be ashamed about their financial choices.”

If you are saving for your long-term future – retirement – there’s a great resource open to any Canadian with available registered retirement savings plan room. The Saskatchewan Pension Plan has been helping to build secure retirements for Canadians for more than 35 years. Find out how SPP can be your retirement savings partner.

Check out SPP today!

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Across the pond, cooling inflation has people saving for retirement again

Over in the United Kingdom, there are signs that inflation is starting to go into retreat – an increased number of folks are starting to save for retirement again.

Writing for Yahoo! Finance UK, Helen Morrissey reports that research from “Hargreaves Lansdown shows only 17 per cent of people said they had stopped or cut back pension contributions over the past six months. This is down from well over a fifth of people (22 per cent) who did the same thing this time last year.”

Translated – less people aren’t saving for retirement. That means more people are, the article explains.

“There are also signs that people are looking to rebuild their pensions (retirement savings) after these tough times, with seven per cent saying they had chosen to boost contributions over the past six months. A further two per cent said they had hiked contributions after previously cutting back,” the article continues.

While it’s good news that there has been a turnaround in retirement saving – generally amongst younger Brits – the article cautions that there is still more work to do on the savings file.

“The most recent Hargreaves Lansdown savings and resilience barometer which shows just 40 per cent of older households are on track for a moderate retirement income compared to 43 per cent of Generation X households,” the article reports.

What do you do if you have not been able to save for retirement during the inflation wave?

“If you have had to take the difficult decision to cut back, or even stop (saving for retirement) in recent years, then it’s important not to panic. Our budgets have taken a pounding as inflation has soared, leaving many needing to make tough financial decisions,” Morrissey writes. “Make a note to revisit your decision every six months, because restarting as soon as possible will help you make up any gaps more quickly,” she advises.

The article offers up some ways you can get your retirement savings going again.

“On an ongoing basis, there are small but important steps you can take to boost your contributions. Increasing them every time you get a new job or pay increase is one way of hiking how much goes in without being too painful,” writes Morrissey.

If your employer offers a retirement program where your contributions are matched by the employer, be sure to participate, as Morrissey notes that “the employer match and can mean a lot more goes into your pension overall without much extra necessarily needing to come from you. If it’s available to you it’s a great way of rebuilding your pension after a difficult time.”

One great thing about the Saskatchewan Pension Plan is that, unlike many employer-sponsored retirement savings programs, you decide how much to contribute – there is no mandatory contribution amount. If you have stopped contributing due to the high cost of living, you can resume contributions as inflation rolls back down. The choice of how often to contribute, and how much, is yours.

Find out how SPP can be your retirement savings partner – the plan has been helping Canadians build retirement security for more than 35 years.

Check out SPP today!

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There’s lots to think about – and to pay for – when considering the cost of dying

When we talk about saving for retirement, we tend to talk about things like covering our expenses after we’ve stopped working – housing costs, food, transportation, travel, maybe healthcare later in life.

But there’s another expense – the cost of dying – that’s out there, and while we won’t be around to pay the bill, it should be factored into our planning, experts say.

Writing in The Toronto Star, Andy Takagi notes that “as Canadians struggle with the cost of living, the cost of dying has quietly catapulted, becoming increasingly unaffordable for low-income Canadians.”

“The average cost of a burial in Canada can range from $5,000 to $10,000, according to Sun Life, and even cheaper alternatives like cremation can still average between $2,000 and $5,000,” he writes. In Toronto, one of the most expensive cities in the country, the cost of a single burial plot with an upright marker at the Mount Pleasant Cemetery runs “between $27,760,50 and $34,825.”

Why are costs going up?

According to Jeff Weafer of the Funeral Services Association of Canada, “staff costs, facility costs, and the costs of goods needed for ceremonies have increased, just like everything else, with inflation,” the Star reports.

He and his association would like to see the federal benefit – which has been set at a flat rate of $2,500 since 2019 – increased. Prior to 1998 the death benefit was higher, around $3,580, the article notes.

The CBC says the rising cost of burials has prompted many to opt for cremation rather than traditional full-body burial.

“Over the past two decades, cremation has become the norm in Canada,” the broadcaster reports.

“According to the Cremation Association of North America, which uses data from provincial vital statistics departments, the cremation rate in Canada has risen from 48 per cent in 2000 to 72 per cent in 2018. And the association expects the rate will keep increasing over the next few years,” the CBC adds.

As an example, at St. Michael’s Cemetery in Edmonton, Alta., an area for cremation plots was opened in the 1980s. While rarely used in those days, today they are in high demand, the CBC notes.

The broadcaster reports that a cremation costs between $2,000 and $5,000, significantly lower than a burial, which was going for $5,000 to $10,000 at the time the article was written in 2020.

At the LowestRates blog, the authors suggest that the cost of dying needs to be talked about in the here and now.

“The topic is taboo to most, but talking about it is important. If we don’t, how will we prepare for a loved one’s passing? Or our own? Because we should prepare when possible. We should know what arrangements have to be made and what those arrangements will cost. Better to deal with funeral expenses and the decisions that come with death sooner rather than later, right,” asks the blog.

As with any purchase, the blog continues, there are lots of costs to consider and lots of options. It’s not unlike buying a car, the blog adds. Things to factor in include getting a death certificate, transfer services, a shroud, casket or urn, body preparation, formal ceremony costs, burial plots or niches, and the cost of burial or cremation services.

And of course, who pays?

“Either you, your insurance company, or those who survive you, like your spouse/partner, children, or parents, will be responsible for covering your funeral expenses in Canada,” the blog explains.

“If you plan with a life insurance policy, the death benefit paid out by your insurance provider can help cover your funeral and after-death costs. Just pay your premium now, and you can spare your family the stress of handling those funeral bills later,” the blog continues.

The other option, the blog adds, is to “plan and pay for your after-death arrangements in advance of your death. So, right now.”

Unfortunately, this writer is at the age when many family members have been passing away. Some pre-paid, others paid via their estates. In all cases, the funeral home was very supportive. We can also add that there is a raft of other things you need to do when a family member passes, including cancelling their Canada Pension Plan/Old Age Security payments, their provincial health card, applying for a death certificate, and more. The folks at the home guided us through that complex maze; an accountant and our lawyer helped us with the intricacies of being an executor for an estate.

So for sure, the experts are right – you need to have this unwelcome conversation at some point while you can.

The Saskatchewan Pension Plan is open to all Canadians who have registered retirement savings plan (RRSP) room. You can make contributions up to your limit, and can also transfer in cash from other RRSPs in any amount. That way your retirement savings can grow in a consolidated, low-cost, professionally run pooled fund. At retirement, you can receive an annuity payment on the first of every month for as long as you live, or look at the more flexible Variable Benefit option.

Check out SPP today!

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Canadians “losing sleep” over retirement fears?

Retirement is usually considered to be the reward that follows a long hard slog at the office – the pot of gold at the end of the rainbow of work.

But, writes Pia Araneta for Yahoo! Canada, anxiety about retirement “can have serious impacts on Canadians’ mental and physical health.”

She provides the example of Sandi Allen of Shoal Lake, Man., who “wants to retire… after almost 27 years of working long shifts with increasing demands.” The 57-year-old wants to spend more time with the grandkids and travel with her partner, writes Araneta, but “thanks to the increased cost of living, she feels more anxiety about the thought of retirement than excitement.”

“With hydro rates going up, the cost of fuel, taxes and groceries…I don’t know if we can afford to retire,” Allen states in the article. “I’ve been losing sleep over it.”

The article cites a 2021 study by the Healthcare of Ontario Pension Plan that found that “respondents were more concerned about the affordability of retirement than their own health.”

Even though she has a government pension, Allen says she worries if her pension plus Old Age Security “will be enough,” the article notes. “I wonder if my husband and I will actually be able to retire and live comfortably without worrying. Are we going to be able to enjoy our time,” she asks in the article.

Toronto’s Jannett Ionnides tells Yahoo! Canada that, at 64, she feels unable to retire, a fact she finds “depressing.”

“If I do retire, we would lose our house and have no place to live,” she tells Yahoo Canada. As well, the article notes, “Ioannides has had different professions throughout her life, trying to keep up with payments and `make ends meet.’ Her husband, who is 67, is retired but has since picked up two part-time jobs to help make payments.”

Worrying about money can have some serious health consequences, the article notes.

“According to the Financial Consumer Agency of Canada, if someone is dealing with financial stress, they are four times as likely to suffer from sleep problems, headaches and other illnesses such as high blood pressure and heart disease. Additionally, they are more likely to experience strain in their personal relationships,” the article notes.

Worse, the article adds, those of retirement age who have financial problems tend to keep that fact to themselves, worried they will cause problems for their children and family. “Financial stress at an older age can be isolating because some might not choose to share their situation with others, so they’re not seen as a burden,” the article explains.

The article, citing research from the National Institute on Ageing (NIA), says “retirement affordability” is becoming a real challenge.

“According to a 2023 ‘Aging in Canada Survey’ conducted by the NIA, only about one-third of working Canadians aged 50 and above who intend to retire said they can afford to do so at the desired time. Almost 40 per cent of respondents said they are not in the financial position to do so and 26 per cent said they are unsure of whether they can afford to retire at the time they want.”

The article concludes that the lack of retirement readiness is a growing issue that may “get even worse in years to come.”

The story underlines the importance of retirement savings – when you can no longer work, you will need to fall back on something, and the benefits provided by the Canada Pension Plan, OAS and so on are pretty modest. If you have a retirement savings plan through work, be sure to sign up and contribute to the max. If not, have a look at the Saskatchewan Pension Plan.

Open to all Canadians, SPP is a voluntary defined contribution plan. You decide how much you want to contribute each year – you can chip in any or all of your available registered retirement savings plan room. You can also transfer money in from other non-locked-in RRSPs.

SPP will take the money you provide and invest it in a professionally managed, low-fee pooled investment fund, growing it for your golden years. When it’s time to give up the parking spot at work, SPP provides you with several options for drawing retirement income, include the possibility of a lifetime monthly annuity payment or the flexible Variable Benefit option.

Check out SPP today!

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Are we becoming too comfortable with debt? A Money Coach weighs in!

When the Bank of Canada recently ratcheted down its decades-high prime rate, we wondered if millions of debt-holding Canadians would start to breathe easier.

Or, are they comfortable with having a lot of debt and not following the ups and downs of interest rates?

We reached out to Janet Gray, CFP, advice-only planner with Money Coaches Canada to find out more on the topic of debt, and its distant cousins budgeting and saving.

“Everyone’s perception of debt is different,” says Gray. We all have a “different threshold of comfort/discomfort” with the idea of being in debt. That level of comfort – unheard of in our parents’ and grandparents’ day – can impact whether or not we can step up and manage our debt, says Gray.

While some folks may still live off their credit cards, it’s harder to do in an era where credit cards carry interest rates of 21 to 30 per cent.

That sort of high interest debt should be targeted first if you ever set out on a plan to reduce or eliminate indebtedness, she adds.

It’s more common these days for people to leverage the equity in their homes for extra cash. “We are living in our largest savings account,” she explains, mentioning the easy access we have to home equity lines of credit or reverse mortgages. Even today’s higher interest rates on lines of credit – in the 7.25 per cent range – are small compared to the rates charged by credit cards.

“In an emergency, many people have to access their lines of credit if they don’t have enough savings,” she explains.

Gray agrees that the recent period of ultra-low interest rates has “normalized” debt. She says it was not that long ago that we saw 1.99 per cent mortgages and zero per cent car loans. “It has been so easy to get credit – everything has been so easy – but management of credit is not so intuitive,” she explains.

Debt is like “a machine that feeds itself,” she explains, with such drivers as the feeling of denial when you can’t afford something, the lack of tools to cope with debt, and the fact that “people don’t comprehend where credit use is taking them – the stress, wear and tear, the impact on relationships.”

So how do we turn things around, and manage debt while building savings?

Part of the solution is acceptance – recognizing that there’s a problem – and then having the perseverance “to get there” and solve it, she says.

Know your numbers, and quantify the true cost of credit – what you are paying in interest, and how that impacts the real cost of credit card purchases. “Make that your mission – don’t spend unless you have a plan to pay (debt) back,” she explains.

Budgeting – every dollar has a job

Gray explains that we need to realize that every dollar we have needs to have a job. It needs a specific goal, a plan for that dollar. Some can go to debt, but others can be put away for long-term savings, or to help pay for a vacation trip.

Problems can happen with your money if “you don’t have the jobs well identified,” she explains. “You need to know what you need your money to do. You have to define jobs for every dollar, and then (after you pay for your required expenses) align your investment and savings with those goals.”

If you are thinking about short-term money goals, your money should be in something that is less risky and more oriented towards short-term savings – perhaps via a Tax Free Savings Account invested in fixed-income investments which is usually safe, secure and readily accessible.

Your longer-term money, for such things as retirement, should be focused on growth investments, like equity, and can live in a registered retirement savings plan (RRSP) or, increasingly these days, a TFSA so there is no tax when you withdraw the money in retirement, she says.

“Find the job, then find the vehicle,” she explains.

Looking ahead

While we are seeing more consumer proposals and bankruptcies caused by improper use of credit, there are some good signs out there.

Gray says she was pleased to learn that Grade 10 students in Ontario will soon be getting financial literacy training, beginning at age 15. “That’s the perfect age for it, since they are still in school until age 16 but some are working part time and earning money. They are still (maybe) moldable at 15.

The hope, she adds, is that younger people will begin to learn that you need to align the money you make with your needs, to “have the dollars working for you, and not you working for the dollars.”

We thank Janet Gray for taking the time to chat with us again!

Thinking about saving for retirement? But don’t know how to get started? The Saskatchewan Pension Plan may be just the program for you. It’s open to any Canadian with RRSP room, and you can start small and ratchet things up as you progress through your working career. SPP will professionally invest and grow your savings via a low-cost, pooled investment fund. At retirement, you can choose from several options – money for life via an SPP annuity, or the flexibility of the Variable Benefit. Check out SPP today.

Check out SPP today!

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Women retirees receiving 17 per cent less than men: report

We’ve all known for a while that women tend to outlive men. But a new study from Ontario’s Pay Equity Office reveals that women, on average, receive 17 per cent less income in retirement than men do.

The study was highlighted in a recent story in the Financial Post, which took a deeper dive on the issue of what it calls “the pension gap.”

Having a gap is bad, but the Post informs us that the gap between the retirement income of Canadian men and women has actually worsened over time.

“The gender pension gap was 15 per cent in 1976, but despite women’s increased labour force participation, it widened to 17 per cent in 2021, according to Statistics Canada. The average retirement income for Canadian women in that year was $36,700 and the median was $29,700,” the Post reports.

“Women receive $0.83 to every $1 a man receives in retirement income. That is a 17 per cent gendered pension gap,” Kadie Philp, commissioner and chief administrative officer of the Ontario Pay Equity Commission, states in the Post article. “This stark reality isn’t just a number — it’s a concerning trend contributing to a notable gender disparity among older Canadians, particularly women.”

And even worse, many women are not only making less than men, but are living at or below the poverty line, the newspaper notes.

“According to the report, approximately 200,000 more women than men over the age of 65 were living below Canada’s low-income threshold in 2020. Twenty-one per cent of women who had incomes below the cut-off were above the age of 75 — 51 per cent higher than the portion of their male counterparts of the same age,” the Post article tells us.

So, we may all wonder, what’s going on here – what’s causing this “pension gap?”

The fact that women take time away from employment to bear and raise children is cited as one factor for having lower retirement income, the Post states. Additionally, and perhaps for the same reason, part-time work is higher amongst women than men – 24.4 per cent of women worked part-time in 2021 compared to 13 per cent of men, the article says.

Women also get less income when off on parental leaves than men do, the Post notes.  “A majority of insured mothers in Canada (89.9 per cent) took maternity or parental leave at a reduced income level compared with 11.9 per cent of insured fathers or partners,” the Post reports.

As well, there’s the big factor of pay equity generally. Women typically make 28 per cent less throughout the year (and 11 per cent less per hour) than men. We are left to conclude that if you earn less you are no doubt also saving less for retirement.

Finally, the Post discusses “historical biases,” citing the design of Canada’s public pension system that is “designed for heterosexual couples with a male counterpart.”

The takeaway from all of this seems clear. If you are a woman, you need to focus, and never overlook, the importance of retirement saving. If there’s a pension plan where you work, make sure you are signed up and contributing to the maximum – many plans allow part-time workers to join their retirement program.

If you don’t have a program in place for work, the Saskatchewan Pension Plan may be a key resource for creating your own future retirement income. SPP, after all, was first designed to provide pension benefits to people – such as farm wives – who didn’t have access to a retirement program via employment.

SPP will take the dollars you contribute and grow them via a professionally managed, low-cost, pooled fund. When it’s time to collect, you can choose from options like a lifetime monthly annuity payment, or the more flexible Variable Benefit.

Check out SPP today!

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How are things working out with the new First Home Savings Accounts?

For decades, the federal Home Buyers Program offered first-time home buyers a way to fund their down payment – money could be taken out of a registered retirement savings plan to put on the house, with the home buyer given a period of time to repay him or herself.

A more recent program, the First Home Savings Account (FHSA), was launched in recent years by the feds. Let’s have a look at how this program, in which contributions to the plan are tax-deductible but withdrawals are not, works.

Writing in The Globe and Mail, finance columnist Rob Carrick notes that 740,000 people opened a FHSA last year.

“FHSAs are a small-scale but promising example of government policy aimed at helping middle class young people get into the housing market. You can put up to $8,000 in these accounts each year to a maximum of $40,000. Contributions generate a tax refund, and both contributions and investment gains benefit from tax-free compounding and withdrawals. FHSAs are available to people aged 18 and up who did not own a home in the part of the calendar year before an account is opened or the previous four years,” he notes.

While the $40,000 cap, he writes, “is out of synch with the average resale housing price of a bit more than $700,000 in April,” the FHSAs “are nevertheless helping people with middling incomes build down payments for home purchases well into the future.”

Citing federal government statistics, Carrick notes that 44 per cent of FHSA account holders had a taxable income of $53,359 or less. A further 36 per cent of account holders had income in the $53,360 to $106,717 range, he adds.

Launched just last year, the value of all FHSAs topped $2.8 billion, with the average account value listed at $3,900, Carrick writes.

“We are still many years from first-time buyers being able to say their FHSA was a difference-maker in getting into the housing market, but we’re off to a decent start. In 2023, a little over 34,000 FHSA holders made a withdrawal from their accounts More importantly, FHSAs are catching on with exactly the people who will need all the help they can get to buy homes,” concludes Carrick.

An article in Advisor.ca took a look at why some people made withdrawals soon after opening the accounts.

Jacqueline Power of Mackenzie Investments tells Advisor that “it doesn’t surprise me in the least” that some FHSA account holders would “choose to make qualifying withdrawals soon after opening and contributing to the plan.”

“We’re all looking for [tax] deductions these days, any way that we can get one,” Power states in the Advisor article. Qualifying withdrawals from an FHSA allow “an individual to have that deduction and make that tax-free withdrawal.”  

“Launched on April 1 of last year, the FHSA is a registered plan that allows first-time homebuyers to save for a down payment on a tax-free basis. Contributions to an FHSA are tax-deductible, while withdrawals to purchase a first home — including from investment income — are tax-free,” the article notes.

It sounds like a pretty nice program for younger people to consider when saving for a new home.

This author was able to use the Home Buyers Program, where money is transferred out of an RRSP, and then used for the down payment, back in 2008. We are just now repaying the last $1,300 or so, even though the mortgage was paid off in 2021. The one interesting aspect of our use of the HBP was that we chose to “repay” ourselves via contributions to the Saskatchewan Pension Plan! We are now gearing up to start receiving a lifetime annuity from SPP this fall, when we will reach age 65.

It’s another example of how SPP can work for you! Check out Canada’s made-in-Saskatchewan retirement savings solution today!

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The trickiest retirement problem – living off a lump sum

When we work, we get paid on some sort of regular basis – we’ve been paid monthly (with an advance on the 15^th), we’ve been paid every two weeks, we’ve been paid twice a month, and we’ve been paid every week.

But in retirement, you might find that instead of regular payments, you are living off a lump sum of money – a chunk that is at its biggest near the beginning of your retirement, and that declines as you get older. What’s tricky is figuring out how much to withdraw each year.

A recent Financial Post article looks at this tricky “drawdown” or “decumulation” phase, where retirement savings are turned into income.

Author Fraser Stark, who is president of the Longevity Pension Fund at Purpose Investments,  notes that a number of “rules” have sprung up about how much you should withdraw each year, such as the “the four per cent rule, the 3.3 per cent rule, (and) the 2.26 per cent rule.” He adds that “whatever your number, these prescribed income level rules of thumb seem to point to lower – and more precise – values.”

The question for retirees to answer, he explains, is “how much can I safely withdraw from my retirement portfolio each year without the risk of running out of money?”

And while no one wants to run out of money, Stark says not taking out enough money each year is also a risk. It means you may not be living as well as you could be, he explains.

“The premise of these rules is that the opposite — not running out — constitutes success. This is where the logic behind these rules begins to fray,” he writes.

“Honing in on the `correct’ value misses the point: the entire premise of holding a basket of assets and drawing from it blindly is a suboptimal approach that often leads to inefficient outcomes for retired investors,” he explains.

The granddaddy of all withdrawal rules, the four per cent rule, was posited by Bill Bengen in 1994, writes Stark. “His analysis determined that an investor who started spending four per cent of their original portfolio value… would have not fully depleted their balanced portfolio over any 30-year period,” he explains.

The idea, Stark continues, is four per cent (on average) is a rate of withdrawal that is less than long-term rates of growth. For example, the Saskatchewan Pension Plan has averaged a rate of return of eight per cent since its inception in the late 1980s.

However, the four per cent rule assumes that the retiree is going to be able to live with a “fixed spending level” throughout his or her retirement. “It is truly set it and forget it, which is not how people behave,” he explains.

As well, he writes, people are now living longer. Mortality tables suggest that a 65-year-old woman today has a “great than 34 per cent chance of living for 35 years,” or until age 100. So you are withdrawing funds for many more years than people did in the past, Stark explains.

What, then, do you do to avoid running out of money – especially if you find yourself blowing out 100 candles on your birthday cake? The answer, says Stark, is an annuity.

“A more effective approach is to annuitize a portion of your assets at retirement, thereby creating a stream of sustainable income and withdrawing from the rest of your portfolio according to your percentage rule of choice,” he writes. You can never run out of money in an annuity, as you’ll receive it for as long as you live, he explains.

He also suggests starting Canada Pension Plan and Old Age Security later – these payments are inflation-protected and also are paid for life.

“Much has changed over those three decades. In the face of rising living costs, greater macro uncertainty and continued innovation in financial product design, an optimal outcome for many investors can be achieved by more thoughtfully constructing an initial portfolio to meet their desired outcomes, and by dynamically responding to market and life conditions as the retirement phase unfolds. We deserve no less,” he concludes.

The option of a lifetime annuity payment is available to members of the SPP. When it’s time to collect your pension, you can choose to receive some or all of your account balance as an annuity, meaning you’ll get a monthly payment for the rest of your life. If you want more flexibility around the amount you want to receive, take a look at SPP’s Variable Benefit.

SPP’s varied retirement options, coupled with its professionally managed, low-cost investment strategy, make it a reliable partner for your retirement saving and income plans.

Check out SPP today!

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Annuities prevent you from outliving your investments: Jonathan Kestle CFP, CLU, H.B.Com

The higher interest rates of the mid-2020s are making people revisit an old retirement planning friend, the annuity.

An annuity is a financial product that you can buy which then pays you a specified amount each month for the rest of your life. While you no longer have control over the money you used to pay for the annuity, your monthly income payments from it are guaranteed to last your lifetime.

Save with SPP reached out to Jonathan Kestle of Ian C. Moyer Insurance Agency to find out more about annuities.

Q. We’ve not seen anyone comment on how choosing an annuity takes away the headache of having to make withdrawals from a registered retirement income fund (RRIF) or similar vehicle (a minimum amount that must come out, taxation, perhaps increased income and further taxation, etc.) Does having an annuity for some or all of one’s retirement income simplify their taxes?

A. An annuity will not necessarily simplify taxes unless it is a “non-registered” annuity, meaning the funds used to purchase the annuity are regular taxable savings and not from registered savings (Registered Retirement Savings Plans (RRSPs), a Locked-In Retirement Account (LIRA), etc.)

What an annuity does simplify, is the task of making a savings account last. Annuities eliminate the risk of outliving your investment and pay a pretty good payout rate in comparison to what would be prudent with a normal investment account.

Q. Similarly, when you choose an annuity you can pick one that can provide a spouse with a pension, or beneficiaries with a lump sum amount. If you have a lump sum, isn’t it possible that you’ll spend it all before you die and leave little or nothing to beneficiaries?

A. Not really, an annuity typically makes it harder to leave funds to beneficiaries. The guarantee periods are often limited to 10 or 15 years, at which point no money will pay to a beneficiary upon the death of the owner.

I would look at it this way… if you aim for a retirement income of $60,000, you could use an annuity to supplement your social benefits (such as CPP and OAS) to reach that amount. This way, you secure a steady income and preserve other investments, which can then be left to your beneficiaries.

Q. Interest rates have been persistently higher – are we seeing more annuities being chosen?

A. Yes. Now is a great time to consider an annuity. I checked today, and payout rates are up about 19% from 2021.

Q. Any other observations on the topic?

A. The payout ratio of an annuity is often overlooked. The “payout ratio” of an annuity is simply the amount of annual income received divided by the lump sum used to purchase the annuity. The concept is that those who unfortunately pass away early have their contributions support those who live longer. This mechanism is known as “mortality credits.”

Mortality credits are a unique feature of annuities. Essentially, the contributions from those who pass away earlier than expected are pooled and used to provide higher payouts to those who live longer. Because of this, annuities can safely sustain a higher withdrawal rate than a traditional investment portfolio. Achieving the same withdrawal rate from a traditional savings account would be too risky for many investors. This system allows annuities to offer more stable and predictable income throughout retirement, providing peace of mind for retirees.

We thank Jonathan Kestle for taking the time to answer our questions. Here’s a link to an earlier interview SPP did with him on annuities.

The Saskatchewan Pension Plan offers its retiring members a variety of annuity options. There’s the Life Only Annuity, which pays you and you alone a monthly income for life. There’s also the Refund Life Annuity, which can provide a lump sum benefit for your beneficiaries, and the Joint and Last Survivor Annuity, where your surviving spouse can continue to receive annuity payments after your death. Full details can be found here: retirement_guide.pdf.

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South of the border, one in four Americans don’t plan to ever retire

Lacking any retirement savings, a new poll finds that one in four Americans say they “expect to never retire,” reports the Associated Press via MSN.

The survey was carried out by the AARP, and also concluded that 70 per cent of those surveyed – U.S. adults aged 50 and older – “are concerned about prices rising faster than their income,” the AP reports.

“About one in four have no retirement savings, “ the article continues, adding that the AARP research “shows how a graying America is worrying more and more about how to make ends meet even as economists and policymakers say the U.S. economy has all but achieved a soft landing after two years of record inflation.”

Those responding to the survey cited “everyday expenses and housing costs, including rent and mortgage payments,” as the biggest reasons why “people are unable to save for retirement,” the story notes.

Credit card debt was also cited as a barrier to saving, the report adds.

“The AARP’s study, based on interviews completed with more than 8,000 people in coordination with the NORC Center for Public Affairs Research, finds that one-third of older adults with credit card debt carry a balance of more than $10,000 and 12 per cent have a balance of $20,000 or more. Additionally, 37 per cent are worried about meeting basic living costs such as food and housing,” notes the AP story.

“Far too many people lack access to retirement savings options and this, coupled with higher prices, is making it increasingly hard for people to choose when to retire,” states Indira Venkateswaran, AARP’s senior vice president of research, in the AP article. “Everyday expenses continue to be the top barrier to saving more for retirement, and some older Americans say that they never expect to retire,” she tells the AP.

The article notes that the number of folks choosing to “never retire” has risen over the past three years of surveys, from 23 per cent in January of 2022 and from 24 per cent in July of that same year.

“We are seeing an expansion of older workers staying in the workforce,” states David John, senior strategic policy advisor at the AARP Public Policy Institute, in the AP article. He tells the AP that older workers “don’t have sufficient retirement savings. It’s a problem and is likely to continue as we go forward.”

The article says there are other factors at play for older Americans, such as concerns about the long-term financial health of the U.S. Social Security system and rising costs of Medicare.

It’s definitely an eye-opener to see how many folks plan to keep working indefinitely. We know of a few fellow seniors who are taking this approach as well, and plan to work beyond age 65 and into their 70s.

The article talks about a lack of access to workplace savings programs. This is one of the reasons why the Saskatchewan Pension Plan was founded in the 1980s – to provide people who don’t have a retirement program through work to be able to set up their own, through SPP. SPP does all the hard work for you – your contributions are invested in a pooled, professionally managed and low-cost fund. At retirement, you can choose such options as income for life via an SPP annuity, or the more flexible Variable Benefit. If you don’t have a savings program through work, SPP may be the answer for you!

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