May 16: BEST FROM THE BLOGOSPHERE

May 16, 2022

End RRIF mandatory withdrawals, RRSP end dates, and create national RRSP: Pape

Well-known financial author Gordon Pape has been observing the Canadian investment and retirement savings system for many decades, and has come up with a four-point plan to make retirement more effective for Canada’s greying population.

Writing in the Globe and Mail, Pape observes that there are now seven million Canadians aged 65 and over.

“This has the makings of a massive demographic crisis,” he writes. “Where are the future workers going to come from? Who is going to support our rapidly aging population? What will happen to the tax base as people leave the work force and reduce their spending?”

He then suggests that one way to address the problem would be to encourage more Canadians to work past age 65, a plan that would “require a massive overhaul of our retirement system,” but that is “doable.”

As a starting point, he notes that the trend towards more working at home, born from our experiences with the pandemic, may be a good “carrot” for encouraging older Canadians to keep working. Working from home is preferable for most, he says.

But other carrots are needed as well, he writes.

Eliminate mandatory RRIF withdrawals: Currently, he writes, registered retirement savings plans (RRSPs) must be “wound up by Dec. 31 of the year in which you turn 71,” and are then mostly converted into registered retirement income funds (RRIFs). With RRIFs, he explains, you are required to withdraw a minimum amount annually, an amount that grows until you are 94 and must withdraw 20 per cent of the RRIF.

“RRIF withdrawals are a huge disincentive to work after age 71. Added to regular income, the extra RRIF money can quickly push you into a high tax bracket,” Pape writes.

“The solution is legislation to end mandatory withdrawals entirely. Let the individual decide when it’s time to tap into retirement savings and how much is needed. The government will still get its tax revenue. It will just be delayed a few years,” he posits.

End RRSP wind up at 71: A second “carrot,” he writes, would be to change the age that RRSPs must be closed, currently age 71. Why, asks Pape?

“RRSP contributions are tax deductible. Making RRSPs open-ended would therefore create an incentive to continue saving in later years, when people may have more disposable income (no mortgage, kids moved out). That would result in more personal savings, which should result in fewer people requiring government support in later years,” he writes.

Create a national RRSP: Pape proposes that a national RRSP – to be run by the Canada Pension Plan Investment Board – be created. “It would provide Canadians with first-rate management expertise, at minimal cost,” Pape writes.

This idea is needed, Pape says, because many people don’t know how to invest in their RRSPs and lack the advice they need to do so.

Allow CPP and OAS to be deferred longer: His final idea would be to allow people to start their Canada Pension Plan and Old Age Security later than the current latest age, 70. Again, this is to accommodate folks who want to work longer and don’t need the money as “early” as 70.

These ideas all make a lot of sense if the goal is to help people working longer. The idea of being able to withdraw RRIF funds as needed rather than based on a government mandatory withdrawal table is sensible. After all, who wants to withdraw money – effectively selling low – when markets are down? And if one is working into one’s 70s, why take away the effective tax reduction lever of RRSP contributions?

Let’s hope policy makers listen to some of Pape’s ideas. Gordon Pape spoke to Save with SPP a while ago, and he knows his stuff. He also spoke with our friend Sheryl Smolkin in an earlier Save with SPP column.

If you don’t have a workplace pension plan, investing on your own for retirement can be quite daunting, especially in times like these where interest rates are rising and markets are falling. Fortunately, there is a way to have your money professionally invested at a low cost by money managers who know their way around topsy-turvy conditions – the Saskatchewan Pension Plan. You’ll get professional investing at a low cost, and over time, your precious retirement nest egg will grow and be converted to an income stream when the bonds of work are cut off for good. Check them out today!

Join the Wealthcare Revolution – follow SPP on Facebook!

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, and playing guitar. Got a story idea? Let Martin know via LinkedIn.


Understanding the basics of RRIFs with BMO’s James McCreath

May 12, 2022

Most Canadians understand what registered retirement savings plans (RRSPs) are.

What’s perhaps a little less well known is the registered retirement income fund (RRIF), which is where your RRSP funds generally end up once you move from saving for retirement to spending your retirement income.

Save with SPP reached out to James McCreath, a portfolio manager at BMO Wealth’s Calgary office, to get a better understanding of the basics of RRIFs.

We first learned that McCreath has strong connections to Saskatchewan – both his parents are from here, his mom, Grit McCreath, is Chancellor of the University of Saskatchewan, and the family enjoys time at their cottage north of Prince Albert at Waskesiu Lake.

RRIFs are the vehicle used to turn former RRSP savings into retirement income, he explains.

“You have to convert from an RRSP to a RRIF by the end of the year you turn 71, and must start withdrawing from the RRIF by the end of the year you turn 72,” says McCreath. That potential deferral period, he points out, gives you a 24-month window from the point your RRSP is converted to when you take the first dollar out.

While it is possible to convert to a RRIF earlier than age 71, not many people do, McCreath explains. Such a decision, he says, would be based on an individual’s unique circumstances – perhaps they want “certainty for budgeting,” or other reasons. It’s possible, but rare he says.

While there’s no tax on the interest, dividends or growth within a RRIF, the money you take out of it is taxable. McCreath says the tax on RRIF withdrawals is the deferred tax you didn’t pay when you put money into an RRSP in the past.

Asked if there is a correct or best investment strategy for a RRIF, McCreath says that this again depends on “the circumstances of the individual.”

Generally, a RRIF investment strategy should consider the cash flow needs of the individual, and their tolerance for risk, explains McCreath.

Someone who needs the RRIF income for day-to-day expenses might, for instance, be less interested in risky investments, and would focus on fixed income investments, he says. “These days we are starting to see five-year GICs (guaranteed income certificates) that pay four per cent interest; we haven’t seen them at that rate for years, so that might be a consideration” for risk-averse RRIF investors.

Others with less cash flow needs for the RRIF – perhaps those who retired with workplace pensions – might be able to handle a riskier investment strategy. “They might want to hold equities under the hope that their RRIF grows, for legacy purposes,” he explains.

“I strongly advise people to find an investment professional, or an accountant, who can help develop the optimal plan for their own circumstances,” McCreath says.

On the issue of RRIF taxation, McCreath points out that taking money out of the RRIF is different than taking it out of an RRSP.

There is a minimum amount that you must withdraw from your RRIF each year, a percentage that gradually increases as you get older, he explains.

When you take money out of an RRSP, an amount of tax is withheld at source for taxes (beginning at 10% for withdrawals up to $5,000). No such taxes are automatically withheld when you withdraw the minimum prescribed amount of money from a RRIF.

If you are concerned about having to pay taxes at income tax time because of RRIF income, McCreath says you can often arrange to have the RRIF provider deduct a set amount of tax above the mandated minimum tax withholdings from each withdrawal. In this way, you will help avoid having to make a large payment at tax time, assuming the appropriate amount of tax gets withheld, he explains.

Another good idea, he says, is to use any RRIF income (net of tax) that you don’t need as a contribution to your Tax Free Savings Account (TFSA). “If you don’t need the capital for day-to-day living, you can continue to invest it in the TFSA,” he explains.

An alternative to a RRIF at the end of your RRSP eligibility is the purchase of annuity. Annuities, like a pension, provide a set income each month for life, and many annuity providers offer a variety of options for them around survivor benefits.

The current sharp rise in interest rates may increase interest in annuities, McCreath suggests.

“As interest rates rise, the functionality and usefulness of annuities go up,” McCreath notes. Generally speaking, the higher the interest rate at the time of purchase is, the greater the annuity payment will be.

McCreath concluded by offering two key pieces of advice. First, he notes, a lot of retirement decisions, such as moving to a RRIF or buying an annuity, are important and “irrevocable” ones. It’s important to get professional advice to help you make the decision that’s best for you, he says.

As well, he says, pre-retirees should have a very clear understanding of their cash flow, and “the matching of inflows to outflows,” before they begin drawing down their savings.

We thank James McCreath for taking the time to talk with us.

Saskatchewan Pension Plan members have several options when they want to collect their retirement income. They can choose among SPP’s annuity options, SPP’s variable benefit (available for Saskatchewan residents), or transfer their money to a Prescribed RRIF. Check out SPP’s Time to Collect Guide for more details!


May 9: BEST FROM THE BLOGOSPHERE

May 9, 2022

Canada’s workforce greys as boomers hit the road to retirement

The Canadian workforce is “older than it has ever been,” reports the CBC, citing information from the latest national census.

“More than one in five working adults is now nearing retirement, says Statistics Canada — a demographic shift that will create significant challenges for the Canadian workforce in the coming decade,” reports the network.

There are more people aged 55 to 64 in the workforce than those aged 15 to 24 entering it, the article notes.

And that’s a big change.

“In 1966, there were 200 people aged 15 to 24 for every 100 Canadians aged 55 to 64, but that has now been flipped on its head. In 2021, there were only 81 people aged 15 to 24 for every 100 Canadians in the 55 to 64 age group,” the CBC report continues.

Boomers, the report explains, began retiring around 2011. The fact that so many of us are boomers – retiring ones at that – is “the single most important driver of Canada’s aging population trend,” the CBC notes.

It’s expected that the number of folks aged 85 and over will triple by 2051, with one quarter of the population being over 65 by that date.

Meanwhile, at the other end of the scale, Canada’s fertility rate hit an “an all-time low of 1.4 children per woman,” the CBC report adds, citing Statistics Canada data. There are six million young people under 15 in the country compared to seven million of us who are 65 and older.

This greying trend raises a number of concerns.

First, the article says, the traditional “transfer of knowledge” from older workers to younger ones won’t be easy to achieve if there is a shortfall of young folks entering the workforce.

Next – a question not posed in the article – we have to wonder if this grey wave of retirees will have sufficient retirement savings. The Canada Pension Plan, for example, uses CPP contributions from working Canadians to help pay the pensions of retirees, so a change in the ratio of working to retired Canadians could have consequences on that program. (The CPP Investment Board has set aside a massive contingency fund to deal with this exact problem, so that’s reassuring.)

Third, a point raised in the CBC video that links to the article, is the cost to society of looking after all those older folks, particularly as they hit their 80s and beyond. We may see a need for more long-term care spaces or a more determined effort to boost homecare – and both things will carry a future cost.

Younger folks may find that better jobs become more widely available, which is a silver lining to the issue.

Retirement can last many decades and carries a hefty price tag. If you have access to a workplace pension plan or retirement program, be sure you are signed up and contributing the most that you can. If you don’t have a workplace program, the saving responsibility is on your shoulders. Joining the Saskatchewan Pension Plan is a great option. Let the experts at SPP navigate the tricky waters of investment; they’ll grow your nest egg and when the day comes that work is an afterthought, SPP can turn your savings into steady retirement income. Check out SPP today!

Join the Wealthcare Revolution – follow SPP on Facebook!

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, and playing guitar. Got a story idea? Let Martin know via LinkedIn.


A “magic formula” for stock market success – The Little Book That Still Beats the Market

May 5, 2022

“Choosing individual stocks without any idea of what you’re looking for is like running through a dynamite factory with a burning match. You may live, but you’re still an idiot.”

So writes Joel Greenblatt in The Little Book That Still Beats the Market, billed as “one of the best, clearest guides to value investing out there.”

There’s a lot of ground covered in this interesting and well-written (and quite short) book.

The book sets out a way to view the stock market and learn “how to find good companies at bargain prices” to accomplish market-beating returns.

An interesting case history provides the example of fictional business that sells sticks of gum. While it is easy to figure out how much gum gets sold, the profit per stick, and projected income, the tricky part (and key to the book) is figuring out what the overall business is worth.

Owning part of a business, Goldblatt explains, can be accomplished by owning shares in it. “Buying a share in a business means you are purchasing a portion (or percentage interest) of that business. You are then entitled to a portion of that business’s future earnings,” Goldblatt notes.

While businesses may go along without big changes in their value, their stock prices can swing wildly, he explains. There are many theories as to why stock price swings happen, but the takeaway is to realize that a low price on a good company is a buying opportunity.

“If you just stick to buying good companies (ones that have a high return on capital) and to buying those companies only at bargain prices (at prices that give you a high earnings yield) you can end up systematically buying many of the good companies that crazy `Mr. Market’ has decided to give away,” Goldblatt says.

Here’s where he introduces his “magic formula.”

He ranks the 3,500 largest traded U.S. companies on the major exchanges by “return on capital,” with the company with the best return getting number one spot, and the one with the worst, 3,500. He does the same thing with earnings yield. You then add the two numbers together – companies with a low combined rating are considered good performers, and if you can catch them when their price is down, you may have a bargain on your hand.

In a chart, Goldblatt shows that from 1988 to 2004, a portfolio of the top 30 “magic formula” companies had average returns of 30.8 per cent, more than double the market and S&P 500 average.

He points out that the “magic formula” doesn’t always beat the markets in the short term. Investors need to “believe it will work and maintain a long-term investment horizon.”

The book mentions online resources to help you set up your own screening to create a list.

This is an interesting book, and is simple enough for even non-math heads (hand raised here) to grasp, at least in theory.

Do-it-yourself can be satisfying, but leaving the heavy lifting to professionals is also an option for those of us lacking the time or expertise. That’s where the Saskatchewan Pension Plan comes in. They’ll invest your retirement savings professionally, at a low cost, and when it’s time to retire, will help you convert those savings into income. Check out SPP today!

Join the Wealthcare Revolution – follow SPP on Facebook!

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, and playing guitar. Got a story idea? Let Martin know via LinkedIn.


May 2: BEST FROM THE BLOGOSPHERE

May 2, 2022

Volunteering gets top grades from retirees: survey

So you’ve been a saver, taken advantage of any workplace pension program you have, and have arrived at the finish line – retirement!

But without the need for a commute or transit ride to work, seeing the gang there for lunch and coffee, and then noodling through the day on the way back home, what’s a person to do with all the free time?

According to a recent article in the Financial Post, the answer may be to become a volunteer.

In a recent survey of members of the group ROTERO, the Post reports, “62 per cent of… members agreed that volunteering contributes to the enjoyment of retirement life.”

ROTERO, the article explains, “has been a voice for teachers, school and board administrators, educational support staff and college and university faculty in their retirement. The organization promotes healthy, active living in the retirement journey for the broader education community. Its vision is a healthy, active future for every member of the education retiree community in Canada. Volunteerism is a big part of that.”

Some of the other findings the Post reports from the survey of ROTERO’s 81,000 members are:

  • 64 per cent of members volunteer regularly, compared to “the Canadian average for this age group, which hovers at around 40 per cent according to Volunteer Canada.”
  • Most who volunteer average 20 hours per month.
  • Asked why they volunteer, “members cited things like a desire to give back and make a difference (71 per cent), the social interactions related to the volunteer role (66 per cent) and the chance to make new friends and meet people (60 per cent).”
  • A total of 72 per cent of those surveyed said they also volunteered before they retired.

“It gives a sense of purpose, an opportunity to meet and interact with others, and to contribute to the well-being of our neighbours however we can,” states one RTOERO member in the article. Or, as another member put it in the Post piece, “It feels good to help.”

Save with SPP has been embedded among the retiree population since leaving full-time work eight years ago and concurs with the views of the Post article. Most of us, while working, were part of a team and an organization that had some sort of purpose or goal that everyone played a part in. It’s not the same once you log out for the last time, but volunteering can provide you a new set of downs in terms of goals, objectives, teamwork and meeting new people.

If you want to volunteer in retirement, you’ll need to be sure you have enough income to afford to quit working! The Saskatchewan Pension Plan offers you a nice way to save for retirement – or to augment any savings you already have. With SPP’s voluntary defined contribution plan, you can contribute up to $7,000 a year towards your future – and you can transfer in up to a further $10,000 a year from other eligible retirement savings vehicles, such as a registered retirement savings plan. You’ll be amazed how your account balance can grow. Check out this made-in-Saskatchewan marvel today!

Join the Wealthcare Revolution – follow SPP on Facebook!

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, and playing guitar. Got a story idea? Let Martin know via LinkedIn.


Fight inflation – and a bulging waistline – with these cheap fitness ideas

April 21, 2022
Photo by Surface on Unsplash

Many of us have spent the last couple of years on the sidelines, fitness-wise, thanks to the COVID pandemic, which led to gym closures and cancelled many fitness-related programs and events.

Now, just as things are getting back to normal, a wave of inflation is crashing over us. Save with SPP did a little research on ways to get fit that are also cheap.

According to the MyFitnessPal blog, you can still “live a healthy and fit life within the tightest of budgets.”

Their ideas include “forming an exercise group with friends and (setting) up meetings two to three times a week,” and to do workouts that “use your own body.”

“Free workout options include walking, push-ups, and walking up and down the steps of your house,” states strength and conditioning specialist Joe Cannon in the blog post.

Consider buying a set of resistance bands, the article notes. “You can get a premium set… for under $100. If you travel for business or pleasure, many of these resistance band sets come with a travel bag so you can toss it in your suitcase or vehicle and take it with you,” fitness specialist Mike Weik tells the blog.

Other advice includes leveraging the outdoors for a walk, a run, or “pullups or push-ups in a park,” and swimming at a community pool.

At the AARP’s website, ideas include building more walking into your everyday life, walking in place (stepping) while watching TV, doing push-ups on your stairs, and using a step tracker to check your progress. The site recommends bumping up your activity level to at least 150 minutes per week.

If you like working out at the gym more than doing things around the house, Microsoft News suggests setting up a home gym. The article recommends that you get some free weights, cardio equipment, along with related accessories and storage items.

Free weights include “barbells, weight plates, dumbbells, and kettlebells,” the article notes.

“The reason we love free weights so much is because they’re extremely versatile,” gym expert Cooper Mitchell states in the article. “You can do so much with a barbell and a pair of plates, from strength training to conditioning and everything in between. You can also target all muscle groups with free weights.”

Good accessories include a weight bench and a squat rack, the article adds.

You can usually find used elliptical trainers and/or foldable exercise bikes cheap online or at thrift stores, the article adds.

If you aren’t a big fan of exercise generally, there are still ways to build it into your everyday life, suggests the Nerdfitness blog.

Almost any movement counts, the blog notes. So park a little farther away from the store so you have to walk more. Stand up more often during the day. Take the stairs now and then. Even “fidgeting” as you sit can burn 350 calories a day, the article adds.

Among the 40 other ways of “exercising without realizing it” listed are hiking, geocaching (i.e., playing Pokemon Go), dancing, and even cleaning the house!

Save with SPP is a fairly active line dancer, and it’s a fun thing to do that doesn’t really feel like exercise. Once the winter’s over we also try to bike around the neighbourhood trails, and use the bike for small local errands rather than firing up the car.

Exercising for cheap is win-win. First, you are saving money; second, you are getting healthier. And, as a reward for your efforts, that saved money can be salted away for your future life after work. If you are saving on your own for retirement, a great destination for those fitness savings is your Saskatchewan Pension Plan account. Check out SPP today!

Join the Wealthcare Revolution – follow SPP on Facebook!

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, and playing guitar. Got a story idea? Let Martin know via LinkedIn.


Apr 18: BEST FROM THE BLOGOSPHERE

April 18, 2022

Canadians sock away $50.1 billion in RRSP savings

It appears the venerable registered retirement savings plan (RRSP) is alive and well, reports Investment Executive – and pandemic-related extra cash may be the reason why.

Citing Statistics Canada data, the magazine reports that “the number of Canadians that socked money away in their RRSPs increased in 2020, and their contributions rose too.”

In 2020, Canadians collectively contributed $50.1 billion in their RRSPs, the article notes. That’s an increase of 13.1 per cent over 2019, the article continues, and the number of contributors rose as well by 4.9 per cent.

Investment Executive reports that “the median RRSP contribution in 2020 came in at $3,600, which is the highest on record.”

Why did more people put more money away?

Well, the article states, “savings rose as public health restrictions limited consumer spending.” With little to spend money on other that food and fuel, the average Canadian was able to stash away “$5,800 in extra savings in 2020 on average.”

So, that extra pile of money found its way into people’s retirement savings kitties.

“With the added savings on hand, more Canadians put money into RRSPs. The proportion of taxpayers that made RRSP contributions in 2020 increased for the first time in 13 years, StatsCan said, noting that the share of taxpayers making contributions has been declining since the Tax Free Savings Account (TFSA) was launched as a retirement savings alternative,” the article reports.

While things are not as locked down (thank heavens) today as they were a couple of years ago, the retirement savings bug is still with us, reports Baystreet.ca.

More than $10 billion found its way into Canadian mutual funds this February, the site reports.

“That brought the total amount of mutual fund assets under management in Canada to $2 trillion as of March 1,” Baystreet notes. “In all, Canadians put $111.5 billion into mutual funds in 2021. That’s nearly four times the $29 billion in mutual fund sales in 2020, which was in line with average annual sales going back to 2000.”

So, let’s put those two thoughts together – Canadians are putting more money away in their RRSPs, including managed mutual funds. The trend seems to be that more money is going this way each year.

The Saskatchewan Pension Plan allows you to contribute up to $7,000 annually towards your retirement nest egg. And you are allowed to transfer in up to $10,000 annually from other registered savings vehicles. SPP is a voluntary defined contribution plan – it has some of the characteristics of an RRSP and some of a managed mutual fund. Where SPP differs from a typical retail mutual fund is in the fees charged. SPP provides you with professional investment management, but SPP’s fee is typically less than one per cent – less than half of what most managed retail mutual funds charge. SPP has a stellar investing record, and – again, unlike a RRSP – SPP gives you the option of converting your accounting into a lifetime SPP annuity, among other retirement income options. Check out this made-in-Saskatchewan success story today!

Join the Wealthcare Revolution – follow SPP on Facebook!

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, and playing guitar. Got a story idea? Let Martin know via LinkedIn.


Quebec academic calls for changes to RRSP and RRIF age limits

April 14, 2022

A university professor from Sherbrooke, Quebec is calling for a couple of changes to Canada’s system of registered retirement savings plans (RRSPs) and registered retirement income funds (RRIFs), in light of the fact that people are living longer.

Professor Luc Godbout, Professor, School of Administration at the Université de Sherbrooke, is also Chair in Taxation and Public Finance. He kindly agreed to answer some questions Save with SPP had about his ideas, which were published by the C.D. Howe Institute as an open letter to federal Finance Minister Chrystia Freeland.

His open letter was originally published in French.

The professor’s open letter calls for “simple changes” to the existing rules.

“The first would be adjusting the threshold age at which registered capital accumulation plans – such as the RRSP – must be terminated. The rule now is age 71,” he notes in the letter.

Under the current rules, his letter explains, RRSP holders must “transfer their RRSP or defined-contribution pension plan balances into a RRIF or a life annuity” before the end of the year in which they reach age 71. If they don’t, he explains, “the entire value is added to their taxable income in that year.”

The age limit of 71 was established in 1957, his open letter notes.   “This means that since the creation of the RRSP in 1957, the age limit of 71 has never been raised,” the open letter explains. “Yet, since 1957, the life expectancy of seniors in Canada has improved significantly. 

“Life expectancy at age 65 was 14.5 years during the period 1955-1957. It improved to 20.9 years in 2018-2020. But the RRIF rules have not moved,” he writes.

He remarks that recent changes to Old Age Security (OAS) benefits for those aged 75 and older “provides an opportunity to harmonize other elements around our living 75-year-olds.”

Why not, he asks, consider allowing Canadians to postpone their OAS payments to age 75, rather than the current age 70? And, he asks, why not move the limit for converting an RRSP to a RRIF to 75?

“This type of change would optimize the mechanics of pension plans, and also encourage Canadians to remain in the workforce, which improves health and also helps with Canada’s looming labour shortage,” his open letter concludes.

Save with SPP asked the professor a couple of questions about his open letter.

Q. You mention that moving the “end date” for RRSP contributions (and for DC plans) and RRIF conversion to 75 from the current 71 would encourage more people to stay in the workforce. Do you see the current age 71 rule as something that encourages the opposite – a deadline that encourages retirement?

A. It may not be an important factor, but it cannot play favorably in the heads of those who want to continue in the labour market, for example, a liberal profession.

Q. If your idea on changing the date is adopted, do you think government retirement benefits like the Canada Pension Plan/Quebec Pension Plan and Old Age Security should also be changed?

A. Yes, but it is not an obligation to retire later, only to offer a possibility to delay the time when the pension begins, currently CPP between 60 and 70 years and OAS between 65 and 70 years.

Q. You note that while the RRIF age of 71 has been lowered (to 69) in the past, it has never been raised. Why do you think 71 is still the age, especially considering how things have changed since the rules came in in 1957, and retirement was mandatory at 65!

A. Because the scheme does not provide for the adjustment of this threshold to take account of the increase in life expectancy.

We thank Prof. Godbout for taking the time to answer our questions.

One way that a pension plan can deal with longer life expectancies of its membership is by providing the option of an annuity. The Saskatchewan Pension Plan provides a number of different annuity options for its retiring members – but all of them provide a lifetime monthly pension. Check out SPP today.

Join the Wealthcare Revolution – follow SPP on Facebook!

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, and playing guitar. Got a story idea? Let Martin know via LinkedIn.


Apr 11: BEST FROM THE BLOGOSPHERE

April 11, 2022

Having a withdrawal strategy should help your savings withstand inflation: McGugan

Reporting for the Globe and Mail, columnist Ian McGugan says retirees living off a nest egg of money need a strategy to cope with inflation.

“Unlike a truly rare disaster such as a global pandemic, the current inflationary outburst resembles a muted replay of the 1970s – and retirement planners have long used strategies designed to soldier through such episodes,” he writes.

He notes that a key tactic is the “four per cent rule,” developed by financial adviser William Bengen in 1994.

The rule, McGugan explains, “holds that a retiree planning for a 30-year retirement can safely withdraw an inflation-adjusted four per cent of their starting portfolio each year without fear of running out of money.”

Bengen, the article continues, based his formula on a “U.S. retiree with a portfolio split evenly between bonds and stocks,” and his research showed that even during the Great Depression, the Second World War or the “stagflation” period of the 1970s (a long period of very high, stubborn inflation), the four per cent rule would have worked.

Some industry observers, notably Morningstar, advise a lower withdrawal rate of 3.3 per cent, in light of “how bond yields have fallen,” he reports. Others say you could go up to 4.5 per cent.

McGugan notes that economist Karsten Jeske found “no strong relationship between prevailing levels of inflation and future safe withdrawal rates.”

He is more concerned, McGugan reports, about stock valuations as a problem for retirees.

“When stocks are expensive compared with their long-run earnings – as they are now – retirees should be cautious about how much they withdraw from their portfolio because high valuations are usually a sign of lower stock-market returns to come,” the article notes.

When talking about withdrawal rates, we should qualify the discussion by saying that certain retirement savings vehicles, such as registered retirement income funds (RRIFs), set out a minimum amount you must withdraw each year. When you look at the rates, you’ll notice they start out at four per cent when you’re 65, but gradually increase over time. If you make it to 95, the minimum withdrawal rate jumps to 20 per cent.

But if your savings are in a Tax Free Savings Account or any non-registered vehicle, the four per cent is worth consideration. We are all used to getting a steady paycheque, usually every two weeks or twice a month. If you got all your pay in January, you’d have to figure out a way to make it last so you don’t run out with a month or two left in the year. The four per cent rule is a way to make a lump sum of retirement savings last for the long haul.

The way that people used to deal with volatility in stock prices was to invest in bonds and stocks equally, as the article describes. Because interest rates have been low for decades, and bond yields have declined in recent years, modern “balanced” funds tend to add in some bond alternatives that deliver steady, bond-like income, like real estate, infrastructure and mortgages. If stocks pull back, these sources still generate reliable regular income.

A good example is the Saskatchewan Pension Plan’s Balanced Fund. The asset mix of the fund includes not only bonds, but real estate, mortgages, infrastructure and money market exposure, as well as Canadian, U.S. and international equities. This multi-category investment vehicle is a fine place to store your retirement nest egg. Check out SPP today.

Join the Wealthcare Revolution – follow SPP on Facebook!

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, and playing guitar. Got a story idea? Let Martin know via LinkedIn.


Ways to tame the beast of personal debt

April 7, 2022

While higher interest rates can be good news for traditional savers, they are more likely to bring even more bad news to those of us who deal with household debt. And, according to Global News, that level of consumer debt rose to an alarming $2.2 trillion as of the fourth quarter last year.  

With inflation hitting levels not seen since the 1990s, a trend that will almost certainly lead to higher costs for borrowing and using credit, Save with SPP decided to find out what the experts say about speedy ways to get debt under control.

Writing for MoneySense, noted financial author Gail Vaz-Oxlade says getting “a sense of control over your money and your life” is not easy, but is well worth the effort.  She recommends we all do “a spending analysis to see where your money is going, so you can put it where it does the most good.” Next, she writes, “create a debt repayment plan that gets you out of consumer debt in three years or less, even if you have to get a second job.”

The third step, she adds, is “creating a balanced budget,” so that you know exactly how much you can afford to spend on things before you actually start spending. “Make yourself accountable by telling friends and family ‘sorry, it’s not in my budget this month,’” she adds.

Following these steps, she advises, will lead you to a future where you have “no debt, a balanced budget, and a big fat emergency fund.”

The Zilchworks.com site outlines a number of different strategies for eliminating debt.

Under the “annual percentage rate” strategy, you target the debt source (credit card or line of credit) that charges you the highest rate of interest first. “Once you’ve crushed the worst offender, you move on to the creditor with the next highest rate,” the site advises.

Other strategies outlined on the site are similar – put extra on one, pay it off, and repeat. This can be done, the site explains, in a number of ways – lowest balance first, highest balance first, lowest payment first, etc. In all strategies, the concept is a sort of snowball/avalanche effect – as each debt falls, you are paying more per month on the next targeted debt, and so on.

At Credit.com, a few additional strategies are outlined. “The first and most important step in getting out of debt is to stop borrowing money. No more swiping credit cards, no more loans, and no more new debt,” we are advised. “Resolve to live on a cash basis while you make your changes.”

Other advice is to “always pay more than the minimum amount” on your debts. “Make this an iron-clad habit,” the site advises. Another nice bit of advice is not to slip back into old habits once you have paid off your debt – make sure your post-debt budget focuses on you staying out of debt.

Save with SPP and debt are old friends who only recently have parted ways. Here are a few other ideas we picked up along the way.

  • The 95 per cent rule: If you don’t think you have an extra dollar to put on debt, this idea may help. Take five per cent of your take-home pay and put it immediately on debt. Then live on the balance. It is sort of like the Uncle Joe rule of saving 10 per cent of your income and living on 90 per cent, but tweaked so that it targets debt.
  • Get your credit cards out of your wallet: If you are maxed out most of the time, you probably pay the minimum owing, then spend with your card some more, and are maxed out again, with a higher minimum next month. Give the card to a spouse, or a relative, or trusted friend, and tell them not to give it back unless you have a real emergency. By not using the card, your minimum payments will gradually go down.
  • Stop making automatic payments for things on your credit card: If you are a super responsible person who pays off 100 per cent of your credit card each month, paying other bills, like utilities, or Internet, or streaming subscriptions via credit card is a good way to earn more cash back or points. But if you don’t pay off your balance each month, you are basically borrowing money to pay for living costs at maybe 25 per cent interest. It will catch up to you, and in the worst case scenario, you’ll bounce your bills due to having a maxed out card. Pay your bills a different way.
  • Save up for trips: If you are going on a trip, save up for it and pay it in advance, rather than paying as you go with a credit card. That way, you don’t come home to a huge bill, and avoid feeling financially punished for taking a holiday.

When you are in debt, talk to friends and family about how they dealt with it. Everyone, it seems, has had a brush with problem debt and have learned valuable lessons on how to turn credit problems around.

And, once you have defeated debt, you’ll have more money to put away for the greatest vacation of all – life in a post-work reality. An excellent companion on this journey is the Saskatchewan Pension Plan. They’ll invest the money you contribute, at a low cost and with a stellar track record, and when it’s time to retire, will present you with your retirement income options. Check them out today!

Join the Wealthcare Revolution – follow SPP on Facebook!

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, and playing guitar. Got a story idea? Let Martin know via LinkedIn.