What Derek Foster, “The idiot millionaire” says about Sask Pension Plan….February 24, 2012
Derek Foster retired at the age of 34 despite spending his 20s backpacking across Europe, Australia, and New Zealand – and living a number of years in Asia. He has written six books including “The Idiot Millionaire” and most recently, “The Worried Boomer.”
On February 13, 2012 he was interviewed by Patricia Lovett-Reid Senior Vice President with TD Waterhouse Canada Inc. for Business News Network. When asked for one tip that is not out there in mainstream personal finance, here’s what he said:
“Join a pension plan. Why doesn’t everybody join a pension plan? There is a pension plan available called the SPP run out of Saskatchewan and anybody in Canada can join it. It’s a no-brainer as far as I’m concerned. Have a few eggs in that basket here, a few over here, a few over there….
…The reality is that a lot of people don’t belong to a pension plan and they are going to have to create some sort of income stream in retirement. There’s talk of OAS changing, who knows what will happen to CPP? The SPP is another stream of income. If you put all these baskets together, eventually you have enough to live fairly comfortably.”
Shouldn’t YOU join SPP?
January 2012 returnsFebruary 23, 2012
Markets were relatively strong in January and as a result, SPP posted a return of 2.16% to the balanced fund and 0.037% to the short-term fund.
Market index returns to January 31, 2012 were:
|Index||YTD return (%)|
|S&P/TSX Composite (Canadian equities)||4.37|
|S&P 500 (C$) (US equities)||2.90|
|MSCI EAFE (C$)
(Non-north American equities)
|DEX Universe Bond (Canadian bonds)||0.51|
Separating retirement myths from realityFebruary 17, 2012
By Sheryl Smolkin
In the first two months of every year, oceans of words are written trying to help people understand why retirement savings is important and how best to grow their money.
However, a recent TD Poll reveals Saskatchewan and Manitoba residents still have a variety of misconceptions about their retirement finances, from when they should start saving to the amount they will need.
Here are four retirement savings myths that continue to proliferate in spite of ongoing efforts by financial institutions, governments and the media to enhance the financial literacy of Canadians.
Myth 1: You should focus on eliminating debt before saving for your retirement.
The majority of survey participants (63%) in Manitoba and Saskatchewan think they should focus on eliminating debt before saving for retirement, and 59% feel they should never retire with any debt.
If you have a mortgage, you have debt. With most mortgages amortized over 25 years, if you wait to start saving until your mortgage is paid off, you will never accumulate enough to retire. It’s important to pay down as much debt as possible before retiring, but it’s also essential to strike a balance between reducing debt and saving for retirement.
Myth 2: In an economic downturn it’s safer to sell your investments and only put your money in guaranteed investments.
Those in Manitoba and Saskatchewan are the least likely to believe that putting money only in guaranteed investments is the safest strategy durng an economic downturn (32% vs. 42% nationally).
Consumer prices rose 2.3% in the 12 months to December 2011, following a 2.9% increase in November. GICs may be safe, but at best they are currently earning about 1.5 per cent – much less than inflation.
An advisor can help you determine the right asset allocation for your portfolio, which will optimize potential returns without exposure to inappropriate levels of risk.
Once you have a plan, stick with it. Trying to time the market doesn’t work, even for the experts. If you sell everything and move to fixed income investments when markets are down, you will not participate in the gains when the inevitable recovery occurs.
Myth 3: The older you get, the less money you spend/need for day-to-day expenses.
With more than half of Manitoba and Saskatchewan residents believing this to be true, they are the most likely in the country to feel that your expenses will decrease as you age (55% vs. 46% nationally).
But if you plan to travel, continue membership in pricey clubs and eat in expensive restaurants, your cost of living in retirement could be more rather than less.
Also, don’t forget to take into account everyday expenses such as dental and health care, or unforeseen expenses such as accidents or home repair.
Work with an advisor to estimate what your expenses will be in retirement, and to ensure that you are saving enough now to pay for these future expenses when you no longer have a pay cheque.
Myth 4: You don’t need to have money in the stock market to grow your retirement nest egg.
Sixty-four percent of people in Manitoba and Saskatchewan do not believe that investing in the stock market is required to establish a financially-secure retirement.
When it comes to retirement savings, it’s important to establish a good balance and have a variety of investments and savings products, including equities, bonds, and savings vehicles such as SPP, RRSPs or TFSAs.
Your portfolio should also contain a mix of conservative and more aggressive investments, depending on the number of years you have until retirement and your comfort level, which will help you maximize your retirement savings.
Saving money is as easy or as hard as you make it. As fellow moneyville blogger Krystal Yee recently wrote in RRSP baby steps: The $12.50 solution, you don’t have to start by saving hundreds of dollars from every pay cheque. Find a number that works for you – even if it’s only $25 bi-weekly – and have it automatically deducted from your bank account as soon as you get paid.
Sheryl Smolkin is a Toronto lawyer, writer and editor. She can be contacted through her website or you can follow her on Twitter @SherylSmolkin.
Is topping up 2011 SPP contributions on your “to do” list?February 16, 2012
If you are like most of us, maximizing contributions to the Saskatchewan Pension Plan and other retirement savings plans is at the top of your “to do” list every February.
Because 2012 is a leap year, you have until Wednesday February 29th to increase your 2011 SPP contributions to the annual maximum of $2,500. SPP must receive your contribution on or before the deadline.
If you want to make sure you get your money to us in time, consider contributing:
- In person or by telebanking at your financial institution.
- By phone using your credit card; or
- Online from the SPP website.
If you make regular monthly contributions, you’ll hardly notice it, and at this time next year you will already have “contribute to SPP” crossed off your “To Do” list
How to save tax dollarsFebruary 9, 2012
By Sheryl Smolkin
We all know we ought to maximize Saskatchewan Pension Plan and other retirement savings plan contributions so we can retire comfortably sooner rather than later.
But the fact that your SPP contribution is deducted directly from your income for tax purposes and lowers the total income taxes you pay not only makes saving easier – it makes you feel like you’re getting a break!
You must have available RRSP room to make an SPP contribution. SPP contributions should be reported on Schedule 7 of your income tax form and claimed on line 208. Both your application and your contribution must be received by SPP before a tax receipt will be issued. SPP contributions will also be taken into account in determining RRSP over-contributions.
Spousal contributions are also permitted and if you have available RRSP room, you may contribute and receive a tax deduction for both your personal account and your spouse’s account.
Reduce taxes at source
Although you may look forward to getting money back after you file your income tax return in April, let’s face it — where possible, the best strategy is to avoid paying unnecessary taxes in the first place.
If you contribute to SPP by payroll deductions your employer can reduce the income tax you pay at source. But if you make regular monthly contributions which have not been automatically deducted by your employer, a letter of authority from a tax services officer must be provided in order to reduce income taxes deducted.
To get this letter you have to complete a Form T1213 Request to Reduce Tax Deductions at Source and provide documentation showing you are making regular SPP contributions to support the request for a tax deduction at source. It may take four to eight weeks for the Canada Revenue Agency to process the request.
Tax treatment of benefits
When your spouse has been named as beneficiary, death benefits from your account can be transferred directly to his/her SPP account or to an RRSP, RRIF, or guaranteed life annuity. Tax-deferred transfer options are also available if the beneficiary is a financially dependent child or grandchild.
All annuity payments from SPP are taxable in the year received and are eligible for the $2,000 pension income credit and for pension income splitting. Each year you will receive a T4A for the benefits that you have received in that year. Withholding tax is determined using a schedule prescribed by Canada Revenue Agency (CRA).
Your SPP account is also tax sheltered. You may continue contributing to your account until the end of the year in which you celebrate your 71st birthday or until you begin receiving a pension from SPP, whichever is earlier. You can continue contributing to the Plan if you are receiving SPP survivor’s benefits.
Key SPP tax benefits
- Personal tax deduction available.
- Spousal tax deduction available.
- Contributions and earnings are sheltered from tax until received as income.
- SPP annuity income is eligible for the pension income credit and for pension income splitting.
December 2011 investment resultsFebruary 2, 2012
Volatility sums up market performance for the fourth quarter of 2011 and in fact for the entire year that was 2011. The European debt crisis and continued concerns about the economic recovery in the U.S. top the list of investor concerns. The seemingly endless rollercoaster with respect to these issues has marred investor confidence. As one writer put it, “markets moved from optimistic to pessimistic in a heartbeat.”
Canada’s economic picture remains strong but our commodity-dependent economy will feel the effect of slowed growth in the U.S. and global economies. The high levels of personal debt are cause for future concern when borrowing rates rise.
SPP’s balanced fund returned -1.0 per cent after administration costs while the short-term fund return, after administration costs, was 0.6 per cent for the year. The top ten holdings, portfolio composition and returns are summarized in the accompanying tables.
at December 31, 2011
|Balanced fund return*||Benchmark||Short-term fund return*|
|Bonds & mortgages||9.8%||9.8%||1.1%|
|Non-North American equities||-11.4%||-10.0%||n/a|
|Cdn. Real estate||13.7%||10.6%||n/a|
|*Gross return before administration expenses|
|Top 10 balanced fund holdings|
|Canadian Equities||% of Portfo-lio||U.S. Equities||% of Portfo-lio||Non-North American Equities||% of Portfo-lio|
|1||Toronto Dominion Bank||7.0||Pfizer||3.6||Cash||2.6|
|2||Canadian Natural Resources||5.4||Markel||3.0||HSBC||2.4|
|3||Bank of Nova Scotia||5.3||Johnson & Johnson||2.8||Novartis Ag||2.4|
|4||Canadian National Railway||3.9||Intel||2.7||Adidas||2.2|
|6||Transcanada||3.3||Proctor & Gamble||2.6||Samsung Electr.||2.1|
|7||National Bank of Canada||3.1||3M||2.4||Tesco||2.0|
|8||Teck Resources||2.7||Wells Fargo||2.3||Nestle||1.9|
|10||Toromont Industries||2.6||Merck||2.1||Royal Dutch Shell||1.6|
The S&P/TSX Composite Index lost 8.7 per cent during the year.
- Health Care and Telecommunications were the top performing sectors while Information Technology was the weakest.
U.S. equities returned 4.6 per cent in Canadian dollar (C$) with seven of the ten sectors in positive territory.
- Utilities and Consumer Staples experienced the strongest performance
- Financials and Materials were the weakest sectors.
The MSCI EAFE Index returned -10.0 per cent in C$ terms as the dollar appreciated against eight of the twelve currencies in the Index.
- Only two of the twenty-two countries in the EAFE Index had positive returns in C$ with Ireland leading the way.
- Not surprisingly, Greece had the lowest return at -61.9 per cent. Developed markets outperformed emerging markets.
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