Retirement, the financial part at least, is a two-phase process. First, there’s savings – personal, workplace pension, government pensions, and so on. Second, there’s the art of turning those savings into an income stream that will pay for your retired life, which could continue for three decades.

A nice overview to this process, albeit from a U.S. point of view, can be found in The Retirement Survival Guide, written by Julie Jason and published by Sterling. Jason, a money manager, takes complex concepts and presents them in a clear, logical way, using charts, examples, and memorable textual sound bites.”

“Creating retirement income is all about making sure you can be financially secure for as long as you live,” she writes. Whether you want to sustain or expand your lifestyle in retirement, Jason notes, you need to take into account all your income sources and savings to make sure you have enough “to cover the gap,” and so that you “won’t outlive your nest egg.”

A good first step, she notes, is to know where you stand. “What you need to know first is how much you spend on `musts’ and how much you spend on `wants,’” Jason explains. A must refers to basics – rent or mortgage, utilities, food, taxes, the “essential expenses.” Everything else is a want. Essential expenses must be paid in full and on time, she advises.

Another important consideration is whether your money “will last as long as you do,” she writes. If you are trying to live off savings, how much should you take out each year without running out? Jason says most financial institutions feel a withdrawal rate of four to five per cent of “your initial assets, adjusted each year for inflation,” is a safe amount. Experts disagree, so Jason offers a nice worksheet to help you come up with a withdrawal rate tailored to your specific situation.

Now is always a good time to start saving, she writes, adding that “time is money.”

“Would you rather have a penny that doubles daily for 30 days, or $1 million? Believe it or not, you’re better off taking the doubling penny… a penny earning 100 per cent daily interest would grow to $10.7 million in 30 days,” Jason explains.

While 100 per cent interest isn’t a realistic possibility, the example shows the power of compound interest over time, she explains. She provides a table showing that if a 30-year-old saved $100 a month, or $42,000 over 35 years, he or she would have $215,600 by age 65, $465,500 by age 75 and $2.1 million by age 95. So, she says, “you’ve never too young, or too old, to start saving.”

A later chapter deals with the problem of the vanishing workplace pension plan. She suggests the use of annuities to ensure you have monthly income for life, and never outlive your savings.

The “Finish Line” chapter gives a nice overview of post-retirement portfolio design for do-it-yourself savers, and finishes with this compelling thought. “Take small steps,” Jason writes. “Don’t rush. After all, you’re getting ready for the vacation of a lifetime.” This is an interesting, well-written and helpful book that would make a fine addition to your retirement planning shelf.

The Saskatchewan Pension Plan  offers many of the levers mentioned in the book. The professionally managed fund has an enviable rate of return since its inception, and you can convert your savings into an annuity payout that ensures you’ll get a monthly pension for life. Perhaps it too deserves consideration when you are planning for retirement.

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer, hopeful darts player and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Sheltie, Duncan, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

Buying a property can be fun and exciting. If you’re buying a new property, you can choosing everything down to the design of your countertops and the type of flooring. If you’re buying a used (resale) home, you don’t get as much choice with the property itself, but you can choose to buy a neighbourhood with everything that you’re looking for (provided it’s within your budget).

While purchasing a property can be a lot of fun, there are costly home-buying pitfalls you can make along the way. By making these costly mistakes, it can set you back months or even years in your finances. You’ll have less money to save in the SPP and for other goals like an early retirement.

Without further ado, here are five common home-buying mistakes and how to avoid them.

Mistake #1: Not Getting Preapproved for a Mortgage
Before going house hunting, don’t forget to get preapproved for a mortgage. Without being preapproved, you’ll have no clue about how much you can afford to spend on a property. You could buy a home for $600K, only to find out that based on your income and down payment amount, you can only spend $550K on a home. Yikes! Don’t let this happen to you.

When you get preapproved for a mortgage, you also benefit from something referred to as a rate hold. With a rate hold, if mortgage rates go up while your preapproval is in effect (typically 90 to 120 days), you’re guaranteed the lower rate (or the spread if you’re preapproved for a variable rate mortgage). You have absolutely nothing to lose.

Just because your lender preapproves you to spend $550K on a home, doesn’t mean that you should go out and spend that much – or even more. Take the time to prepare a mock budget (or if you’re already a homeowner, use your current budget as a mock budget for the property you’re thinking of buying). See what your budget would be like if you actually moved into the home. Budget for ongoing costs like your mortgage payments, utilities, property taxes and home insurance.

You’ll want to leave some breathing room in case you run into any financial difficulties along the way like costly home renovations or losing your job. You also don’t want to find yourself “house rich, cash poor,” with no money left over to save or have fun.

Mistake #2: Buying a Home for the Looks
Purchasing a property based solely on looks is a lot like dating based solely on appearance. Sure, looks are important to a degree, but other factors like compatibility matters, as well.

When you step foot inside a property the first time, it’s easy to get distracted by the wrong things. Sure, it’s nice to find a home with hardwood floors and stainless steel appliances, but what about the “bones” of the property? I’m talking about the roof, furnace, windows and structure. Anyone can hire a contractor to put in a new kitchen, but if the roof is leaking and the windows are old, ask yourself, do you have the money to invest in upgrading them? If it’s a house flip, it’s not unheard of for corners to be cut on renovations. Pay special attention on everything  to stay clear of a home that’s a money pit.

Mistake #3: Not Putting Enough Money Aside for Closing Costs
When buying a home, it’s easy to overlook closing costs, but they’re anything but a drop in the bucket. Closing costs typically add up to between 1.5 and 4 percent of the purchase price of your home. For example, on a $550K home, you’d be spending up to $22K on the so-called “transactional costs of real estate.” And it’s your responsibility to have the funds for closing costs. Your lender won’t foot the bill for your closing costs.

The most common closing costs for homebuyers incur are land transfer tax, real estate lawyer fees and home inspection fees. If you’re buying a home the first time, the good news is you may be eligible for a rebate on land transfer tax depending on the province you’re buying in. Nevertheless, closing costs can still add up to a lot. Don’t forget about them!

Mistake #4: Forgoing a Home Inspection
In more competitive housing markets, you may be tempted to forgo your home inspection. When you find a property that you like and 5 other people are interested, it’s tempting to skip the home inspection and make a clean offer (an offer without any conditions). While a clean offer can help you come out on the winning end in a bidding war, you’re also leaving yourself open to all sorts of costly repairs you may not have anticipated. For example, your new home could have issues with the structure or a knob and tube wiring that an inspector could have flagged.

Hiring a certified and experienced home inspector is money well spent. You’re making the single largest purchase of your lifetime after all. If you’re afraid you might not get the home if you make it conditional on inspection, why not get the inspection done ahead of time? If the inspection is good, you can make an offer knowing that you’re investing in a property that’s a good long-term investment.

Mistake #5: Choosing a Mortgage Only for the Rate
When you go to the supermarket to buy bread, do you buy the cheapest loaf? I hope not. You look at other things like carbs, sugar and dietary fiber. So, why do so many of us do the same thing when looking for a mortgage? We look for the mortgage with the lowest rate when there are so many other factors to consider – mortgage penalties, prepayments and portability to name a few.

Mortgage penalties are probably the last thing on your mind when signing up for a mortgage, but you should care. Here’s why. If you’re signing up for a 5-year fixed rate mortgage like most Canadians, 6 out of 10 Canadians who sign up for that mortgage type will break it before the end of their mortgage term. If you asked those same 10 Canadians whether they’d break their mortgage when signing up, all 10 would probably say, no way!

That’s why if there’s a chance you could break your mortgage, it’s a good idea to choose one with a fair penalty. That’s where a mortgage broker comes in handy. A broker can help you choose the ideal mortgage based on your financial situation. You may be better off paying a slightly higher mortgage rate if it has other features that are important to you like prepayments and a lower penalty.

This post was written by Sean Cooper, bestselling author of the book, Burn Your Mortgage. Sean is also a mortgage broker at mortgagepal.ca.

A look at the best of the Internet, from an SPP point of view

Debt beginning to restrict retiree cash flow
When the boomers’ parents got set to retire, they advised their kids to – like them – be sure to not bring a penny of debt into retirement. They dutifully paid off their $25,000 mortgages, saved in their double-digit interest GICs, and merrily rode into retirement.

Easier said than done for those of us who are younger.

According to Which Mortgage, citing Equifax Canada statistics, the debt on Canadian credit cards alone is a whopping $599 billion. As interest rates on those cards begin to tick up, people are less and less able to pay the full credit due each month, the article notes. In fact, only around 56 per cent do pay the full amount owing, and the rest are nudging into delinquency, the story continues. And the total debt of Canadians including mortgages is $1.83 trillion, the article says.

So we’re not able to emulate our parents and grandparents.

A CBC story from earlier in the year found that 20 per cent of retirees are still paying mortgages, and 66 per cent are “still carrying credit card debt.” On average, the report says, citing Sun Life data, Canadian retirees had $11,204 in non-mortgage debt.

Experts disagree as to whether this means retirees are facing hardship. Theoretically, as long as they can still pay off the bad debt (credit) and good debt (mortgage) they will eventually be OK. But an obvious lesson for younger retirement savers is this – try not to be like your parents, and try to get to retirement without debt. You have to try and do both.

A rule of thumb that Save With SPP has heard over the years re debt and retirement savings is the 80/20 rule. While you are young, direct 80 per cent of extra money onto killing debt, but put away 20 per cent for retirement. The same ratio works for retirees trying to pay down debt. You can tweak things once the debt is gone.

A nice way to build your retirement savings gradually while killing off debt is through the Saskatchewan Pension Plan. You can start small and increase your savings rate over time.

Top retirement goals
The Good Financial Cents blog talks about “good retirement goals that everyone should have.”

These include:

• Have a well stocked emergency fund
• Get out of debt completely
• Plan to retire early
• Have multiple income streams

Some great advice here. It is very difficult to visualize life in retirement when you are still working, so planning is a great ally to a low-stress future.

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer, hopeful darts player and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Sheltie, Duncan, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

 

For most people, investing means a trip to the bank or a broker, a “know your client” interview, and then a portfolio design, often featuring stocks, bonds, and mutual funds. Those with smaller amounts of money to invest are often encouraged to start off with mutual funds and branch out later.

There’s a relatively new kid on the block called robo-investing that does things a little differently, so Save with SPP decided to try and understand the principles behind it.

First, this is a robo-service, reports a Global News article. So instead of meeting someone, you visit a website and sign up. “When you sign up with a robo adviser, you usually have to answer an online questionnaire about things like your financial goals and how nervous you get when the stock market goes down.”

Next, the article notes, the robo-firm will “invest your funds in low-cost exchange-traded funds (ETFs) based on your personal profile and risk tolerance.” Because an ETF approach is used, fees are usually low, around 0.5 per cent versus the 1-2 per cent charged “for traditional investment advice,” the article reports.

Over time having a low-fee investment vehicle can be important. Two per cent doesn’t sound like much, but when charged to your account for 25 or 30 years, it can really eat into your investment returns, leaving you with less to live on in retirement.

The up side to robo-investing, the article says, is the low cost “set it and forget it” approach. The robo-firm reacts to market changes based on your preferences, rebalancing your portfolio when markets surge. This not only saves you time and trouble, the article notes, but it is automatic – great if you are a procrastinator.

The down side? The fees are low, sure, but there are no management fees if you buy stocks and bonds in your self-directed portfolio. There are standalone ETFs that rebalance themselves, the article notes. Advice from the robo-adviser is somewhat limited, the article says, but it concludes that the option is an attractive one for younger investors who are building their savings.

Save with SPP likes any and all forms of savings vehicles. And SPP itself is also worth a look when discussing retirement savings options. The SPP Balanced Fund has posted some impressive numbers since its inception in the 1980s, and SPP fees are on the low side – from 1992 to 2017 they averaged less than 1 per cent per year.

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer, hopeful darts player and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Sheltie, Duncan, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

A look at the best of the Internet, from an SPP point of view

You saved it – but can you make it last?
By now, most of us get the idea that paying for one’s retirement involves saving money in the period leading up to the end of work, and then making those savings last.

That second part, preserving the wealth, doesn’t always get as much attention as the first. How do you keep that nest egg from running out, and ideally, leaving a bit for the kids once you’re gone?

According to Heather Rennie of Sun Life, there are a number of obstacles your retirement savings will face, including “taxes, inflation, bad investment decisions and the natural reduction of assets.” She recently wrote an article called “6 Ways to Preserve Wealth for the Future” that provides a strategy for managing these risks.

Rennie says that setting a goal is an important first step. If you’re not all that concerned about leaving wealth to future generations, your investments will be much different than those you would want otherwise, she notes.

It’s worth thinking about setting up some sort of trust arrangement, Rennie writes, if you expect someone else, such as a family member, will be helping with your finances when you become quite elderly. “This can help safeguard the money from those who might make investing mistakes,” notes Rennie.

Diversification of investments – a balanced approach – is recommended, she writes, as is having some guaranteed investment funds/products in the mix. This category of investment puts some guarantees around the payouts not only to you, but to your beneficiary.

Rennie speaks as well of the need for tax efficiency. Withdrawals from many registered products are fully taxable, but making use of a TFSA can provide “tax-sheltered growth and tax-free withdrawals.”

These steps can help ensure that there is some wealth left to transfer to future generations.

Why retirement is the best time of life
Some great insights on why retirement rocks from the folks at Love Being Retired:

• “You don’t have to act your age.”
• “You don’t have to wait for the weekend to have fun.”
• “You don’t have to waste time doing what you do not want to.”
• “You can learn/heed/study what you really want to.”

Lots of freedom at the end of the rainbow, isn’t there? And the Saskatchewan Pension Plan can help you get there.

 

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer, hopeful darts player and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Sheltie, Duncan, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

 

A bunch of us old guys were shooting the breeze after a round of golf when the topic of apps came up – what apps did we find the most helpful/useful, and why?

Going quickly around the room, our gang liked Microsoft Translator, which you can get here. This is a handy app if you’re going out of the country and is a lot of fun to fool around with – it talks to you in many languages and goes slow to help you learn better.

More practically, all of us liked having a good blood pressure log app, here are a few, to track our BP results, and to share with the doc. Some of the newer BP machines can actually send your results directly to your app, one of our golfers noted.

One of us had MapMyRide, a cool app for tracking your bicycle ride – it counts off every kilometre you ride, giving you time and speed, shows you a route map at the end, and sends you monthly stats on how you have been doing.

We all had banking apps, fitness/calorie trackers, investing apps, and apps to watch TV (Netflix, CBC, etc.) which made Save with SPP wonder what other retirees have on their phones.

According to the A Place for Mom website, EyeReader by Netsoft is a great magnifying app. Hold your phone over a book, a menu or other printed text and it not only magnifies it, it lights it up.

A CBC news story mentions Fongo, a free Canada-wide phone app that lets you make calls using WiFi. The story quotes Diane Thomson, who lives in Ontario, saying that “It’s amazing…I can call my family back in Nova Scotia for free.”

The SeniorNet blog likes an iPhone app called Park and Forget, which logs where you parked your car in a parking garage so you can find it later.

Many seniors don’t really get how phones, tablets and apps work. For them, there is the Oscar Senior app which provides an easier-to-use interface that simplifies the process of using mobile communications. In other words, an app that helps you understand how to work your phone.

There are, of course, zillions of apps out there and this represents only a small sampling. If an app eliminates time-wasting note-taking, helps you remember things, or makes it easier to stay in touch with family and friends, it may be worth checking out.

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer, hopeful darts player and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Sheltie, Duncan, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

A look at the best of the Internet, from an SPP point of view

Retirement may be good for your health
While most of us focus on the financial side of retirement – the question of saving enough for the “golden years” and then making it last to the finish line – there is arguably an even more important factor to take into account. That factor is the relationship between retirement and good health.

A recent University of Sydney (Australia) study found that retirees “become more active, sleep better, and reduce their sitting time” once they have left the workplace behind.

The retirees followed were also less likely to smoke, the study found.

An earlier U.S. study found “the retirement effect on health is beneficial and significant,” reports CTV News. This study linked a reduction of stress (no more work) to a reduction in smoking, and more time for exercise.

The National Bureau of Economic Research found “positive long-run effects both in subjective well-being, or happiness, and in the objective health measures,” reports The Fiscal Times via Yahoo!

“Retirement is a good time in life that many people look forward to,” states Aspen Gorry, one of the study’s authors, in The Fiscal Times article.

Less stress, more time to take care of your health, better sleep – you can’t put a dollar value on that. So when planning for retirement, take into account the fact that getting out of the workforce may be the best thing you’ve ever done for your health.

Changing things up in retirement
An article in US News and World Report lists “10 Retirement Lifestyles Worth Trying.” And what are some of them?

Going back to school, the article notes, is so popular south of the border that “a growing number of colleges are building retirement communities on or near campus.”

Retirement also lets you stay at home, to “experience what the days feel like when you don’t have to hurry,” the article points out. Other ideas include volunteering, starting a second career, or enjoying the thrill of become a devoted frugality buff.

What you do with retirement is of course up to you. Having a good retirement savings plan is an important underpinning for those years of freedom. If you don’t have a plan at work or on your own, the Saskatchewan Pension Plan can help.

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer, hopeful darts player and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Sheltie, Duncan, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

 

We sometimes think of retirement as an individual weight that we all must bear alone. But sometimes, using a collective approach can make that heavy load a little easier for us.

So says Alex Mazer, Founding Partner of Common Wealth. “Preparing for retirement is pretty hard to do individually,” he notes, adding that many people have trouble saving at all, he says, and few start while young. Then, they “can make poor investment decisions” when left to their own counsel, and thus don’t benefit from “the pooling of longevity and investment risk” that comes with a collective savings approach.

Without investment advice, which Mazer says can be difficult to get, many of us invest in high-fee, inefficient savings vehicles. Research shows that this individualized retirement reality results in low savings at retirement for all but the wealthiest among us, Mazer says.

Turning savings into retirement is also a complex process, he says. You have to keep investing while you are taking money out of your savings plan, he explains. If your money doesn’t continue to grow there is the danger “of overspending your savings, which can translate into reduced income later in retirement,” Mazer warns.

A collective approach is better than an individual one, Mazer says. With collective savings, investments can be pooled, reducing investment and longevity risk and reducing management fees. Finally, there can be simple, cost-effective ways to turn the savings into retirement income in a collective plan, he explains.

Working with different partners, Common Wealth is developing new collective retirement plans that are aligned with these principles, Mazer explains.

The company developed a plan for lower-income healthcare workers that combines a group TFSA with some of the key characteristics of a pension, including fiduciary governance, pooled investment management, and the potential for mandatory contributions through payroll. By using a TFSA structure, Mazer says, income at retirement is tax free, which means eligibility for the Guaranteed Income Supplement is not impacted.

The firm’s latest project is developing a nationally portable retirement plan for the non-profit sector, where about 850,000 workers who don’t have any sort of retirement vehicle at work. That number represents about half the non-profit workers in Canada. Again, the plans call for a pooled, collective system with professional investment management, low fees, and a plan for turning savings into income.

Mazer says that if he could personally influence one policy change, it would be to create “high quality collective plans with auto-enrolment” for workers lacking a pension plan at work. Auto-enrolment has worked well in the UK’s NEST program – very few people opt out. Mandatory plans are also popular in Australia. The result in both countries is a much higher level of retirement saving, he concludes.

We thank Alex Mazer for taking the time to talk to us. The Saskatchewan Pension Plan is an open defined contribution plan where contributions are invested collectively with professional management. Annuities are available to help you convert savings into an income stream. Perhaps SPP is the missing piece of your own retirement puzzle.

 

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer, hopeful darts player and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Sheltie, Duncan, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22