Research suggests many should take CPP, QPP later – and use RRSPs to bridge the gap

February 25, 2021

Are Canadians doing things backwards when it comes to rolling out their retirement plans?

New research from Dr. Bonnie-Jeanne MacDonald of the National Institute on Ageing at Ryerson University suggests that in some cases, we are putting the cart before the horse when it comes to our Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) benefits.

Save with SPP spoke by telephone with Dr. MacDonald to find out more about her research.

In her paper, titled Get the Most from the Canada and Quebec Pension Plans by Delaying Benefits, Dr. MacDonald notes that “95 per cent of Canadians have consistently taken CPP at normal retirement age (65) or earlier,” and that a mere one per cent “choose to delay for as long as possible, to age 70.”

This, she writes in the paper, can be a costly decision. “An average Canadian receiving the median CPP income who chooses to take benefits at age 60 rather than at age 70 is forfeiting over $100,000 (in current dollars) of secure lifetime income.”

She tells Save with SPP that tapping into your (registered retirement savings plan) RRSP and other savings first, as a bridge to a higher CPP or QPP later, can make a lot of sense. “Rather than holding on to the RRSP, why not use the RRSPs sooner and CPP later,” she explains.

Even waiting one year – taking CPP or QPP at 61 instead of 60 – means you will get nearly 12 per cent more pension for life, she says. The longer they wait to start CPP, the more they get – about 8.2 per cent more for each year after age 65, Dr. MacDonald explains.

If you go the other route, and take your government pension at 60, “you don’t know what your savings will look like at 70,” she notes. As well, those savings may be harder to manage when you are older, especially if you are “drawing down” money from a registered retirement income fund (RRIF).

Many people, she notes, worry that taking government benefits at 70 is too late, and that they will potentially die before getting any benefits. Most people who are in good health will live long beyond age 70, she says; the data shows that only a small percentage of Canadians don’t make it past their 60s.

Dr. MacDonald notes as well that the retirement industry tends to help people save, but doesn’t help them on the tricky “decumulation,” or drawdown phase. It would be akin to having an adviser set you up with skis, boots, poles and bindings, and deliver you the top of the ski hill – where you would be on your own to figure out how to get to the bottom, she says.

While “Freedom 55” was a popular concept in decades past, the data shows that the retirement age is creeping back up to age 65 and beyond, she says.

“Finances… are part of the reason why people are retiring later,” she explains. Pension plans are less common these days, and not all of them still offer an early retirement window. Few offer incentives to late retirement, she adds.

Her paper concludes that Canadians – and the financial industry that advises many of them – need to rethink the conventional idea of taking CPP or QPP as soon as possible in retirement, and then hanging onto RRSPs until it is time to RRIF them up the road.

“Despite wanting and needing greater income security, Canadians are clearly choosing not to delay CPP/QPP benefits, thereby forfeiting the safest, most inexpensive approach to get more secure retirement income,” she writes. By showing, through the Lifetime Loss calculation, that Canadians can lose out on $100,000 of secure retirement income, the hope is that the industry and policymakers will begin to rethink how they present retirement strategies to Canadians, the paper concludes.

We thank Dr. Bonnie-Jeanne MacDonald for taking the time to speak with Save with SPP.

Celebrating its 35th year, the Saskatchewan Pension Plan (SPP) has a long tradition of building retirement security. SPP is flexible when it comes to paying out pensions – you can start as early as 55 or as late as 71. Check out SPP, it may be the retirement solution you are looking for.

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.


Feb 22: BEST FROM THE BLOGOSPHERE

February 22, 2021

Canadians cutting back on retirement saving due to the pandemic?

There’s no question that the pandemic, now into its second year, is wreaking havoc on most people’s financial plans.

A report from Benefits Canada, citing research from Ipsos, found that “one quarter of Canadian employees say they’ve needed to cut back or stop contributions to their savings and retirement plans.”

One in 10 of the survey’s respondents say “they have reduced or frozen contributions to their retirement savings,” and 13 per cent “have cut back or stopped” savings for non-retirement purposes, such as vacations, clothing, household items, and “rainy day” savings.

While 70 per cent say they are “confident” about their financial management during what the article calls “tumultuous times,” 59 per cent “are worried about the effect of the pandemic on their savings and retirement plans.” Younger Canadians, the magazine reports, are even more worried – that’s 73 per cent of Gen-Zers and 67 per cent of millennials. Fifty-two per cent of boomers share their worries.

It would be interesting to ask this same group a little more about what their savings plan is, assuming they have one. While those with a workplace pension do have a sort of built-in retirement savings plan – as long as they are working – do those who don’t have some sort of savings budget or automated plan?

An article in USA Today stresses the importance of this kind of planning.

“One of the common misconceptions about achieving financial success is that it requires complexity, sophistication and intricate effort. Sure, you might want to construct a detailed analysis of investment allocations, debt-payback schedules or whatever, but you probably don’t need to,” the article explains.

“Sometimes, just a handful of straightforward guidelines, consistently followed, can do the trick,” USA Today reports.

Citing U.S. research, the story notes that a simple rule of thumb for saving is “save as much as you can,” and to separate saving from spending. You should, the article says, try to set aside between 10 to 30 per cent of your monthly earnings as savings.

(Our late Uncle Joe always said 10 per cent was his rule of thumb – put that away as soon as you get paid, and live off the other 90 per cent.)

That sort of advice is echoed in another of the findings from the research – the need to “pay yourself first.” The article picks up on this theme. “Learn to set aside money as soon as you get paid,” we are advised.

Let’s put it all together. Most of us are worried we’re not saving enough for retirement. But unanswered is the question, are most of us making savings easy through automation and paying ourselves first? The idea of setting aside a percentage of your earnings for savings, and then spending the rest, works even if your earnings are reduced. If 10 per cent is too much, try five per cent, or even 2.5 per cent. You can always ramp it back up again later.

If you don’t have a pension program at work, then you are the person your future self will rely on to set aside retirement savings while you are working. This sounds daunting, but doesn’t need to be. The Saskatchewan Pension Plan allows you to contribute in a number of ways, including pre-authorized payments from your bank account. That way, you are paying your future self first! Check out SPP, celebrating its 35th anniversary in 2021, today!

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.


Are there some new ideas on how to keep us all safe from COVID?

February 18, 2021

We’ve all been told, repeatedly, about the various public health and safety measures we can follow to try and reduce the risk of catching COVID-19. Up to now, it has been physical distancing – staying two metres apart – plus masks, hand sanitizing, and staying at home as often as possible.

Some folks say these steps are causing other problems, particularly the idea of isolation.

Writing in the Toronto Sun, columnist Sue-Ann Levy asks “if Ontario residents are distressed and frustrated by the latest lockdown, think of what a living hell it must be for seniors confined to their rooms in long-term care and retirement homes for now what is going into our 11th month of pandemic restrictions.”

The article notes that isolation is particularly harmful for the mental health of seniors. It’s not great for the rest of us, warns an article in the Sarnia-Lambton (Ontario) Journal. Public health officials in the Southwestern Ontario city say they are seeing a rise in domestic abuse there.

“Social isolation, financial instability and reduced access to friends and family has increased both the level of violence and its intensity,” the article reports, quoting Ange Marks, executive director of the Women’s Interval Home in the area.

Similarly, an opinion article in the Chicago Sun-Times warns that remote learning also has downsides for the kids.

“Evidence from the first year of the pandemic in the United States suggests that the social isolation created by school closures has exacerbated an ongoing childhood mental health crisis,” warn five doctors from the Chicago area.

Even the masks themselves are getting into the headlines. Is one sufficient, a report in the National Post, or should we wear two?

“If you have a physical covering with one layer, you put another layer on, it just makes common sense that it likely would be more effective,” states Dr. Anthony Fauci in the Post article.

That’s a lot to take in. Are there other approaches we can take that might be a little easier to handle?

Well, yes, people are hard at work on new approaches.

In Malaysia, reports Bernama, researchers are working on a new method to detect the virus using DNA and fibre optic sensors.

In Nova Scotia, reports Global News contract tracing will soon be much easier thanks to a new app that tracks restaurant patrons all over the province.

Up to now, the work of contract tracing has been done with dozens of different methods, but mostly pen and paper. “It is our hope that contact tracing will assist in preventing the spread of COVID-19 and help get us one step closer to a pandemic-free future,” states Gordon Stewart of the province’s Restaurant Association in the Global article.

Other research is being carried out on whether air purifiers might have a role to play in lessening the risk of COVID-19 infections, according to a second Global News report. The kinks of this approach are still being worked out, but it is believed that an air purifier with a HEPA filter, if correctly positioned, can help “remove viruses and germs from the atmosphere.”

We’ve all read about the various (and numerous) vaccines that are being rolled out, and administered across Canada.

Putting all this together, yes, the distancing and masking and isolation are tough medicine. But humans are an innovative bunch, and the same innovation that led to the rapid development of new vaccines is helping with new treatment approaches. That allows all of us to take a moment, now and then, to think of life after the pandemic.

The post-pandemic world, for many of us, will represent the run-up to retirement. If you don’t have a plan for retirement, the Saskatchewan Pension Plan could be a plan for you. Once you’ve joined up, you can contribute at any rate you choose, up to $6,600 per year (subject to available RRSP room). The SPP will invest that money (they’ve averaged an annual return of eight per cent since the plan’s inception 35 years ago) and, when work is done, can turn your invested cash into a lifetime income stream. Why not check them out today!

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.


Pandemic has meant tough times for those who love cash

February 11, 2021

It wasn’t all that long ago that cash was considered the smart way to go, in terms of saving and budgeting.

Who can forget watching the great ‘Til Debt Do Us Part TV series, featuring Gail Vaz-Oxlade, where a key lesson to managing household budgeting was to save up change and bills in jars, one jar for food, one for fuel, one for entertainment, and so on. The jars of cash forced you to follow a budget, and credit cards and lines of credit weren’t allowed.

And what about the advice of American financier Mark Cuban about the dealmaking cash provides – he notes that “you’ll get better results if you negotiate with cash.” As an example, if you say “all I have is $40 cash,” maybe the vendor will settle for that instead of a higher amount. No such wiggle room exists with credit and debit cards.

But along came the pandemic to make the world tremble for cash users.

“More businesses are going cashless during the COVID-19 pandemic and are asking customers to use debit, credit or app payments as a precautionary measure,” notes the CBC. Some retailers are refusing to take cash altogether, others deal with it in a safer way, using tongs and little cash boxes.

The concern with cash is, of course, health-related; handing over bills and cash is a hand-to-hand action that does carry risk. Contactless payments are seen as safer.

In the U.K., contactless payment has risen by as much as 64 per cent of all transactions, reports MSN Money.

Major retailer Asda is now accepting payment from a wider range of mobile devices, and contactless payment limits – once quite small – have been ramped up, the article notes. The limit is now 45 pounds – about $78 Canadian.

Here at home, NFCW reports that Visa and MasterCard limits for contactless payments have jumped up to $250.

A final indicator of the cashless society is the use of automatic teller machines (ATMs). In the UK, reports PA Media via MSN. ATM use is down a whopping 60 per cent.

“When people do use a cash machine, they are typically withdrawing more money. The average cash machine withdrawal is now around £80, up from around £65 before the lockdown,” the article notes.

Seventy-five per cent of Brits surveyed say they are using less cash these days – and 14 per cent say they are keeping any cash they accumulate at home, perhaps in a piggy bank, for emergencies, the article concludes.

So King Cash has been dethroned, at least until the pandemic is over. No doubt the throne will be reoccupied one day when the pandemic is under control, and it’s safe to shop with a wallet filled with bills and coins.

Got some cash piling up? While saving it for an emergency is a great idea, so is saving it for your retirement. There aren’t as many people lining up at those green coin counting machines these days, so bring your piggy bank of coins there and convert it to bills. Those can then be tucked into your savings account via an ATM.

The Saskatchewan Pension Plan has a great “pay yourself first” feature worth knowing about. You can set up SPP as a bill in most online banking applications. Then you can pop those piggy bank dollars into your SPP as easily as you can pay the cable bill. Not a member of SPP? Check them out today – 2021 marks their 35th year of delivering retirement security.

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.


Feb 8: BEST FROM THE BLOGOSPHERE

February 8, 2021

Canadians worry they aren’t saving enough for retirement

New research from Scotiabank reveals that a surprising 70 per cent of Canadians “admit it’s hard to know what to do when it comes to their investments” in the current pandemic environment.

Even more interesting for Save with SPP readers is the news that the pandemic is causing Canadians to “rethink their retirement.”

“The majority of Canadians who have not yet retired are worried they are not saving enough for retirement (72 per cent), one third (32 per cent) say they won’t be able to retire when they had planned because of the pandemic, and 28 per cent report they won’t be able to pay off their debt before retirement,” says a media release accompanying the Scotiabank research.

That’s quite the trifecta. So not only are three quarters of us not saving enough, a third of us won’t retire when we hoped and nearly 30 per cent will have to pay off debt with reduced retirement income.

Scotiabank advises us to “identify our goals” when it comes to saving, and to seek the help of a financial adviser.

But there may be other things to think about here.

A report from Wales Online adds another puzzle piece. In the U.K., the article says, more than 150,000 folks aged 55 to 64 have been forced “to retire early because of the pandemic.” The reasons why they are leaving the workforce include “redundancy and income cuts, a desire to reduce the risk of coronavirus exposure, and reassessing priorities in life due to the pandemic,” the article says.

So they are being laid off (made redundant is how the Brits describe it), getting their hours cut, or simply fear getting sick in the workplace as older workers. A few are “reassessing priorities” which may mean looking for things to do that aren’t work. The key point here is that this is all an unplanned departure; they are into retirement earlier than they planned, and not necessarily by choice.

Clive Bolton of LV=, the firm responsible for the research, sums it up very nicely.

“Early retirement is a dream for many people but it can become a financial nightmare if it is forced on people without them having time to prepare.” He goes on to say “your 50s are critical years for retirement planning because that is the age when many people’s earnings and pension contributions peak. Being forced to end a career before you planned will disrupt retirement plans.”

We’ve seen how most of us have to choose between paying down debt – which helps us in the short term – and saving for retirement, which helps us in the long term. And while the pandemic won’t be with us forever, it will be here long enough to throw peoples’ retirement plans into a bit of chaos. We may have to go before we’re ready. How do we prepare?

If you’re among the many Canadians who are not saving enough for retirement, there’s a remedy close at hand. The Saskatchewan Pension Plan can provide you with an easy, flexible and effective way to save. At press time, the estimated rate of return in 2020 for SPP – a year that saw market turmoil – was an impressive 8.72 per cent, and the SPP has averaged a return rate of 8.00 per cent since its inception 35 years ago. You decide how much to contribute and you can ramp up your savings as better times return. Check out SPP today.

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.


Preparing for golden years that may last until you turn 100

February 4, 2021

While The Good Retirement Guide 2020 is intended chiefly for a U.K. audience, this very thorough look at life after work – edited by Jonquil Lowe – covers a lot of very useful ground.

The book begins by noting that “the age at which we consider ourselves to be old is steady moving upwards,” noting that 20 per cent of Europeans don’t feel old by age 80. We’re transitioning from a time when people retired at 65 and were retired for maybe 10 years, to an era where “one in three of today’s babies in the U.K. will live until they are 100.” Retirement, the book tells us, can now last for 25 years of more, a fact that requires some “radical rethinking” on retirement to ensure a positive experience.

Because fewer of us (as true here in Canada as in the U.K.) have workplace pensions, which are “fading fast,” more retirees are exposed to “the three great risks of retirement,” which are:

  • Longevity risk – outliving your savings
  • Inflation risk – the buying power of your money falling over time
  • Investment risk – being exposed to the ups and downs of the stock market

In the U.K., the book tells us, recent research from Aviva finds that “over three quarters of pensioners are worried about the rising cost of living and having to continue working to make ends meet.”

The book says this type of worry can be addressed by a proper budget. If you lack accounting skills, consider a “spending diary” instead, which will achieve the same goal – “knowing how much you spend,” the books suggests. Such a diary can be set up with a notebook, a spreadsheet, or an app on your phone. Knowing what goes out – and looking for savings on the expense side – is a critical way to manage living on what’s coming in when you are retired, the book points out.

One thing many of us overlook when planning our retirement spending is the need to pay for care when we are older. “Increasingly, people are fit and well when they reach retirement and with luck that will continue for a long time,” the book advises. However, not all of us will make it all the way to the end without the need for long-term care, which can cost “more than 100,000 pounds,” which is more than $175,000 in Canadian dollars.

The book takes a look at pensions, noting that defined benefit plans, which are chiefly available to public sector workers, offer the promise of a “known proportion of your pay when you retire.” More common in Britain (and here) are defined contribution plans, where “the money paid in by you and your employer is invested and builds up a fund that buys you an income when you retire.”

DC plan members can choose an annuity, which “provides a secure income for the rest of your life,” or a “drawdown,” where the funds remain invested, and you withdraw a specified amount each year. The book recommends a drawdown rate of four per cent if you are going that route. The book offers a description of a variety of different annuities you may be able to buy, including joint-life annuities, where your surviving spouse can also receive a lifetime income.

If you are investing on your own for retirement, the book recommends a balanced approach, with some cash investments (short term, fixed income), some bonds (called “an IOU from the government or big companies), some real estate (either a rental property or exposure via real estate investment funds), and equities – stock in traded companies.

The book cites a rule of thumb often heard in pension circles – if you are investing on your own, your age should be the percentage of your portfolio that is in bonds. So if you’re 60, you should have 40 per cent in equities and 60 per cent in fixed income.

This approach is designed to manage risk (i.e., you reduce risk as you age), and the book says that’s important. “In general, there is no point taking so much risk that you have sleepless nights,” the author advises.

The book covers off many other topics – should you move to a smaller or newer home, or upgrade your existing home? There’s a detailed chapter on leisure activities that actually lists the various organizations in the U.K. that support your activity of choice, be it education, the arts, gardening, and much more.

As a senior, you may find you get a great rate – sometimes even free fares – on public transit, a great way to get around for less.

Importantly – especially given the whole “80 is the new 60” theme of the book, there’s a look at how you may be able to continue to work in your younger senior years, maybe part time at where you used to work full time. There’s detailed information on the value of doing volunteer work. There’s a long chapter on the importance of maintaining your health for the long retirement journey ahead of you. And there’s even a look at wills and inheritance, again from a U.K. perspective.

This is a very well-written, thorough look at a vast topic; congratulations to Jonquil Lowe on a job well and expertly done. As mentioned, while Canadian laws, tax rules, and estate practices are different, the core information in this book is as valuable here as it is to our cousins across the pond.

The Saskatchewan Pension Plan has all the tools you need to set up a personal pension plan. They’ll invest the contributions you make, grow them via low-cost, professional investing, and present your future self with retirement options in the future, including lifetime pensions. Check them out today!

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.


Feb 1: BEST FROM THE BLOGOSPHERE

February 1, 2021

Canadians have socked away nearly $300 billion in Tax Free Savings Accounts

It’s often said that high levels of household debt, compounded by the financial strains of the pandemic, make it difficult for Canadians to save.

However, a report in Wealth Professional magazine suggests that Canadians – once again – are indeed a nation of savers. According to the article, which quotes noted financial commentator Jamie Golombek, as of the end of 2018, we Canucks had stashed more than $298 billion in our Tax Free Savings Accounts (TFSAs).

“[A]s of Dec. 31, 2018, there were 20,779,510 TFSAs in Canada, held by 14,691,280 unique TFSA holders with a total fair market value of $298 billion,” Golombek states in the article.

Again looking at 2018, the article says Canada Revenue Agency (CRA) data shows 8.5 million Canadians made TFSA contributions in ’18, with “1.4 million maxing out their contributions.” In fact, in 2018, the average contribution to a TFSA was about $7,811 – more than that year’s limit of $5,500 – because of the “room” provisions of a TFSA, the article explains.

The reason that people were contributing more than the maximum is because they were “making use of unused contribution room that was carried forward from previous years,” Wealth Professional tells us.

Another interesting stat that turns up in the article is the fact that TFSA owners tend to be younger. “Around one-third of TFSA holders were under the age of 40; two-fifths were between 40 and 65, and those over 65 made up about 25 per cent,” the article explains.

“This is not overly surprising since the TFSA, while often used for retirement savings, is truly an all-purpose investment account that can be used for anything,” Golombek states in the article.

However, there is a reason older Canadians should start thinking about TFSAs, writes Jonathan Chevreau in MoneySense.

“Unlike your Registered Retirement Savings Plan (RRSP), which must start winding down the end of the year you turn 71, you can keep contributing to your TFSA for as long as you live,” he writes – even if you live past 100.

He also notes that a TFSA is a logical place to put any money you withdraw from a Registered Retirement Income Fund (RRIF) that you don’t need to spend right away.

While tax and withdrawal rules for RRIFs must be followed, “there’s no rule that once having withdrawn the money and paid tax on it, you are obliged to spend it. If you can get by on pensions and other income sources, you are free to take the after-tax RRIF income and add it to your TFSA, ideally to the full extent of the annual $6,000 contribution limit,” Chevreau writes.

This is a strategy that our late father-in-law used – he took money out of his RRIF, paid taxes on it, and put what was left into his TFSA, where he could invest it and collect dividends and interest free of taxes. He always looked very pleased when he said the words “tax-free income.”

2021 marks the 35th year of operations for the Saskatchewan Pension Plan. The SPP is your one-stop shop for retirement security. Through SPP, you can set up a personal defined contribution pension plan, where the money you contribute is professionally invested, at a low fee, until the day you’re ready retire. At that point, SPP provides you with the option of a lifetime pension. Be sure to check out the SPP today.

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.