All posts by saskpension

November 2012 return

SPP posted a return of 0.52% to the balanced fund (BF) and 0.05% to the short-term fund (STF). The year to date return in the BF is 7.15% and in the STF is 0.46%.

Market index returns for November 2012 were:

Index  Nov 2012 return (%)
S&P/TSX Composite (Canadian equities) -1.28
S&P 500 (C$) (US equities) -0.04
MSCI EAFE (C$)
(Non-north American equities)
1.79
DEX Universe Bond (Canadian bonds) 0.62
DEX 91 day T-bill 0.10

Click here for a complete list of returns.

Dec 17: Best from the blogosphere

By Sheryl Smolkin

blogospheregraphic

November was Financial Literacy Month and Glenn Cooke of Life Insurance Canada organized a campaign by Canadian bloggers who published their best financial tips. Links to all of them appear in this blog from Canadian Capitalist.

Masters of Money’s Alison Griffiths warns on Getsmartaboutmoney.ca that if an investment seems to good to be true, it probably is.

Toronto Star columnist and consumer advocate Ellen Roseman blogs about how social media helped Kavitha Nadarajah get compensation from Whirlpool after she had to replace her top of the line five year-old refrigerator.

For holiday travellers, Mike Holman at Money Smarts has some ideas about avoiding cell phone roaming charges when you travel to the U.S.

T.V. personality Gail Vaz-Oxlade calculates how much money you can save by making lunch instead of eating lunch out every day.

Tax time is quickly approaching, so bookmark this post on Million Dollar Trader about CRA’s Community Volunteer Income Tax Program for both people who need help and qualified volunteers who are able to assist them.

10 frugal last minute gifts

By Sheryl Smolkin

SHUTTERSTOCK  Get creative. Give more affordable, meaningful gifts

The clock is ticking and if you haven’t finished your Christmas shopping, you may be starting to get nervous. You may also feel like you have no option but to descend on the local mall and buy something for everyone left on your list, even if you end up spending way more than you planned.

But the fact is that most of us already have way too much stuff. With a little creativity, you can give more affordable gifts that will mean more to the people who receive them. And you won’t have to fight the last minute crowds.

  1. Plan an outing: Give friends and family tickets or a computer-printed “gift certificate” for an inexpensive post-holiday outing. Curious children will love a visit to the Saskatchewan Science Centre. The entrance fee is under $10 for adults and children. Toddlers get in for free. In 2013 the Globe Theatre is mounting great shows like Pride and Prejudice and The Drowsy Chaperone. Economy tickets start at $29. Every town has community sports teams that play regular games.
  2. Donate to a charity: Donating to a charity in honour of a person who has everything can be a welcome gesture. If your child has been to the zoo in Saskatoon and fallen in love with one of the animals, consider the adopt-a-critter program for $25 that will get you a picture, certificate and fact sheet of your chosen animal. Of course then you might have difficulty explaining why the monkey Tarzan can’t move in.
  3. Re-gift an heirloom: Do you have a locket with your children’s baby pictures? How about the china teapot your mother left you? Are you downsizing to a smaller home in the near future? Consider passingbeloved items you no longer need or have room for to friends and family who will give them new life.
  4. Make something yummy: I’m not a crafty person so I won’t suggest complicated make work projects to add to your holiday stress. But a double or triple recipe of something simple like cranberry sauce or chutney will make dozens of small jars for only a few dollars. These make great gifts for neighbours, co-workers and teachers.
  5. A Boxing Day IOU: Although many stores run sales through the whole month of December and Black Friday has moved north of the border, many items still cost more on December 24th than two days later. If an item someone you know is coveting is still too expensive, give him an IOU for a Boxing Day or Boxing week shopping trip.
  6. Give your time: Do you play with your smartphone when you should be playing with your children? Do elderly relatives need snow shovelled or help with grocery shopping? Give tickets or homemade gift cards that can be used to reserve a specified number of hours of your uninterrupted time.
  7. Make memories: I have boxes of baby pictures that I never put into albums. And now that pictures are digital, we rarely print them. Most camera stores offer templates online or in the store so you can assemble attractive hard cover photo books to preserve your memories.
  8. Popcorn and a movie:  Whether you buy gift certificates for the local Cineplex, rent a DVD or take movies out from the library, a movie and popcorn can be a welcome treat for kids of all ages.
  9. Buy a book: My absolute favourite gift to give and receive is a good book. Our family always gives the short list of Giller prize books and then we re-circulate them so everyone gets a chance to read them all. The great thing about books and gift cards for books is that you can order them online and have them delivered anywhere in Canada on very short notice.
  10. Your favourite recipes: My husband’s family does a potluck Chanukah dinner. Everyone loves Lil’s chiffon cake and Anne’s noodle pudding with fruit cocktail and Joel’s potato latkes. If your family has a similar tradition, why not put all the recipes together so newer family members can carry on the tradition?

These are just a few of my ideas for last minute frugal gifts. Tell us about yours by sending an email to socialmedia@saskpension.com. If your tip is posted, your name will be entered in a quarterly draw for a gift card.

20-Dec Boxing Day How to beat the Boxing Day blues
27-Dec New Years Financial New Years resolutions

And remember to put a dollar in the retirement savings jar for every dollar you save…….

Best from the blogosphere

By Sheryl Smolkin

blogospheregraphic

If you are reading B.C.-based Kerry K. Taylor at Squawkfox for the first time don’t miss 50 ways to save $1,000/ year. But her blog Price Check: How to cut the cost of a gluten-free diet is a must-read for anyone shopping and cooking for people with this dietary limitation.

In Give me back my five bucks Krystal Yee who also blogs on moneyville.ca and The Frugal Wanderer asks what you would do if someone gave you $1000.

At Boomer & Echo, Robb Engen from southern Alberta (also another moneyville blogger) test drives a new rewards credit card from American Express.

Tim Stobbs lives in Regina. He is well on his way to the Canadian Dream: Free at 45. He recently posted a five-part blog updating his retirement calculations and how he is going to get there 20 years before the rest of us.

And as you prepare for the holiday season with your nearest and dearest, make sure you have a tissue handy when you read a reprint on Brighter Life of the tender 2011 letter from Sun Life AVP and blogger Kevin Press to his daughter, Dear Grace: The three secrets of Christmas.

Christmas entertaining on a budget

By Sheryl Smolkin

SHUTTERSTOCK Brunch can be an inexpensive way to entertain.

My husband Joel and I are foodies. We look on food as much more than sustenance. It is family, community and culture. Preparing and eating a good meal is creative, sensual and satisfying.

Joel generally does the cooking, but I do the planning and most of the shopping. So I know how expensive holiday entertaining can be — particularly if you serve multiple courses including an expensive cut of meat and a pricey bottle of wine or two.

But there are lots of ways to fill your home with good friends and the heady aroma of good cooking before and after the holidays without breaking the bank. Here are a few of my favourites:

  1. Decide what you can afford: Budgets are boring, but it’s also all too easy to just cruise up and down the supermarket aisles and throw things into your buggy. Figure out what you can afford to spend and shop with a list.
  2. Plan ahead: Plan your menu as far in advance as possible. That will allow you to buy ingredients on special and cook and freeze some dishes. You will not be paying top dollar at the last minute and you will be much more relaxed because a significant part of your party preparation is already done. The  cost of your event will also be spread out over several weeks.
  3. Keep it simple: Make more of a few things rather than offering a huge variety of items on a buffet. If there is too much choice everyone wants to taste everything and you will either run out of the most popular dish or end up with a lot of leftovers. Lasagna, shepherd’s pie, chili, a pot of stew or a curry can all be served with a couple of salads and good bread.
  4. Potluck dinner: Divide up the meal into appetizers, main course, salads, beverages and desert. Ask your guests to indicate which category they will contribute and to bring their dish in a container suitable for heating and serving. Each person gets to take their leftovers home or trade with others.
  5. Progressive dinner: A progressive dinner means that each course is served at a different home. It lends itself to groups of up to half a dozen couples or families who don’t live too far apart. While traipsing from house to house may be less appealing on cold dark nights, a progressive dinner can still be lots of fun.  It’s also less expensive for each family than preparing a full meal. If alcohol is being served make sure to have designated drivers.
  6. Brunch: Brunch on weekends or holidays is a great time to entertain. You are not worn out before your guests arrive and parents with young children can still get them home for a nap. Fruit smoothies, an egg frittata and muffins are inexpensive and easy to make. Even if your crowd includes carnivores who love breakfast meat you’ll spend much less than on a prime rib roast.

Even if you are on a budget, plan to make enough to feed a few extra mouths so you can issue last minute invitations to friends or friends of friends who can’t make it home for the holidays.

These are just a few of my ideas about how to entertain economically. Tell us about yours by sending an email to socialmedia@saskpension.com If your tip is posted, your name will be entered in a quarterly draw for a gift card.

13-Dec Christmas shopping 10 frugal last-minute Christmas gift ideas
20-Dec Boxing Day How to beat the Boxing Day blues

And remember to put a dollar in the retirement savings jar for every dollar you save…….

Saving money so you can save for retirement

By Sheryl Smolkin

SHUTTERSTOCK Put $1 in a retirement savings jar every time you use a savewithspp.com idea.

Over the last year, the focus of savewithspp.com has been to make sure the Saskatchewan Pension Plan is no longer “Canada’s best kept secret.” We have discussed key elements of the program and why it is a great pension plan for both individuals and employers across the country who want to help their employees save for retirement.

In a series of podcasts we’ve also introduced you to the people behind the SPP and a well known group of financial experts.

But we know that one reason many people don’t save for life after work is that they don’t believe they can afford it. After paying the rent, putting food on the table and dealing with a pile of other family bills each month, there is nothing left to save.

Yet most of us can easily save a dollar or two every day, and over time it all adds up. Whether you make coffee at work instead of buying fancy lattes, take better advantage of discount coupons or comparative shop online there are hundreds of ways to be more frugal and still enjoy life.

So beginning this week I will be blogging for savewithspp.com about ways to save money in your everyday life. And I need your help. I have lots of ideas, but you have even more.

In every blog, I will list the “themes” for the next two weeks.

  1. Send your money saving ideas related to this theme to socialmedia@saskpension.com.
  2. Pictures illustrating your suggestions are welcome.
  3. Reader suggestions relating to the weekly topic will be posted on the Saskatchewan Pension Plan Facebook page.
  4. If your idea is selected for posting, your name will be entered in a quarterly draw for a gift card.

Every week I will also link to “the best of” blogs written by other personal finance bloggers. And from time to time, I will post podcast interviews with interesting people who can suggest more terrific ways to make your pay cheque go further.

New blogs will be posted each Thursday. One way to make sure you don’t miss any of them is to enter your email address on the right hand sidebar of savewithspp.com to receive notifications of new posts by email. You and your friends can also follow the Saskatchewan Pension Plan on Facebook.

Furthermore, we challenge you to put a dollar in a “retirement savings jar” every time you take advantage of a money saving idea on savewithspp.com. You’ll be amazed at how fast it adds up.

To get you started, here are the themes for the rest of December:

6-Dec Entertaining Holiday entertaining on a budget
13-Dec Christmas shopping 10 frugal last-minute Christmas gift ideas
20-Dec Boxing Day How to beat the Boxing Day blues

I can’t wait to hear all of your fantastic suggestions.

Wishing you and yours, a happy and healthy holiday season!

Why fees make a difference

By Sheryl Smolkin

If you save for retirement with the Saskatchewan Pension Plan, the Contribution Fund allows you to invest in a professionally managed balanced portfolio or a short-term fund. The composition of the balanced fund at September 30, 2012 is illustrated below. On average, annual fees are targeted to be one percent.

Yet a recent article in the Globe and Mail by columnist Rob Carrick reveals that the average management expense ratio (MER) — that’s the ratio of fees to the total amount of money in the fund — is 2.37 per cent for six types of retail balanced funds he reviewed.

Carrick also notes that yield on a five-year Government of Canada bond — that is, the annualized return from the interest you receive — is about 2.5 per cent right now. A five-year provincial government bond yields about 2.9 per cent. Subtract the average balanced fund fee from these yields and you’re not left with much. Those same fees will grind down your returns from the stocks in your balanced fund, though not quite so dramatically.

How much of a difference do fees make? Take a look at the following two scenarios:

  1. If starting at age 30 you save $2,500/yr. in the SPP for 35 years with an average annual net interest rate of five per cent you will have savings of $237,090 at age 65.
  2. If starting at age 30 you save $2,500/yr. in a retail balanced mutual fund for 35 years with an average net annual interest rate of 3.63 per cent (lower because admin expenses are 1.37 per cent higher than in SPP) you will have savings of only $177,235 at age 65.

That’s a difference of almost $60,000. And the results are much more dramatic if you deposit $2,500/year for 35 years and transfer in another $10,000/year from your RRSP. Earning 5 per cent a year in SPP, your balance would be $1,185,454 but if you only earn 3.63 per cent in a retail balanced mutual fund you will save only $886,176 or 25 per cent less.

For more information about SPP investments, see Investments.

Sign up for eUpdates to get up to the minute news about SPP.

Also read:
Better investment fee and performance disclosure might help
ETFs vs mutual funds
Investment fees dragged into the spotlight

October 2012 returns

SPP posted a return of 0.43% to the balanced fund (BF) and 0.06% to the short-term fund (STF). The year to date return in the BF is 6.59% and in the STF is 0.42%.

Market index returns for October 2012 were:

Index  Oct 2012 return (%)
S&P/TSX Composite (Canadian equities) 1.07
S&P 500 (C$) (US equities) -0.30
MSCI EAFE (C$)
(Non-north American equities)
2.42
DEX Universe Bond (Canadian bonds) -0.19
DEX 91 day T-bill 0.09

A comprehensive investment update to the end of the third quarter is available on our website at saskpension.com.

Talking to Alison Griffiths

Alison Griffiths podcast
(We apologize for the quality of this recording.)

Hi, my name is Sheryl Smolkin. I’m a lawyer and a journalist. Today I’m pleased to be continuing the Saskatchewan Pension Plan’s series of interviews with financial experts. My guest is Alison Griffiths.

Today I am going to ask Alison to share with us the answers to some questions about retirement savings she has written about recently.

Alison is an award winning financial journalist, best-selling author and broadcaster. She has hosted two acclaimed television shows, Maxed Out for W Network and Dollars and Sense for Viva.

For many years she wrote a a popular financial column for the Toronto Star and her  weekly column for the Metro chain of papers “Alison on Money” continues. In addition to her frequent speaking engagements and workshops, she has just released her ninth book: Count on Yourself. It’s a wonder she ever finds time to sleep!

Q. Financial institutions would like us to believe that every Canadian who is earning even a few dollars should save in an RRSP or pension plan for retirement. Do you agree? Can you give me examples of cases where this may not apply?

A. Ideally it’s good to save for your retirement one way or another. However, there are a couple of situations where people should examine that automatic RRSP contribution.

Situation 1

A post-retirement net income of less than about $16 000 is about roughly the cut off for a single person with a guaranteed income supplement. There have been a few cases that I’ve come across in the last few months where individuals who were getting the guaranteed income supplement after age 65, get to the required RIFF withdrawal age in their 70’s and suddenly they’re bumped out of that supplement payment which they’ve been relying on. If you think you’re going to be on the edge than it might be better to put it into a tax free savings account or a non-registered account

Situation 2:

Those who may face a claw back from government programs because of higher income. After the age of 65 you get an age amount personal exemption in addition to your existing personal exemption, but that exemption starts to get clawed back after a net income of only about $33 000.

It’s worthwhile looking at that post-retirement income, looking at the government benefits you’re going to get and for higher income people you might be better off and have more flexibility if you deposit to a TFSA or a non-registered account.

Q. What’s more important – paying off debt like a student loan, or starting as early as possible to save for retirement?

A. Students with carry forwards of tuition deductions and a student loan should take the first three or four years post-graduation and really hit that student loan instead of making RRSP contributions. It’s very worthwhile. Then they are in a situation where they can start contributing to their RRSPs without having to decide whether to pay off their student loan or or contribute to RRSPs.

Q.Is it better to contribute monthly or to deposit a lump sum one or more times a year?

A. For most people contributing monthly is a good idea. Investing every month, you’re going to sometimes invest at a market high but you’re going to also invest at a market low, so you smooth out those bumps via dollar cost averaging. Also the discipline is important.

Q. You recently wrote a column advising readers not to take out a loan to max out their retirement savings every year. Can give our listeners a few reasons why you don’t think that’s a good idea?

A. The reality is that rarely do I see it work out even when interest rates are low. It’s not just because the investment return plus the tax deduction has to be higher than the borrowing cost. You also have to pay the money back. The fact is it gets loaded onto the general debt individuals carry for three or four years and they never ever quite pay it off.

Q. How can people find out how much their investments are costing them?

A. The best way to do it is to look at the mutual funds you have. On Morningstar.ca you can easily type in the name of your fund. A report pops up that gives you a snap shot. You’ll see your MER – management expense ratio figure there, and that’s the percent you’re paying.

One thing you need to remember about mutual fund fees is that they have to be considered as a hurdle. The mutual fund has to jump over the hurdle of that 2.5% fee before you even start making money.

Q. How important are fees? If I’m investing $100, a 2.5% fee of $2.50 doesn’t sound like much. How much difference can paying say 1% instead of 2.5% MER on an investment make in terms of accumulated retirement savings over time?

A. It makes a huge difference – in small amounts of money it doesn’t seem to be too much. However, the difference between 1% and 2.5% over 15 years on a $10,000 investment is $5,000 in lost return. The other issue to think of is that not only do high fees reduce your gain, but they maximize your losses – in times of market volatility your losses get magnified.

Q. In your latest book you relate some humorous anecdotes about how people are more ready to discuss intimate details of their sex life than money. Why do you think finances and financial planning so hard to talk about?

A. Not only is money personal, but it also seems a lot of our self worth revolves around money, how much we have, how much we earn. When you poke at people’s self worth by revealing what might make them appear to be negative compared to somebody else, then they start to get very uncomfortable.

We also worry about getting ripped off by the people we’re in a relationship with. But as a result we don’t develop the confidence or the language skills to discuss money when it becomes necessary.

Thanks Alison. It was a pleasure to chat with you. I know Saskatchewan Pension Plan members will be eager to read your new book Count on Yourself and they will also want to check out your articles in the Toronto Star articles and other media.

SPP or TFSA?

By Sheryl Smolkin

You have $2,500 to contribute to retirement savings in 2012. Should you contribute to a tax-free savings account or the Saskatchewan Pension Plan?

Before answering that question, it is helpful to review some basic SPP and TFSA concepts.

SPP
You can contribute a maximum of $2,500/year to SPP providing you have RRSP contribution room. To find out how much RRSP room you have available in 2012, look at line A of the RRSP Deduction Limit Statement on your 2011 income tax notice of assessment or notice of reassessment.

Your SPP contributions are tax deductible and investment income accumulates tax sheltered. SPP contributions plus interest are also locked in. Unused contribution room is carried forward.

You may elect at anytime between age 55 and 71 to receive an SPP pension or move your SPP account balance into a locked-in RRSP. By age 71, amounts in a locked-in RRSP must be converted to income using a prescribed registered retirement income fund (pRRIF) or life annuity product. You must begin making minimum prescribed withdrawals from your pRRIF in the following year.

Both SPP annuity payments and pRRIF withdrawals are fully taxable income at your marginal tax rate. If your SPP benefits or pRRIF withdrawals push your income over specified limits, a portion of Guaranteed Income Supplement, the age credit and Old Age Security payments may be clawed back.

TFSA
You can contribute up to $5,000/year to a TFSA regardless of your age or income level. Contributions are not tax-deductible. However investment income  (including capital gains), accumulates tax free. When funds are withdrawn from a TFSA, no income tax is payable.

You can withdraw funds available in your TFSA at any time for any purpose — and the full amount of withdrawals can be put back into your TFSA in future years. Re-contributing in the same year may result in an over-contribution amount which will be subject to a penalty tax.

Neither income earned in a TFSA nor withdrawals affect your eligibility for federal income-tested benefits and credits. You can provide funds to your spouse or common-law partner to invest in their TFSA.

By the numbers
All other things being equal, whether or not you will be able to save more in the SPP or a TFSA depends on two key factors.

  1. Your marginal tax rate when contributing as compared to your marginal tax rates when you expect to withdraw the money.
  2. How you use your tax refund.

Generally speaking, if you think your marginal tax rate will be significantly lower at retirement than during your working career, saving with SPP makes much more sense than in a TFSA.

But how you use your tax refund is also important. Canada Revenue Agency calculations when the TFSA was introduced assume the tax refund generated by contributing to a retirement savings vehicle is also contributed to the account.

In these circumstances, investing in either the SPP or a TFSA will result in about the same net withdrawals at retirement. However, many of us look on our tax refund as “mad money” and do not earmark it for further retirement savings. In these situations, the TFSA comes out ahead.

That money can be withdrawn from your TFSA account and contribution room is restored in the next year may be attractive in some cases. However, replacing money you withdrew requires considerable discipline. In contrast, money saved in your locked-in SPP account will be there at retirement when you need it.

Your financial plan
SPP vs TFSA. It’s not an either/or proposition. A financial advisor can review your personal situation and help you decide the best way to maximize your retirement savings.

Depending on your income level, expenses and the amount of income you need in order to retire, you can benefit from having both kinds of accounts plus an RRSP.

To paraphrase David Chilton in TheWealthy Barber Returns:

  1. If you go the SPP* route, don’t spend your refund.
  2. If you go the TFSA route, don’t spend your TFSA.
  3. Whatever route you go, save more.

* Chilton used RRSP in this phrase.

Also read:
Understanding SPP annuities

The Wealthy Barber explains: TFSA or RRSP?

RRSP vs. TFSA: Tim Cestnick on where to put spare dollars

To TFSA or to RRSP?

TFSA vs RRSP – Clawbacks & income tax on seniors

TFSA vs. RRSP – Best Retirement Vehicle?