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July 26: BEST FROM THE BLOGOSPHERE

July 26, 2021

Your 20s may be the best time to start saving for retirement

Writing for Yahoo! Finance, Phoebe Dampare Osei points out that your 20s is a good time to start saving for retirement.

“Your 20s is that decade where society says you’re old enough to have some responsibilities, but young enough that you haven’t quite settled down yet,” she writes. She notes that statistics from the U.K., where she is based, show most couples aren’t getting married until their 30s these days, a big change from the 1970s when they married younger.

Similarly, U.K. stats show people aren’t buying their first homes until they are in their 30s or older, she adds.

“But what about life after 60? It may seem odd to be thinking so far ahead, but your future you, will thank your present you, if you take care of yourself now,” writes Dampare Osei. We love that sentiment!

Her suggestions:

  • “In your 20s you have fewer responsibilities than someone much older, so it’s easier to save now than a lot more later with more financial pressure.”
  • “State pension alone will not cover you — check with your employer to make sure you are eligible and auto-enrolled.” (Auto-enrolment in a workplace pension plan is not a common practice in Canada – so here at home it’s up to you to find out if there’s a retirement plan and how you can qualify to join it.)
  • “If you do not have enough money saved for retirement you may have to keep working beyond state pension age. Working into your 70s if you don’t have to and don’t want to doesn’t sound like much fun.”

This last point is very true. Many people without retirement savings simply say to themselves well, I’ll keep working until 70. That sounds great when you are younger and healthier, but will you be healthy enough to keep punching the clock by age 70? Not everyone is.

She raises a good argument about state benefits not being all that great.

To Candianize this a bit, the current maximum benefit from the Canada Pension Plan is $1203.75, but the average amount is $706.57, according to the federal government’s own site.

The maximum Old Age Security payment, again per the government’s web, is $626.49.

In fairness to the government, these benefits were never intended to provide the only income people receive in retirement – when they were launched, most people had workplace pensions, and these programs were designed to supplement that.

So the most anyone could get from both programs is a little over $1,800 a month – and not everyone qualifies for the maximum.

The point Dampare Osei makes is a very good one. When you are young, single, and just starting out in the workforce, you probably don’t have as many expenses as you will when you’re in your 30s, married, raising kids and paying a mortgage. So it’s a good time to start your retirement savings program.

Another great reason to start early is the “magic” of compounding. The longer your money is invested, the more dividends and interest it will accrue.

As an example, the Saskatchewan Pension Plan has averaged an eight per cent rate of return since its inception 35 years ago. And while the past rate of return is of course no guarantee of what SPP will do in the future, the track record is worth noting. If there isn’t a workplace pension plan to sign up for, the SPP may be just the thing for you. And as Dampare Osei correctly notes, your future you will be very pleased if the current, youthful you gets cracking on retirement now rather than later.

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.


July 19: BEST FROM THE BLOGOSPHERE

July 19, 2021

Could our passion for savings defuse the expected end-of-COVID spending boom?

In an interesting and perhaps “contrarian” article, Leo Almazora of Wealth Professional asks if Canada’s return to being a nation of savers could actually have a downside.

“For many pundits and analysts, the light at the end of the tunnel that is the COVID-19 crisis has been the prospect of a surge in spending as vaccinations allow the unleashing of pent-up demand. But based on certain interpretations of savings data, that may not be the scenario that plays out,” he writes.

He notes that during COVID – with so many spending options removed from play – savings rates jumped to almost 20 per cent in many industrialized countries, including Canada.

It was expected, Almazora notes, that once economies began reopening, the urge to spend would overcome the tendency to save. But research cited from Barron’s magazine in the article shows that “even as economies have reopened, savings rates have stayed unusually high.”

Almazora’s article contends that there were two types of COVID savers – a “forced savers” group that, while keeping their employment, had very few options to spend their money on, and “precautionary savers,” who – worried by the pandemic – save for the “next downturn or economic calamity.”

There’s a third group, he writes, who have sort of got out of the habit of spending on hotels and restaurants, and won’t be spending as much on those things going forward.

This is a very insightful piece. Three groups are described, those who can’t spend their money, those who worry about a fourth wave or some other nasty financial surprise, and those who have been converted to a new obsession – frugality.

One would assume that the “can’t spend” group will be among the first to book vacation flights and resume travel. Those who Almazora describes as “preppers” for a possible further wave of problems presumably won’t join in the fun, nor will those who have decided cooking at home and cutting back on expenses was not only fun, but has led to a piling up of cash in their savings accounts.

It will be very interesting to see how this all plays out; it may take as long to return to a “fully normal” economy as it took COVID to derail “normal” and move us to a stay-at-home/no spend reality.

This writer recalls doing research on pension plan funding – where people sock away money for retirement via workplace plans – and hearing economists suggest the act of saving money was, in effect, negative for the economy in the now. Money saved today cannot be spent today, the argument went.

While this is factually correct, that viewpoint – savings can be bad – ignores the fact that the saved money is invested, often in job-creating Canadian companies and services, and then withdrawn and spent years later by the retirees. It’s deferred spending, in a way.

As a soon-to-be double grandparent, this aging scribe has reached the opinion that any savings is always a good thing. Emergency savings when the roof leaks or the fence falls down; long-term savings for retirement income and to help the grandbabies.

If you have a workplace pension plan, be sure to not only join it, but to contribute to it to the fullest extent possible. If you don’t have a plan – or if you are a small business thinking of offering one to your team – check out the Saskatchewan Pension Plan. This scaleable retirement product works as well for one person as it does for a larger group – and they’ve been delivering retirement security for 35 years.

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.


July 12: BEST FROM THE BLOGOSPHERE

July 12, 2021

Retirement saving concerns top health, employment and debt: HOOPP research

Writing in the Globe and Mail, Rob Carrick reports on new research that shows Canadians are more worried about retirement savings than they are about their physical and mental health, employment security, and debt burden.

Carrick cites research from the Healthcare of Ontario Pension Plan that found that, of 2,500 respondents, “48 per cent said they were very concerned about have enough money in retirement. Only the cost of day-to-day living ranked as a larger worry. Health and other financial/economic worries lagged well behind.”

The survey was carried out in April 2021, and clearly the pandemic has had an impact on people’s attitudes towards their finances, Carrick reports. “The poll results suggest 52 per cent of Canadians have been financially harmed by the pandemic, notably younger and lower-income people,” he writes.

Carrick notes that another recent survey by the Canadian Centre for Policy Alternatives that found that “Indigenous and racialized seniors… have average retirement income that is, respectively, 25 per cent and 32 per cent lower than seniors who are white.” But, he points out, the HOOPP research shows that even those with higher incomes are worried about retirement income – “42 per cent of those making more than $100,000 said they were very concerned about their retirement savings,” he writes.

Carrick sees a glimmer of good news mixed in with all the gloom, and that is, that the pandemic creates, for many of us, an opportunity to save.

“One more highlight for the well-off is the opportunity to save more money than ever as a result of economic lockdowns that curtailed travel, concerts and commuting to work for many. In the HOOPP survey, almost half of participants said they were able to save more money,” he notes.

He suggests that while those who have managed to stay employed throughout the crisis and have some unspent money should definitely sock some of it away in an emergency fund, retirement savings is a logical destination. “A lot should be put away for retirement using tax-free savings accounts and registered retirement savings plans,” writes Carrick.

The HOOPP survey found that Canadians generally are concerned about the national retirement savings rate. “Sixty-seven per cent of participants agreed with the statement that there is an emerging retirement crisis,” Carrick reports.

Those surveyed cite the rising cost of living, the “prices home buyers are paying,” and inflation as being inhibitors to retirement saving. Save with SPP will add another factor – high household levels of debt – to this category.

It’s easier to save for retirement if you belong to a pension program at work. The money comes off your pay before you have time to spend it. But if you don’t have a workplace plan, the Saskatchewan Pension Plan may be a solution. With SPP, you can set up automatic withdrawals that can coincide with your payday, allowing you to pay your future self first. The folks at SPP, who have been running retirement money for 35 years now, will diligently invest your savings and – when work is in the rear-view mirror – will help you turn savings into retirement income. 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.


July 5: BEST FROM THE BLOGOSPHERE

July 5, 2021

Does being broke have an upside – better money management skills?

An interesting column by Terri Huggins, published on Yahoo! Finance, provides a unique take on being broke.

Huggins (who freely admits to having lived through many broke years) takes the position that so-called broke people may actually be better with money than those who are, for want of a better phrase, unbroke.

When you have less money overall, she writes, “financial awareness becomes more of a survival tactic than a money habit.”

People without money don’t have the “luxury” of “putting off dealing with… financial fears and stresses.” She says that while living on a shoestring is certainly not much fun, “there is a silver lining… being forced to think about money constantly means you naturally become very good at thinking about money!”

This includes, she adds, “managing money problems and coming up with financial solutions that fit your immediate needs.”

The downside, Huggins, says, is that those low on income are naturally forced to focus on “immediate needs – with little thought for the long term.” If you are having trouble making this month’s rent, saving up money in an emergency fund is “pointless.”

She recalls her own broke years, where “every day was a financial emergency. How can you contemplate saving for retirement when you’re unsure if you’ll have enough to pay for food this month?”

The fact that those living on very tight money can’t realistically save for retirement or emergency funds sometimes gets them painted as being “bad with money,” Huggins writes. But the money management skills of those on low incomes may be quite the opposite, she says. “Broke or poor or otherwise financially struggling people everywhere are forced to make tough decisions every day, gamble with those decisions, and make sacrifices to somehow fund the things that truly matter.”

She summarizes the chief money insights that “broke” people have, and that others may wish to adopt:

  • Mastering money tracking – they know exactly how much money they have, and exactly what their bills are going to be
  • Every expense is a mindful decision – broke people don’t have the privilege of making “poorly thought out purchases on a whim.”

Huggins argues that so-called “financially sound” people probably don’t know what they make and what all their expenses are. She suggests they are far more prone to make impulse purchases or poorly thought-out decisions. Now that she herself is no longer on the broke side of the equation, she concludes by saying “I’m still able to take those broke-learned money management lessons with me as I strive to grow my savings, expand my investment portfolio, and create wealth for years to come.”

There’s a lot of very good advice here. We all live through periods of tight money – some of us for a while, others for many long years. If you know exactly what there is to spend on bills each month, and how much you’re earning, you are in command.

And when you get to that period where your income is more than the sum total of your monthly bills, be sure to think of your future. Once your personal finances are running in the black, put away a little of your personal “surplus” to help make life easier for your future self. A great place to stash that extra cash can be the Saskatchewan Pension Plan, where you can start small and build up your savings as your income grows. 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.


June 28: BEST FROM THE BLOGOSPHERE

June 28, 2021

Doing it yourself can lead to missteps, particularly for retirement planning

Let’s face it. More than likely, the person you see in the mirror each morning is also your “retirement planner.” And, writes noted financial columnist Jason Heath, writing in the Sarnia Observer, the best estimates of do-it-yourselfers can often miss the mark.

Here are some things to watch out for.

We may mess up the key question of how much is enough to save, he writes. The math is complicated, he explains. While one might think that one million dollars supports $50,000 a year withdrawals for 20 years, Heath points out that growth has to be factored in.

“$1 million invested at a four per cent return will generate $40,000 in the first year, meaning a $50,000 withdrawal will reduce the account balance by just $10,000. Depending how the money is invested, the investment fees payable, and other factors, $1 million may support $50,000 of annual withdrawals for 30 years or more,” he writes.

Tax rates in retirement are significantly lower in retirement, and most folks overestimate their tax bill. You’ll be earning less so that will chop your tax bill, and “income like eligible pension income, capital gains, and Canadian dividends are eligible for tax credits or reduced income inclusion rates. Married couples can also split income more easily in retirement to minimize their combined family tax,” he writes.

Expenses are usually overestimated. Heath notes that in most cases, once you are retired you won’t be paying off a mortgage, the kids will be educated and gone, and you’ll no longer be saving for retirement.

A common mistake people make is starting their government retirement benefits either at age 65 or earlier. “Deferring CPP or OAS after age 65 results in an increase in both pensions for every month of deferral. Retirees who live well into their 80s or 90s will receive more lifetime pension income for delaying their pensions to age 70 than starting early,” he writes.

Heath cites a 2018 research paper that questions the old “rule of thumb” that your current age equals the percentage of your investment portfolio that should be in fixed income. While he is not advocating going “all in” on stocks, “but holding a low allocation to stocks is unlikely to maximize a retiree’s spending or estate value.’

Lastly, he points out the risk of longevity – most people are living into their 80s, 90s and even beyond. People, he writes, “should plan for a 30-year retirement.”

Most of us boomers were raised by Depression-era parents who were brought up in a “make do” environment where costly things like medical, financial, and even home repair support were automatically shunned. Long-distance phone calls and cab rides were rare events, associated with the annual Christmas phone call to the grandparents or the extremely rare need to take a cab – usually, only done if the car needed to be left at home when travelling by train, for example.

However, we are not jacks and jills of all trades, so getting a little professional advice is not such a bad idea, especially with retirement planning. Why not consider the Saskatchewan Pension Plan – they’ll invest your retirement savings professionally, at a very reasonable cost, and when it’s time to live on those savings, you can choose annuity options that will ensure you never run out of money, no matter how long you live.

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.


June 21: BEST FROM THE BLOGOSPHERE

June 21, 2021

Has the pandemic thrown our financial planning for a loop?

New research from IG Wealth Management, covered recently by the Globe and Mail, suggests Canadians were “ill-prepared” for the effects the pandemic had on their finances.

According to the article, the research shows that only 20 per cent of Canadians said “they have a good sense of their current level of financial well-being.”

An eye-opening majority – nearly three-quarters of those surveyed – confessed they “are not managing debt well,” and few say they stick to a budget. Finally, the research showed that “less than half feel they have the right retirement investing approach and tax strategies in place.”

The article is authored by Dean Murchison, president and CEO of Winnipeg-based IG Management.

After rhyming off the major events with financial impacts in our lives – positives, like getting married, buying a home, having a family and travelling, as well as negatives, such as divorce, job loss, or getting sick or injured, Murchison says good financial planning needs to take into account all these scenarios.

“Any advisor who wants to set their clients up for success must develop a holistic approach to financial planning. That includes incorporating various components such as helping clients manage their cash flow and daily spending, planning for major expenditures, preparing for the unexpected, optimizing taxes and retirement savings, sharing wealth through estate planning and, for entrepreneurs, maximizing business success,” he writes.

Investing tends to be a main focus for financial advisors, but there’s more to think about than just that, Murchison writes.

“Stock markets will go up and down, but a good financial plan keeps clients on course to reach their goals in good times or bad,” he writes.

Such a plan has to guard against what he calls “financial leakage.”

“That can be paying too much taxes, paying too much interest to carry too much debt, paying for things they don’t use (such as subscriptions or memberships), and generally not really knowing where their money goes,” he explains.

Advisors, he believes, need to “resist the urge to focus solely on portfolio management strategy and returns” when meeting clients, and instead, should “learn more about their lives and their goals.” That way, tax strategy, retirement readiness, and estate planning can be factored in, he concludes.

This is good advice. There is much more to retirement savings that the pure act of saving. You’ll need to figure out your income from all sources, and then ensure that it’s enough to cover your post-work expenses. So things like tax planning, which is not that big a deal when you’re working, becomes huge when you’re not.

It’s a lot to think about.

There is a way to offload some of the worries we may have about investing our retirement savings, however. Why not get the Saskatchewan Pension Plan on your side? They’ll invest your retirement savings leveraging investment expertise that has delivered an average rate of return of eight* per cent since SPP’s inception 35 years ago. Be sure to check them out today.

*Past performance does not guarantee future results.

Happy retirement: We want to join everyone at SPP in offering Katherine Strutt, who is stepping down after more than 30 years with the organization, our very best wishes for a long and happy retirement!

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.


June 14: BEST FROM THE BLOGOSPHERE

June 14, 2021

Boomers don’t think they’ll have enough – but aren’t aware of potential healthcare costs in retirement

It’s often said that if you don’t have a workplace pension plan, you will have to fall back on the “safety net” of the Canada Pension Plan (CPP), Old Age Security (OAS) and the Guaranteed Income Supplement (GIS). You’ll be able to augment those benefits with your own Registered Retirement Savings Plan (RRSP) nest egg, the party line suggests.

But new research from HomeEquity Bank and Ipsos, reported on by The Suburban, finds that 79 per cent of Canadians 55 and older “say they can’t bank on RRSPs, the CPP and OAS for a comfortable retirement.”

In short, they don’t think those sources will provide them with as much income as they want.

The survey goes on to note that “four in 10” of the same over-55 group think they may have to “access alternative lending options for their retirement planning toolboxes,” including accessing the equity in their homes via a reverse mortgage.

Traditionally, the article notes, older folks would “downsize” the family home, selling it and buying something smaller and/or cheaper. “That’s long been considered the right thing to do,” the article tells us.

However, states HomeEquity CEO Steven Ranson in the article, “downsizing isn’t as attractive as it used to be. Given the amount of risk associated with moving and finding another suitable home, more than a quarter of older homeowners are considering accessing the equity in their homes instead of selling to help fund their retirements.”

What could be behind this concern over retirement income?

One possibility is the possibility of expensive post-retirement healthcare costs, suggests an article in Canadian HR Reporter.

The magazine cites research from Edward Jones as saying that “66 per cent (of Canadians 55+) admit to having limited or no understanding of the health and long-term care options and costs they should be saving for to live well in retirement.” The article says that the cost of a private nursing home room – on average, in Canada – is a whopping $33,349 per year.

While not all of us wind up in long-term care, one might assume that you want to make sure you still have a little money set aside for that possibility – right?

The Edward Jones survey found that 23 per cent of those surveyed feel their retirement savings will last them only about 10 years, the article notes. Thirty-one per cent don’t know how long their savings will last, the article adds.

This is a lot to take in, but here’s what the survey results seem to tell us. Boomers worry they won’t have enough money in retirement – and many aren’t aware of the huge cost of long-term care late in life. Perhaps those who are aware of long-term care costs are realizing they might run short in their 80s or beyond?

So what to do about this? First, if you can join a pension plan at work, do. Often, your employer matches your contributions, and the income you’ll receive in retirement is worth a small sacrifice in the present.

No pension plan to join at work? No problem – the Saskatchewan Pension Plan has all the retirement tools you need. For 35 years they’ve delivered retirement security by professionally investing the contributions of members, and then providing retirement income – including the possibility of a lifetime annuity – when those members get the gold watch. 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.


June 7: BEST FROM THE BLOGOSPHERE

June 7, 2021

In Japan, has 70 become the new 60?

Here in Canada, 70 is the latest you can start taking your Canada Pension Plan payments, and a date when you can begin thinking about what to do with your registered retirement savings plan.

But in Japan, according to HRMAsia, it’s the new retirement age – up from age 65.

Companies, the magazine reports, will now be “required to retain workers until they are 70 years old.” The reason for this legislative change, we are told, is two-fold. Due to the fact that Japan has a falling birthrate and an aging population, there’s a labour shortage. The aging population is also driving up the cost of pensions, the article notes.

The legislation’s main focus is allowing workers to stay on the job longer. The old retirement age of 65 is no more, the article says, and legislation permits workers to stay on past the new, higher age limit of 70, or to work in retirement as freelancers.

It’s an interesting decision. Here in Canada, there was talk at one time – and later, federal legislation – that would have moved the start of Old Age Security to age 67, for some of the same reasons the Japanese are citing. While the present government reversed this plan, we are now experiencing some of the same issues Japan is experiencing. It’s something to keep an eye on.

Could we see an era of super inflation once again?

When we tell the kids that we once lived through an era where wage and price controls limited our pay raises to six per cent – and where mortgages and car loans had teenage interest rates attached to them – their eyes doubtless glaze over at this litany of impossible-sounding boomer factoids.

Could the crazy interest rates we saw in the ‘80s ever return?

One U.S. professor says yes. Speaking to CNBC in an article carried in Business Insider, Prof. Jeremy Siegel of Wharton says “I’m predicting over the next two, three years, we could easily have 20 per cent inflation with this increase in the money supply.” The increased money supply Stateside is due to “unprecedented” fiscal and monetary stimulus, he states.

Money supply is up 30 per cent since the beginning of 2021.

“That money is not going to disappear. That money is going to find its way into spending and higher prices,” Siegel states in the article.

“The unprecedented monetary expansion, the unprecedented fiscal support, you know, I think excessive, was first going to flow into the financial markets, into the stock market, and then once we’re reopening, and we’re right at that cusp, it was going to explode into inflation,” he concludes.

When you’re saving for retirement, it’s usually a very long-term deal. You may not starting drawing upon any of your savings until you are 70, and there’s a chance you will still be banking on retirement money until you are in your mid-90s. So a balanced approach, a portfolio that has exposure to Canadian and international stocks, bonds, real estate and other sectors is the way to go to avoid having all your nest eggs in the same basket. If you don’t want to take on nest egg management yourself, rest assured that the Saskatchewan Pension Plan is there to manage things for you. Their Balanced Fund has averaged an impressive eight* per cent rate of return since the plan’s inception 35 years go.

*Past performance does not guarantee future results.

Written by Martin Biefer

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


May 31: BEST FROM THE BLOGOSPHERE

May 31, 2021

Will some Canadians stay frugal and keep saving – even after the pandemic?

An interesting report from BNN Bloomberg suggests that a significant chunk of us Canadians plan to carry on being savers – and trimming back on spending – once the pandemic is over.

The report cites recent Scotiabank research, which found that 36 per cent of those surveyed “are planning to eliminate unnecessary spending from their lifestyle,” and a further 28 per cent “will continue to build their emergency fund.”

Scotiabank’s D’Arcy McDonald is quoted in the article as saying there is a “record number of deposits in Canadians’ bank accounts.” He further states that this stash of cash “presents a huge opportunity, especially for the sectors hardest hit by the pandemic, like travel and hospitality.”

In plainer terms, he’s expecting Canadians will spend that cache of cash on things they haven’t been able to do, like jumping on a jet plane, or even taking friends out for dinner. And the research seems to bear that out – but with more than a third of respondents promising NOT to spend money like they did before, and nearly 30 per cent more putting money in long-term savings, one wonders if it will play out like bankers and politicians expect.

A higher savings rate is never a bad thing. As recently as 2017, according to the CBC, the national household savings rate was about 4.6 per cent, and 65 per cent of Canadians said they were saving for retirement.

Jump ahead to 2020, and – according to the National Post – we have a national savings rate of 28.2 per cent, and an estimate cash stockpile of $90 billion. And that number solely looks at savings accounts, the article notes – if invested dollars were counted, the number would be even higher.

Are any of the excess dollars being earmarked for retirement?

It would appear so. According to the Canada Buzz blog, the average registered retirement savings plan (RRSP) balance in Canada is around the $100,000 mark – it averages $92,000 and change in the Prairies and hits $116,000 in Alberta. B.C. weighs in at $96,000-plus and Ontario leads at $128,000.

The pandemic has been a nightmare for some of us, who have seen jobs and paycheques dry up, or who have been forced to close businesses. Retirement savings is of course not a priority for this group. But if you are someone who has managed to keep working throughout the crisis, and have built up some extra savings, don’t forget about your retirement savings account. Those dollars will be handy for the retired, future you.

The Saskatchewan Pension Plan, celebrating its 35th year of operations, is of course a logical destination for any excess cash you may want to earmark for the future. SPP invests the contributions on your behalf, and at retirement, can convert your invested dollars to a retirement income stream. 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.


May 24: BEST FROM THE BLOGOSPHERE

May 24, 2021

TFSAs are great, but may not be ideally suited for retirement savings: MoneySense

Writing in the Toronto Sun, MoneySense writer Joseph Czikk opines that the rise of the Tax Free Savings Account (TFSA) may spell trouble for the venerable Registered Retirement Savings Plan (RRSP).

He writes that the TFSA has been “a huge hit” since its inception in 2009, with more than two-thirds of Canadians now the proud owners of accounts.

“But,” he writes “there’s reason to suspect that the TFSA’s popularity is growing at the expense of the RRSP, and if that’s true, it should lead many Canadians to rethink how they plan to invest for retirement.”

Before 2009, he explains, the RRSP was the chief retirement savings tool for Canadians.

“RRSP contributions aren’t taxable, which incentivizes people to top up the accounts every year. The more money you put into your RRSP, the less tax you’ll pay,” the article notes.

When Canadians stop working, the article explains, they “generally convert their RRSP balance to a Registered Retirement Income Fund (RRIF), which they then draw from to cover expenses.” Money coming out of the RRIF is taxable, but “the idea… is that you’ll probably be in a lower tax bracket in retirement than you were in your career, meaning you’ll get to keep more of the money than you otherwise would have.”

Then, Czikk notes, “along came the TFSA,” which works opposite from an RRSP. No tax break for putting money into a TFSA, but no taxation when you take it out, the article adds.

There are tax penalties for robbing your RRSP savings before retirement, but with the TFSA, not so much.

“You can see how such an account — which could be drawn upon like any bank account and which sheltered capital gains — would become popular,” he writes.

“And so it went. Just eight years after TFSAs came on the scene, their aggregate value rocketed to match 20 per cent of RRSPs, RRIFs and Locked-In Retirement Accounts (LIRAs).”

But, the article says, there are unintended negative consequences with the TFSA.

Quoting The Canadian Tax Journal, the article notes that $4 of every $10 that would otherwise have gone to an RRSP are now going to TFSAs. The number of Canadians contributing to RRSPs is in decline. And, the article says, that’s a problem.

Research from BMO suggests that Canadians need about $1.5 million in retirement savings to retire comfortably, the article says. And while for some a TFSA could get you there, the fact that there are no withdrawal rules is posing problems, the article says.

Prof. Jonathan Farrar of Wilfrid Laurier University is quoted in the article as saying “we’re seeing that … a lot of people are not using it for retirement. People are using the TFSA as a bank account instead of an investment account, from which you make a very rare withdrawal.”

“Part of the genius of the RRSP is how it disincentivizes people from taking money out before retirement. The TFSA lacks that aspect,” the article adds.

If you rob your retirement nest egg before hitting the golden handshake, the article concludes, you’ll have to rely more on government income programs like the Canada Pension Plan and Old Age Security. The government is thinking about creating a TFSA that has withdrawal rules more like an RRSP to address this problem.

Save with SPP once spoke with some Australian colleagues. There, everyone gets put in a mandatory defined contribution pension plan where their employer makes all the contributions. But, as with a TFSA, there aren’t any strict rules on withdrawals – so you could take all the money out and buy a house, for instance. In a strange paradox, a country with one of the highest rates of pension plan coverage has experienced senior poverty and a heavy reliance on the means-test Age Pension – and the lack of withdrawal rules may be to blame.

TFSAs are awesome, for sure, but perhaps not ideally suited for retirement savings. The tried and true approach may be a better path. The Saskatchewan Pension Plan operates similarly to an RRSP, but has the added feature of being a locked-in plan. You can’t crack into your SPP early, meaning there will be more there for you when you don’t have a paycheque to rely on.  Be sure to check out SPP – delivering retirement security for 35 years – 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.