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May 22: BEST FROM THE BLOGOSPHERE

May 22, 2023

`”Hyperbolic discounting,” other mental factors block us from saving

Writing for MSNBC, Jasmin Suknanan asks why it’s so easy for most of us to think hard about tomorrow, but less so about the weeks and years that come after that.

“Psychology is often just as important in personal finance as the numbers — the way we save, spend and invest are all influenced by the way we think and feel, especially when it comes to preparing for future events like retirement,” she writes.

We know, she continues, that saving for retirement is important “because you’ll need a nest egg when you’re no longer working. The best way to guarantee an income when you’re in your golden years is to save and invest as much as you can now while you are still working.”

So, we all get it — why don’t we all get going on it? Suknanan points to a number of causes.

First, she writes, we tend not to make too many decisions with the distant future in mind.  “It’s easy to feel like retirement is so far into the future and that we have plenty of time before we need to start preparing for it. As a result, many would rather treat themselves to things they can enjoy right now instead of stocking away money for a future that’s decades away,” she notes. This process is called “hyperbolic discounting.”

Simply put, we’d rather spend $5 today than save $10 for next week. Living in the now.

Next, she explains, “it’s easier to do nothing than it is to make a change.”

Even when you know you have to start your retirement savings program (this article is written for a U.S. audience, but here, let’s talk about starting a registered retirement savings plan or Tax Free Savings Account), it is easy to put off actually doing anything, the article tells us.

“’I’ll do it tomorrow’ becomes `I’ll do it this weekend,’ which then becomes `I’ll do it next weekend.’ Before you know it, you’ve gone a month or more and still haven’t opened up your… account. And this doesn’t just occur when it comes to saving for retirement; we’re certainly guilty of repeating this thought process for just about any task — returning a package for a refund, cleaning our room or even cancelling subscriptions and memberships,” she writes.

She notes that opening up a retirement savings account is not some big event that takes days — it can take minutes. As an example, here’s how to sign up for the Saskatchewan Pension Plan (SPP).

The final problem — also a perception-based one — is where we “underestimate how long it will take for us to achieve our desired savings,” Suknanan writes.

“Many people put off saving for retirement until their 30s or 40s thinking that they should be able to amass as much as they’ll need for their golden years in just two decades. But once they factor in their current expenses and financial obligations, they find that it’ll actually take a lot longer than they initially believed to build a comfortable retirement fund,” she explains.

“Saving for retirement is one of the most crucial financial steps you’ll need to take. Taking steps to save today can guarantee you an income in retirement when you’re no longer working,” she concludes.

This is a great article on many levels. Given the fact that the majority of Canadians don’t have a workplace pension plan, the onus for saving for retirement tends to be solely on your own shoulders. Fortunately, the SPP can equip you with all the tools you need to get the job done. Signing up is easy, and you decide how much to contribute. You can automate your contributions via pre-authorized payments, or set up SPP as a bill via online banking. You can even contribute via credit card.

SPP takes those contributions, invests them professionally in a pooled fund at a low cost, grows your nest egg, and helps you convert it to income in those faraway days of retirement. Check out SPP today!

Have you heard the news? Contributing to SPP is now easier than ever. You can now contribute any amount per year up to your available registered retirement savings plan (RRSP) room. And if you are transferring funds in from an RRSP to SPP, there is no longer an annual limit — you can transfer any amount into your SPP nest egg. Saving with SPP is now limitless!

Join the Wealthcare Revolution – follow SPP on Facebook!

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 15: BEST FROM THE BLOGOSPHERE

May 15, 2023

More than half of us fear our retirement plans are in trouble: Scotiabank survey

A new survey from Scotiabank finds that 59 per cent of us are feeling “negative” about our investments, up from just 33 per cent in a similar survey carried out last fall.

Highlights from the Scotiabank Global Asset Management Investor Sentiment Survey were reported upon in a recent Windsor Star article.

“Investors’ top five perceived risks to their portfolios over the next couple of years were an economic recession (61 per cent), rising inflation (58 per cent), stock-market volatility (46 per cent), rising interest rates (40 per cent) and global geopolitical risk (37 per cent),” reports the Star.

The article says the lack of a written financial plan may also be a source of “angst.”

“These results indicate that investors have current concerns about meeting their retirement goals, however, regular meetings with financial advisers and having a written financial plan diminish those concerns,” Neal Kerr, head of Scotia Global Asset Management, states in the article.

The article then creates a link between having a financial plan, and being confident about retirement.

A different survey from the Bank of Montreal found that “52 per cent of women are confident about retiring at their target age compared to 68 per cent of men,” the Star reports.

That same survey found that 73 per cent of women surveyed don’t have a financial plan, compared to 64 per cent of men, the newspaper reports.

As well, the Star report notes, 87 per cent of women surveyed “reported having a fear of unknown expenses,” and 63 per cent “had anxiety about keeping up with their monthly bills.”

“Financial planning and financial literacy are imperative when navigating finances to ensure customers are making real financial progress,” states BMO’s Gayle Ramsay in the article. “With most women reporting they have no financial plan in place, they can start to alleviate their anxiety and take control of their finances by evaluating their budgets, adjusting spending habits accordingly and committing to a savings and retirement plan,” she tells the Star.

So let’s tally up what we’ve learned here. Canadians worry about how their investments are going in this volatile era, but as well, they haven’t planned out what life in retirement will be like so they are worried about that as well. In short, they don’t know how much they’ll have to spend in retirement, and aren’t sure how much it will cost.

The advice we received from an actuary friend as we rolled into retirement was not to fixate on the difference between our gross work pay and gross pension amount, but to do a net-to-net comparison. This was good advice; our income dropped by more than half but our tax bill was far lower. Other deductions we faced while working disappeared in retirement, such as pension contributions, EI, and so on, and our commuting bill for trains and parking fell to zero.

The article is correct in underlining the importance of a financial plan. That plan should take into account what all your sources of income will provide you in retirement, including government benefits, workplace pensions and personal savings.

That’s one side of the balance sheet. You should then take an honest look at the costs you will be facing in your life after work. If your income is more than enough to cover your costs, hooray! If not, you may need to tweak a few things to get yourself there, such as going to one car, or working part-time in retirement, or even downsizing to a smaller home or community.

It’s still all about living within your means.

According to Statistics Canada, 6.6 million Canadians have are covered by registered pension plans as of January 2021. That sounds good until you realize that the country’s population is approaching 40 million.

So the majority of us don’t have a pension at work. Fortunately, there’s a solution for any Canadian with available registered retirement savings plan (RRSP) room — the Saskatchewan Pension Plan. SPP is a one-stop shop for investing and growing your savings, and helping you convert it to income when you retire. Find out how SPP has been delivering retirement security for more than 35 years, and check them out today!

Breaking news — contributing to your SPP account is easier than ever. You can now contribute any amount per year up to your available RRSP room. And if you are transferring funds into SPP from an RRSP, there is no longer an annual limit — you can contribute any amount! The retirement future with SPP is now limitless.

Join the Wealthcare Revolution – follow SPP on Facebook!

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 8: BEST FROM THE BLOGOSPHERE

May 8, 2023

Experts call for higher RRSP limits, and a later date for RRIFs

Writing in the Regina Leader-Post, a trio of financial experts is calling on Ottawa to make it easier for Canadians to save more for retirement — and then, on the back end, starting turning savings into income at a later date.

The opinion piece in the Leader-Post was authored by William Robson and Alexandre Laurin of the C.D. Howe Institute, and Don Drummond, a respected economist who now teaches at the School of Policy Studies at Queen’s University in Kingston, Ont.

Their article makes the point that our current registered retirement savings plan (RRSP) limits need to be changed.

“The current limit on saving in defined-contribution pension plans and RRSPs — 18 per cent of a person’s earned income — dates from 1992,” their article notes. While that 18 per cent figure may have been appropriate 30 years ago, “now, with people living longer and with yields on safe investments having fallen, it is badly out of line with reality,” the authors contend.

They recommend gradually raising the limit to 30 per cent of earned income through a four-year series of three per cent increases, the Leader-Post article notes.

While an RRSP is for saving, its close cousin, the registered retirement income fund (RRIF) is the registered vehicle designed for drawing down savings as retirement income. The trio of experts have some thoughts about RRIF rules as well.

The current RRIF rules compel us to “stop contributing to, and start drawing down, tax deferred savings in the year (Canadians) turn 71,” the authors note. This rule was also established in the early 1990s, they note.

“As returns on safe assets fell and longevity increased, these minimum withdrawals exposed ever more Canadians to a risk of outliving their savings,” the authors explain. They are calling for a reduction of the minimum withdrawal amount by “one percentage point, beginning with the 2023 taxation years, and further reduce them in future years until the risk of the average retiree depleting tax-deferred savings is negligible.”

OK, so we would raise RRSP contribution limits, and lower RRIF withdrawal amounts. What else do the three experts recommend?

They’d like to see it made possible for Tax Free Savings Account (TFSA) holders to buy annuities within their TFSAs.

“When an RRSP-holder buys an annuity with savings in an RRSP, the investment-income portion of the annuity continues to benefit from the tax-deferred accumulation that applied to the RRSP. But TFSA-holders cannot buy annuities inside their TFSAs, which means they end up paying tax on money that is intended to be tax-free. This difference disadvantages people who would be better off saving in TFSAs and discourages a much-needed expansion of the market for annuities in Canada,” they write.

Save with SPP has had the opportunity to hear all three of these gentlemen speak out on retirement-related issues over the years. They’ve put some thought into providing possible approaches to encouraging people to save more, making the savings last, and to make the TFSA into a better long-term income provider. Under new rules, you can now make an annual contribution to SPP up to the amount of your available RRSP room! And if you are transferring funds into SPP from an RRSP, there is no longer a limit on how much you can transfer! Check out SPP today — your retirement future with the plan is now limitless!

Join the Wealthcare Revolution – follow SPP on Facebook!

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 1: BEST FROM THE BLOGOSPHERE

May 1, 2023

Study finds support for more in-plan DC decumulation options: PIMCO

A recent study from PIMCO Canada has found that consultants, advisors and plan sponsors serving the defined contribution (DC) sector feel plan retirees should have more “in-plan” options for the decumulation, or drawdown stage.

The study was designed to help industry supporters “understand the breadth of views and consulting services within the Canadian DC marketplace,” PIMCO’s media release notes. The study, released earlier this year, asked questions of “12 major recordkeeping, consulting and advisory firms that serve roughly 36,000 Canadian clients,” the release continues.

A whopping 92 per cent of respondents “believe retirees should be able to remain in plan with investments that suit their needs,” the release notes. All respondents believe that “recordkeepers should offer and support in-plan decumulation options.”

A bit of background here. A DC plan typically has two phases in its working lifetime. There is an “accumulation” phase, where savings are collected and then invested for the future.

When the individual decides to turn those savings into an income stream, it is called the “decumulation” or “drawdown” phase.

Typically, the options for a retiring member are to convert some or all of their money to an annuity, which provides them a monthly pension for life, or to continue to invest the savings in a registered retirement income fund-type vehicle, where they are required to withdraw a set amount each year. All of these options are designed to provide a retired person with income from their savings.

So the research suggests that there’s a strong interest in having people keep their savings within their DC plans when it’s time to collect the income, versus transferring it out.

Other study findings looked at how the DC plan’s investments should be managed.

Interestingly, 91 per cent of respondents thought exposure to equity markets (like stocks) was “extremely important or very important” for DC plans to offer. That’s up 27 per cent over 2021, PIMCO’s release notes.

At the same time, 82 per cent of respondents feel inflation protection is an important investment objective, while 54 per cent felt capital preservation was also an important consideration.

Thinking about decumulation-related investing, the majority thought a “target date fund” approach, where one’s exposure to equities is reduced every year you get older, was the top approach. Annuities were favoured by 27 per cent of respondents as a good decumulation approach.

It’s clear that figuring out how to turn savings into income is a top concern among those who are running/consulting on DC plans — “100 per cent of respondents are either recommending or currently evaluating new investments designed for retired participants.”

This is all pretty technical-sounding, but is less complex than it sounds. Saving is something we understand — think of money going into an account that is then invested. The trickier part is drawing it down, because you want to get an income from the savings without running out of money. So you don’t want to take out too much at the front end of retirement in case you run out at the back end.

The simplest way to make sure your piggy bank is never completely empty is to consider annuitizing all or some of your retirement savings. This is an option offered by the Saskatchewan Pension Plan. If you choose this for some or all of your savings, you’ll get a payment on the first of the month for the rest of your life from SPP. Check out SPP’s retirement income options today! Also new — the rules for contributing to SPP have changed. You can now contribute any amount annually up to your registered retirement savings plan (RRSP) contribution limit. And, if you are transferring funds from an RRSP into SPP, there is no longer an annual limit on how much you can transfer! Your retirement future with SPP is now limitless!

Join the Wealthcare Revolution – follow SPP on Facebook!

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.


Apr 24: BEST FROM THE BLOGOSPHERE

April 24, 2023

98 per cent of workers say employers should offer a workplace pension

It’s unanimous! Or about as close as you can get to that.

An impressive 98 per cent of U.S. workers polled by Vestwell, Inc. say “it’s important for their employer to provide a retirement savings plan,” reports Benefits Canada.

The survey also found that “nearly half (47 per cent) of workers listed retirement as their number one savings goal,” the magazine reports, adding that paying off debt was seen as the top priority by 34 per cent of respondents.

There were some other interesting survey findings, Benefits Canada adds.

“While two-fifths (40 per cent) of employees said a higher salary would encourage them to contribute to a workplace retirement plan, others cited a higher employer-matching contribution (28 per cent), better financial education (eight per cent) and paying off personal debt (six per cent) as motivating factors. Just 12 per cent said nothing would motivate them and six per cent cited other motivations,” the magazine reports.

The vast majority of respondents (91 per cent) wanted employers to offer a program that offered “a guaranteed lifetime income stream, such as a deferred annuity.” Only 40 per cent of employers wanted their retirement programs to deliver guaranteed income.

It would seem that saving on their own is seen as difficult by American workers. Seventy-six per cent of those surveyed “reported some level of stress regarding their financial situation, including two-thirds (66 per cent) who agreed that inflation and market volatility has increased their previous levels of financial stress,” Benefits Canada reports.

Despite this, 48 per cent of employees agree they should be saving more.

Finally, 90 per cent of employees wanted their employers to deliver some sort of “retirement education,” and more than half (59 per cent) “agreed or strongly agreed that companies should have responded to the `Great Resignation’ with a more hands-on approach to providing retirement information,” the article notes.

It is very encouraging to see a survey report that retirement saving is seen as a top priority, and that employers should offer some sort of retirement savings program. This seems to us like a cry for help from workers on the whole retirement savings issue; it may be too daunting and complex for people to save on their own.

It’s also interesting that most respondents want some sort of guarantee around the income they get from their workplace retirement savings program. If your workplace retirement savings program doesn’t offer guaranteed income on retirement, but a lump sum, you can achieve a guaranteed income stream through the purchase of an annuity with some or all of the savings.

If you don’t have a workplace retirement savings program, the Saskatchewan Pension Plan may be able to provide some help. You can join SPP as an individual — the plan is open to any Canadian with registered retirement savings plan room. SPP will invest your savings at a low cost in a professionally managed, pooled fund, and at retirement your income options include choosing from a stable of lifetime annuities.

Alternatively, your employer can choose to offer SPP as a retirement benefit. If there’s interest at your organization, here’s where you can find out more details.

Join the Wealthcare Revolution – follow SPP on Facebook!

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.


Apr 17: BEST FROM THE BLOGOSPHERE

April 17, 2023

RRSPs are still the best way to save for retirement: Golombek

At a time when many observers are saying the venerable registered retirement savings plan (RRSP) has been surpassed by other, newer savings products, noted financial writer Jamie Golombek begs to differ.

Writing in the Strathroy Age Dispatch, Golombek notes that some retirement commentators are asking if the RRSP “still has merit.”

“Let me try to un-muddy the waters by suggesting that RRSPs are likely the best way for many Canadians to save for retirement. After all, an RRSP, just like a tax-free savings account (TFSA), allows us to earn effectively tax-free investment income. And that’s not a typo: tax free, not merely tax deferred,” he writes.

So how is an RRSP tax-free? Golombek explains.

“If you go back to basics, and really think about what’s happening with an RRSP contribution, you will soon realize the investment return on your net RRSP contribution is mathematically equivalent to the tax-free return you could achieve with a TFSA, ignoring, for now, changes in tax rates. And, provided the time horizon is long enough, RRSPs can beat non-registered investing even if your marginal tax rate is higher in the year of withdrawal than it was when you contributed,” he writes.

He gives the example of Sarah, who has a marginal tax rate of 30 per cent and puts $1,000 into an RRSP.

“Applying (an) … annual rate of return of five per cent over the next 20 years, with no annual taxation, Sarah will be able to accumulate an RRSP worth $2,653. But, alas, not all the RRSP funds are hers to spend. The piper must be paid. When Sarah withdraws the $2,653 from her RRSP, and assuming her marginal tax rate is still 30 per cent, she will pay $796 in tax, netting her $1,857 after tax from her RRSP. This is equivalent to a five-per-cent annual after-tax rate of return on her $700 net initial investment ($1,000 contribution less $300 in deferred taxes on that initial investment),” he writes.

“In other words, Sarah’s after-tax rate of return of five per cent is exactly equal to her pre-tax rate of return, meaning she essentially has paid no tax whatsoever on the growth of her initial $700 net RRSP investment for 20 years. The RRSP allowed her to save for retirement on an effectively tax-free basis,” he explains.

If your marginal tax rate when you retire is lower than it was when you put the money in, you get an additional tax advantage, Golombek concludes. Did you know that the Saskatchewan Pension Plan operates very much like an RRSP? The contributions you make are tax-deductible, so you may get a nice little tax refund as a pat on the back for making regular SPP contributions. Check out SPP today!

Join the Wealthcare Revolution – follow SPP on Facebook!

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.


Apr 10: BEST FROM THE BLOGOSPHERE

April 10, 2023

Aim for two-thirds of your retirement income to be guaranteed

There’s a new rule of thumb for retirement planners, reports Nicole Spector, writing for Yahoo! Finance.

While you would need a lot of hands to cover off all the various retirement rules of thumb out there, this one is refreshingly simple. It’s called the “two-thirds retirement plan.”

“With the two-thirds retirement plan, guaranteed retirement income (i.e., Social Security, pensions and annuities) is used to pay for two-thirds of living expenses during retirement. The additional third of living expenses is funded via non-fixed income (e.g., investments and retirement savings),” she writes.

Let’s Canadianize this. With this plan, your guaranteed income, such as money from the Canada Pension Plan (CPP), Old Age Security (OAS) or other government benefits — along with workplace pension income and any annuities you buy — is used to pay two-thirds of your retirement living expenses. The rest comes from other retirement savings, such as money from a registered retirement income fund (RRIF), your Tax Free Savings Account (TFSA) or non-registered investments and savings.

The article encourages readers to “do the math” to see how this idea would work for them.

“Add up the total amount of guaranteed income you expect to receive in a month,” suggests financial coach Michael Ryan in the article. “Next, estimate your monthly living expenses, including everything from housing to food… (and) leisure activities. Multiply your total monthly expenses by two-thirds.”

This sort of estimate, the article explains, is relatively easy to do if you are already retired, but harder to estimate if your golden handshake is years or decades away.

“I tell every person I work with to pretend that tomorrow is their retirement day,” Robert Massa of Qualified Plan Advisors tells Yahoo! Finance.

“If they want to live just like they are living now, they need to pay themselves at least 80 per cent of their regular paycheque in order to maintain their standard of living,” he states.

“From there, they have a basis to work with and then they can start to ask themselves what else they want from retirement and add those costs in. Then you can project forward using inflation and come up with a monthly and annual income goal and work from there,” he adds.

If, after doing the math, you don’t think government benefits will cover off two-thirds of your retirement living expenses, you need to consider finding other sources of guaranteed retirement income, the article adds. This can be done, the article notes, through converting some of your retirement savings to a lifetime annuity when you retire.

The article concludes by recommending that everyone have a good financial plan in the present — this will make us more aware of how and where our income is being spent and what we will need in the future, when we retire. And while two-thirds is a target, the closer you can get to a plan where guaranteed income covers off all of your expenses, the better, the article concludes.

An additional benefit of guaranteed fixed income — you can never run out of it, as it is paid to you for as long as you live.

Having fixed retirement income is an option for any member of the Saskatchewan Pension Plan. When it comes time to convert your savings into income, SPP’s stable of annuities is among your options. You can convert some or all of your savings to an annuity, which will land in your bank account on the first of every month for the rest of your life. Check out SPP today!

Join the Wealthcare Revolution – follow SPP on Facebook!

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.


Apr 3: BEST FROM THE BLOGOSPHERE

April 3, 2023

Could our own preconceptions be holding us back on money sensibility?

Writing for The New York Times, Kristin Wong reports that our own brain — and specifically, our thoughts — may be holding us back from being successful with money.

Her column reveals five ways where how we think tends to impact (negatively) our finances.

The first, she writes, is the “present bias.”

“This bias describes our tendency to overvalue the present, often at the expense of the future,” she explains. In plainer terms, this is YOLO (you only live once) thinking, Wong clarifies — that we don’t want to miss out on today’s fun, even if it is costly.

Wong cites a study by the University of Rhode Island that found that this “live for today” thinking “poses significant challenges to saving money,” and “often leads to overspending.”

Next, she writes, is “status quo” thinking, or “reluctance to change.”

“We prefer our current state of existence, so doing anything that might disrupt it — from paying off debt to rebalancing an investment portfolio — feels daunting and uncomfortable,” she writes. This change resistance, she continues, can “make it hard to build good financial habits because we assume we’ll have to make significant changes in order to do so.”

Many people, the article notes, imagine they will have to “cancel all your subscriptions,” or resort to eating only ramen noodles, and not taking vacations, “ever,” as a consequence of saving money. Instead, the article advises, “start small,” and automate savings “as much as possible.”

The third bias is “the optimism bias,” in which “when we think about the future, we tend to assume it will be better than the present,” Wong writes. A study from 2014 found that this bias can lead to people saving “less money when they assume the future will be optimistic.” For saving, this bias translates into people, “even those approaching retirement, neglect(ing) saving because they assume they’ll be in a better position to do so later.”

Instead, the article suggests, it’s better to assume the future will be more like the present — this attitude seems to encourage people to save more.

The fourth bias is “the bandwagon effect,” or “keeping up with the Joneses,” the article explains. This is “our tendency to make decisions based on what we see others doing.” The article cites the example of a woman whose credit cards were getting higher and higher balances. But, she tells the Times, “everybody we knew had credit cards and nobody was worried about paying them off. I saw my friends buying everything they wanted, and I wanted to fit in and do the same.”

To counter this bias, you need your own financial plan that is based on what you and your family want, rather than the fancy neighbours, the article explains. “When you have something meaningful to work toward, it’s easier to counteract this bias,” the article explains.

Finally, the “anchoring effect” is a bias that tends to make us “latch on to the most recent information presented to us.” In other terms, the first idea thrown out to you when thinking about financial products may be the one that sticks in your mind, even when other ideas are better. A 2022 study, the Times reports, found that those with low levels of financial literacy “are more prone to the anchoring bias.”

This is a great and very insightful article.

It’s easy, and frankly, more fun to have bad spending habits. Party like there’s no tomorrow, sure, but then you shouldn’t be surprised when you can’t afford to pay your bills. And you may feel stuck in that “paycheque to paycheque” rut, and think change is not possible. But, as the article says, you can start this long journey of change by taking small steps — being conscious of what you are spending money on, planning and budgeting, and tip-toeing into long term savings by starting small.

With the Saskatchewan Pension Plan, there are no “mandatory” contribution levels. You can contribute any amount you want to your pension plan each year, up to a maximum of $7,200. If you want to automate those contributions, you can set up pre-authorized withdrawals from your bank account that directly add to your SPP retirement savings nest egg. Check out SPP today.

Join the Wealthcare Revolution – follow SPP on Facebook!

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.


Mar 27: BEST FROM THE BLOGOSPHERE

March 27, 2023

Which is best for retirement savers — an RRSP or a TFSA?

Writing in the Toronto Star, Ghada Alsharif takes a look at the question of choosing the right vehicle for you when it comes to retirement savings.

She says both a registered retirement savings plan (RRSP) and tax-free savings account (TFSA) can help you save on taxes while you save for retirement, but that they work differently.

“RRSPs offer a tax deduction when you contribute but you pay tax when money is withdrawn. On the other hand, TFSAs offer no upfront tax break but you don’t have to pay tax on withdrawals. Both accounts help you reach your savings goals faster than a regular savings account because both grow tax-sheltered,” Alsharif explains.

Her article quotes Jason Heath of Objective Financial Partners as saying that choosing between the two options may be decided by how much you make.

If, Heath states in the article, you have “high income it’s a good time to contribute to a RRSP if you expect to pull the money out at a lower tax rate in the future. That’s not often the case for a young person who’s just getting started at their first job or is working part time, doing schooling and getting established in their career.”

A TFSA is better for lower income earners, who are taxed less on their income. Funds within the TFSA grow tax-free and aren’t reported as taxable income when they come out, the article explains.

A chart in the article shows the correlation between income and which savings vehicle people choose. The TFSA is preferred by the vast majority of those earning $49,999 or less, the Star reports. It’s more of a 50-50 choice for those earning between $60,000 to $89,999, but RRSPs predominate among those earning $90,000 and above.

“The drawback to contributing to a RRSP is someday you’re going to pay a tax on those withdrawals. That’s why it’s important to make sure when you’re putting money in, you’re getting a large tax refund to make it worth paying tax on the withdrawals someday,” Heath states in the article.

Our late father-in-law had an interesting use for his TFSA. When he was required to make withdrawals from his registered retirement income fund (RRIF), he would pay the taxes on the withdrawal, and then reinvest the balance in the TFSA. The income from the TFSA would gradually increase and is of course tax free.

A problem with both the TFSA and the RRSP is that you can tap into the money before it’s time to withdraw it as retirement income. There are tax consequences for raiding your RRSP piggy bank, but none with the TFSA. A nice way to avoid dipping into your savings is by opening a Saskatchewan Pension Plan account. SPP is locked-in, meaning you can’t help yourself to your savings until you’ve reached retirement age. Your future you will appreciate that!

Join the Wealthcare Revolution – follow SPP on Facebook!

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.


Mar 20: BEST FROM THE BLOGOSPHERE

March 20, 2023

Expensive housing costs has a growing number of adult kids living with their folks

The current high rate of inflation is driving up borrowing costs, making today’s costly houses even more out of reach for first-time homebuyers.

And that’s leading to a growing number of young people having to live at home with the folks, even into their 30s, reports The Daily Hive.

Writer Sarah Anderson notes that “close to a million households in 2021 were `composed of multiple generations of a family.” That represents seven per cent of Canada’s total population, the article reports.

A significant number of young people live with their parents, the article continues.

Citing Statistics Canada information, the article notes that “the share of young adults aged 20 to 34 living in the same household with at least one of their parents was unchanged from 2016 to 2021,” and is 35 per cent.

What’s different is that the “kids” living at home are getting older, the article reports. “Forty six per cent of young adults who lived with their parents (in 2021) were aged 25 to 34, compared to 38 per cent in 2001,” The Daily Hive reports.

The article lists six programs the feds are offering to try and make it easier for younger folks to get into the housing market, including a new tax-free savings account for prospective home buyers.

The article also mentions a new program that provides up to $7,500 in tax credits for those making their homes “multi-generational,” but makes it clear that this is most likely designed for younger homeowners who want to create a living space for their parents in their home, rather than the other way around.

Daniel Foch of the Canadian Investor Podcast is quoted at the end of the article as saying more needs to be done to get young people into their own homes.

“Canada could ultimately be heading for a low-ownership housing model as more people are marginalized out of ownership. This really signals that we’re starting to see the end of the Canadian dream of homeownership unless something changes,” he tells The Daily Hive.

Saving up for a down payment is a big priority for many young people. But putting aside a little money for retirement as well is never a bad idea. In these days of higher inflation, where groceries and gas seem to cost a small fortune, it may be a little tougher to find those dollars to save. But you can always start small.

The Saskatchewan Pension Plan, open to any Canadian with registered retirement savings plan room, lets you make tax-deductible contributions at any level you choose (up to $7,200 annually), either by setting up SPP as a bill for online banking or by using a credit card. If money’s tight, keep contributions small — you can always ramp them up later! Check out SPP today!

Join the Wealthcare Revolution – follow SPP on Facebook!

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.