Category Archives: Blogosphere

MAY 11: BEST FROM THE BLOGOSPHERE

Recession, sure – but keep saving what you can for retirement, experts say

Only the very oldest of us will remember times less scary than the spring of 2020, with so much illness, so many folks forced to stop working and stay home, and scary markets for investors.

Many of us are naturally more worried about keeping afloat financially than retirement savings.

However, a report in The Motley Fool blog says that this COVID-19 crisis should not be a reason to entirely give up on retirement saving.

“The coronavirus is driving the global economy into a recession. Stock markets are very volatile and it’s hard to tell where they’re headed. While it’s normal to be worried, you should continue to save for your retirement,” the blog advises.

You should continue to try and set aside “a small portion of your income for retirement savings,” notes the blog. One reason why is that if you don’t put money in a Registered Retirement Savings Plan (RRSP) or registered pension plan, “you my not have as much extra money as you expect… as you’ll get a higher tax bill.”

The Motley Fool agrees with the idea of directing some of any precious extra dollars to an emergency fund in this crisis, “in case you get sick or lose your job.”

But, notes the Motley Fool, those who decided to quit saving for retirement during the last big recession more than a decade ago found themselves far behind those who kept saving and who “stayed on course.”

“A study by Teresa Ghilarducci, director of the Schwartz Center for Economic Policy Analysis at the New School for Social Research, showed the negative impact on those who stopped or decreased their contributions during the 2008-2009 recession. People who came out of the markets sold low and bought high. We have to buy low and sell high to make money,” the blog reports.

“After the Great Recession, 64 per cent of high-income workers and 56 per cent of low income workers saw their accumulated retirement savings increase,” the blog adds.

Let’s recap what the blog is telling us, because there are several moving parts here. Some folks stopped saving for retirement during the last recession, and others sold their investments at the bottom of the market.

But those who kept contributing, and who didn’t sell, saw the value of their investments rise after the crisis was over.

It’s been said that every crisis has a beginning, a middle, and an end. It’s very hard to see the end when you’re at the beginning or even in the middle, but it will come eventually. If you can continue saving, even at a reduced rate, and if you can hold off selling your investments, your future you will thank you for remembering that one day, those savings will be your retirement income.

There’s a great little retirement savings trick that can really work well when markets are low. Say you’re contributing $100 per pay to your retirement account, and let’s say it is a balanced fund, such as that offered by the Saskatchewan Pension Plan. If you continue to chip in the same amount while markets are low, you are essentially buying low, which will help grow your savings when better times return.

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, classic rock, and darts. You can follow him on Twitter – his handle is @AveryKerr22

Apr 27: Best from the blogosphere

The pros and cons of allowing emergency access to retirement funds

It’s been a grim time for all of us, coping with this pandemic, and Save with SPP and everyone at the Saskatchewan Pension Plan hopes everyone is staying safe.

With businesses closing, and the jobless rate rising, some experts are suggesting that raiding the retirement cookie jar be allowed – penalty-free – to help people access savings during the emergency.

Interviewed by Benefits Canada, noted pension expert and actuary Malcolm Hamilton was asked what he thought about a plan by Australia to allow folks there to withdraw up to $10,000 a year from their superannuation plans this year and next.

““It looks to me very creative and very sensible,” Hamilton, also a senior fellow at the C.D. Howe Institute, told the magazine. The magazine notes that the withdrawal option Down Under is open only to people “who are unemployed or who have had their working hours reduced by 20 per cent or more.”

“Telling people you’ve got to leave your money in your pension plan so you have enough money later, when you don’t have enough money now, is really stupid… who, given a choice, would elect to be hungry now instead of hungry later? You have to deal with the immediate needs first,” Hamilton tells Benefits Canada.

Other experts, the magazine reports, agree. Financial author Fred Vettese also sees the Australian policy as a good idea.

“Why not do this? What they’re doing is simply giving people access to their own money sooner. I don’t see anything wrong than that. And they’re not giving them all their money; it’s fairly limited and it’s also under fairly strict conditions,” he tells the magazine.

Other experts see downsides to allowing an early withdrawal of retirement savings.

Bonnie-Jeanne MacDonald of Ryerson University’s National Institute on Ageing tells the magazine she is concerned that allowing emergency access to retirement funds might be “short-sighted.” (Here’s a link to an earlier Save with SPP interview with her.)

“The idea is that this will pass and, if we can get beyond it without tapping into our nest egg, then that’s the better approach because life will need to go on,” she tells the magazine.

And Hugh O’Reilly, a senior fellow at the C.D. Howe Institute, says people who take their money out now, at the peak of a crisis, will be effectively selling low, and will miss out when markets rebound. “I think it’s going to do it much more rapidly than in a typical bear-market scenario,” he tells Benefits Canada.

There are already a few allowable reasons – making a down payment for a home, or paying for education – where Canadians can tap into their Registered Retirement Savings Plans (RRSPs) early. But in both cases, the money is supposed to be repaid, and those who don’t repay are taxed annually on what they should have repaid. And if you just withdraw RRSP money, there’s a withholding tax followed by a possible second tax hit when you file your income tax.

That all said, we have never seen times like these. Maybe the government will decide to permit withdrawals with some sort of repayment option down the road. Save with SPP worries about people taking money out of their retirement savings for other purposes and then not being able to afford to replace it, because that could lead to hardship when they are older.

One great thing about being a member of the Saskatchewan Pension Plan is that it is an open plan. You can decide how much to put into your account, and when times are tough, you can choose to reduce or even stop contributing until better times return.

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, classic rock, and darts. You can follow him on Twitter – his handle is @AveryKerr22

Apr 20: Best from the blogosphere

Stay the course on your retirement savings plans, experts say

If you’re a retirement saver, these past few months of pandemic-related market turmoil have no doubt raised your blood pressure and caused concern.

Experts tell us to take a deep breath, and to remember this crisis will eventually end, and things will move back to normal, reports The Record.

“While many Canadians may be panicking as they watch their retirement funds drop by tens or hundreds of thousands of dollars, financial experts say it’s important to stay the course regardless of how close to retirement they are — and even if they’ve already finished working,” The Record reports.

“I would certainly encourage all of us to take a big collective deep breath,” states Karin Mizgala, co-founder and CEO of Money Coaches Canada, in the article.

If you aren’t planning to access the savings for retirement income any time soon, you should “stay the course” on your retirement plan, Mizgala tells The Record.

And even if you are withdrawing funds from your retirement savings, it’s important to put the market downturn in perspective, financial author Kelly Keehn says in the article.

“It’s not like you have to cash it all out the year that you retire, and I think people forget that,” she tells The Record.

If your funds are in a Registered Retirement Income Fund (RRIF), the federal government is planning to put new rules in place reducing the amount you have to take out. (Full details on this rule change are covered in this article in Advisor’s Edge).

As well, the article says, you can choose to defer your withdrawals until later in the year, when markets are expected to start rebounding.

Noting that markets lost 35 per cent of their value in 2008/9, and then fully recovered and increased in value, Keehn makes an important conclusion.

“The takeaway is: If this was causing you sleepless nights, maybe in the future you need to adjust your risk tolerance and your risk exposure. But it doesn’t mean acting on it now. That’s for darn sure… This is not the time to make those changes,” she tells The Record.

If you are a member of the Saskatchewan Pension Plan, there’s a feature of the plan you should consider if, as Kelly Keehn says, the markets are causing you to worry and lose sleep. With SPP, one of your options at retirement is to receive some or all of your savings in the form of a life annuity. With an annuity, you get the exact same amount each month, regardless of whether markets are up or down. And you’ll get that amount for life – and can provide for your survivors too, if you choose to. It’s an option that offers peace of mind, so check it out on their website 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, classic rock, and darts. You can follow him on Twitter – his handle is @AveryKerr22

Apr 6: Best from the blogosphere

With CPP, the longer you wait, the more you’ll get

For quite some time now, the Canada Pension Plan (CPP) has been available as an early retirement benefit – you can get it, with a reduction for taking it early, at age 60.

But is taking it at 60 the “no brainer” many seem to think it is?

An article in the Flin Flon Reminder suggests otherwise.

The article, quoting financial advisers, says it rarely makes sense to take CPP at 60, and “there are even fewer reasons to start drawing retirement funds while you’re still working.”

“I don’t advise taking CPP until you’re actually retired,” states Willis Langford, a Calgary-based investment planner, in the article. He adds that CPP, along with Old Age Security (OAS), “form the very base of a retirement income plan and you shouldn’t tap into it until you’re ready to start accessing all of your sources of income in retirement.”

Yet, the article notes, about 12.6 per cent of all CPP beneficiaries are taking their benefit early, and face a reduction in the benefit of 36 per cent – “0.6 per cent per each month… before you turn age 65,” the article explains. Those who can wait until age 70 to start CPP get an increase in their benefit of 42 per cent – 0.7 per cent for each month after age 65 that they are not collecting the CPP.

The article explains this with a couple of examples. Someone earning $50,000 a year would get $10,760 in CPP benefits ($897 per month) if he or she starts at age 65. If the same person starts at age 60, they would get “just $551 per month – about $6,600 a year.” As well, if the early collector continues to work while they receive CPP, they would have to make $2,300 a year in CPP contributions.

These extra contributions would boost the CPP benefit at age 65 to $658 a month ($7,896 a year) – still much less than what you get if you start at 65, the article notes. And if the person waits until age 70, he or she would get $1,422 per month ($17,064 a year).

Why, the article asks, do some folks take it early, given all this?

“If you knew you were going to live for a very, very long time, generally you would wait. The longer you wait, the more you would get,” Brad Goldhar of BMO Private Wealth tells The Reminder. “But if you knew at age 60 that your family history suggested not many years of longevity, you might take it early,” he states.

The bottom line – be sure you know the rules for CPP when you’re thinking about taking it.

Similarly, if you are a member of the Saskatchewan Pension Plan, and decide on a life annuity when you retire, be sure to get an estimate. Just like with CPP, the later you start your annuity, the more you will get per month. And generally speaking, more is usually a good thing when it comes to retirement income.

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, classic rock, and darts. You can follow him on Twitter – his handle is @AveryKerr22

Mar 30: Best from the blogosphere

Is Freedom 55 changing to Freedom 70?

Younger people are, for the most part, saving away merrily for retirement. But new research from Mercer, reported on by Benefits Canada, suggests the younger set may be going about things too conservatively.

That, in turn, could force them to keep working until age 70, the article explains.

Why?

“The report found millennials often opt to invest conservatively in low-risk, short-term investments such as money market funds. Using this strategy means many younger workers may not be able to retire until they’re 70,” the magazine reports.

(Save with SPP will remark that at the time of writing, with stock markets making thousand-point daily swings, “low-risk” investments are sounding pretty good.)

However, Benefits Canada reminds us, it’s not short-term results that matter with retirement savings – it’s a long haul from being a perky young person to a grey-haired gold watch recipient. Your rate of return over the long-term, not the short-term, is what really matters.

A more balanced approach, the magazine reports – citing the Mercer findings – such as “a healthy mix of equities and bonds” could allow our millennial friends to log off for the last time as early as age 67.

Equities carry risk, the article notes, but millennials need to aim for a long-term rate of return of six per cent or better to reach retirement savings targets. “A savings rate that’s any lower than six per cent total annual combined employer and employee contributions means retirement may not be possible at all,” Benefits Canada warns.

Other retirement-limiting factors for millennials include debt, paying off student loans, and entering the expensive housing market,” the magazine notes. “Those factors make age 65 retirement very unlikely for most millennials.

It’s a similar story for the slightly older Gen X group, the article reports. Those age 45 should be trying to ensure that they contribute 17 per cent of their gross earnings (this includes their own contributions plus any employer match) towards retirement savings, the article adds.

Even boomers, who generally had better access to workplace pension plans, are going to find it hard to leave work by age 65, Benefits Canada tells us. “One factor delaying retirement age for boomers is the shift from DB to defined contribution plans, requiring a mindset shift many aren’t making, said the report. Also, employers offering less conservative investment vehicles, such as target-date funds, didn’t become commonplace until 2010, which likely proved too late for some boomers,” the article explains.

Do you see the common thread here? Those who save early in a balanced savings vehicle have a better chance of hitting their retirement goals. Those starting in their 40s need to chip in much more, and once you are 60 plus you better hope you have a pension plan at work, because your savings runway is running out of pavement.

It sounds daunting, for sure. But if you are looking for a balanced approach to saving for retirement, the Saskatchewan Pension Plan offers the Balanced Fund, which has averaged an impressive eight per cent rate of return since its inception in the 1980s. With SPP, you decide how much to contribute – you can start small when you’re young, and ramp it up as you get older. Fees are low, and the level of expertise by SPP’s investors high. Be sure to check out SPP today.

Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing, classic rock, and darts. You can follow him on Twitter – his handle is @AveryKerr22

Mar 23: Best from the blogosphere

With retirement savings, you can’t always get what you want

What do Canadians expect they’ll need to save for retirement? And how are they doing when it comes to reaching that target?

Some answers can be found in a new round of research from Scotiabank, which is featured in a story in the Financial Post.

According to the news story, the average Canadian “expects to need a nest egg of $697,000 to retire.” As well, the story informs us, this same average Canuck hopes to punch the clock for the last time by age 64.

The encouraging news from this story is that 68 per cent of Canadians surveyed are saving for retirement. That’s an important start. However, the story continues, 70 per cent of them are worried “they are not saving enough.”

Other troubling findings from the research:

  • just 23 per cent of those surveyed see retirement saving as a top priority, down nine points from 2017
  • 66 per cent are concerned they “have underestimated how much money they will need in retirement”
  • 47 per cent fear they’ll need to rely on their family for financial assistance

In a nutshell, while it’s great that more than two-thirds of us are saving for retirement, we may not be saving enough, not making retirement a “pay yourself first” must-do, and aren’t fully aware of how much we’ll need after we complete working life. That could mean looking to the kids, or very aged parents, for help.

Scotiabank’s D’Arcy McDonald tells the Post that half of those who say they aren’t saving for retirement are younger people, age 18 to 35.

“Younger people may have different priorities at this time in their lives as they strive to get momentum in their careers, pay down student loans, and save for their first homes,” McDonald states in the Post article. “The best advice we can give young Canadians is to start saving early and automate their contributions to make retirement savings an equally important part of their financial plan. The earlier you begin to make retirement savings a priority, the easier it will become.”

The article concludes by offering up this advice. All of us should know our “magic number,” or how much they need to save. This number can be calculated fairly easily if you know your other magic number – how much income you will need to have in retirement. The advice of a financial planner can help you with the math, the article concludes.

If you don’t have a retirement plan at work – or if you do, but aren’t sure it will provide enough – the Saskatchewan Pension Plan can help. You can set up automatic contributions via direct deposit; you can even make contributions with a credit card. And if money is tight at the beginning, you can start small and then ramp up your contributions whenever you get a raise. A “set it and forget it” approach will mean more retirement savings at the finish line, and less stress when you turn in your security pass for the last time.

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, classic rock, and darts. You can follow him on Twitter – his handle is @AveryKerr22

Mar 16: Best from the blogosphere

The big three – divorce, debt and student loans – can hamper your retirement savings efforts

We all like to say that “life gets in the way” is a chief reason why we can’t put money away for retirement.

An interesting piece in Business Insider takes a look at the top three killers of retirement dreams.

First up, the article notes, is divorce. “Divorce impacts all facets of your finances, but it can hit your retirement savings especially hard,” the article notes. That’s because retirement assets, such as retirement accounts and pensions, can be subject to splitting when couples break up, the article explains.

The article, written for a U.S. audience, suggests that retirement accounts “may be divided equally” on marriage breakdown. So you might lose half your nest egg, and if you are the spouse paying support, there’s another expense that can “eat away at your ability to save.”

The article advises those going through a divorce to get their retirement plan rolling again as soon as things have settled.

The second major retirement savings killer is consumer debt, the magazine reports. “While getting out of debt can be tough, it will be even harder to save for retirement with monthly debt payments in the way,” Business Insider tells us. A U.S. study cited in the article notes that 21.3 per cent of those surveyed agreed that consumer debt “prevented them from reaching their savings goals.”

The article suggests focusing on higher-interest credit cards and credit lines first.

Finally, the article says, dealing with student loans is considered the third barrier to retirement. Again, this article is talking about the U.S. situation, but here in Canada, the average student was $27,000 in debt 10 years ago. That number, taken from the Vice.com site is bound to be much higher today. That’s a lot of money for entry-level workers to have to carry.

The article concludes that you can’t predict how your life will go. There’s no surefire way to avoid a divorce, but you can try and limit your consumer debt and where possible, pay down student loans later in life when you are making more.

The article notes that those who start saving for retirement at age 25 tend to have “tens of thousands” more dollars in their retirement plans than those who start at age 35.

If you’re intimidated about taking that first major step into retirement saving, help is on the way via the Saskatchewan Pension Plan. You can start small, perhaps in the days when you’re just starting out and juggling student and other debt, and then ramp up savings when better times arrive. Meanwhile, the experts at SPP are growing your savings for you, at low cost and with an impressive track record of returns. 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, classic rock, and darts. You can follow him on Twitter – his handle is @AveryKerr22

Mar 9: Best from the blogosphere

Retirement saving – starting late is OK, and chipping away at it when you can a must

More and more ink (or more accurately, pixels) is being taken up with worried commentary that Canadians aren’t saving enough for retirement, and that our ship of state is sailing into choppy waters.

But a story by the Canadian Press (CP) that appears on MSN News suggests that there’s no need to panic – but there is a need to plan.

The story quotes Dilys D’Cruz of Meridian Credit Union as saying “if you’re 50 you still have 21 years left to contribute (to an Registered Retirement Savings Plan (RRSP)), it is not as dire as you might think.”

D’Cruz tells CP that while people “may be afraid to look at the numbers,” it’s best, as a first step, to get a financial planner and put together a plan.

Take stock of what retirement savings you have, she says in the article. Do you have a workplace plan from current or past employment? Do you have RRSPs?

Next, she tells CP, you need to consider “what you want your retirement to look like” before doing the plumbing work on your plan. “Do you want that big lavish lifestyle of travelling or is it maybe a quieter lifestyle that you want, what does it mean for you,” she says in the article.

The article cites recent research from Scotiabank that found that while 68 per cent of Canadians say they are saving for retirement (62 per cent of those age 18-34 are saving, versus 74 per cent of those aged 35 and 54), only 23 per cent say retirement saving is their top priority.

TD’s Jenny Diplock, also quoted in the article, agrees, saying that while the general rule of thumb for retirement saving is to start as early as you can, “starting at a particular age may not be realistic for some folks.”

She also suggests having a financial plan, but adds that once you commit to saving, the best way to go is to make it automatic. This will “help cement the habit,” the article explains.

As well, when a cost ends – when you stop paying daycare, or a mortgage – that’s a good time to direct more money to retirement savings, the article suggests.

“As your life situation changes and there are changes in your personal circumstances, you may find that you have additional cash flow that can be used to complement your savings plan,” Diplock tells CP.

Summing it all up, it appears the worst thing you can do about retirement savings is to do nothing at all. Save what you can when you can, and ramp up savings as living costs – debt, housing, childcare – fall by the way. As each impediment to saving falls by the way, your freed up cash can be put to use for your retirement plan.

If you’re not someone with a workplace pension plan – or if you are, but want to supplement those savings – an ideal vehicle is the Saskatchewan Pension Plan. You have flexibility with SPP – if you can only contribute a little bit in a given year, you can contribute more later; contributions are variable up to an annual limit of $6,300. Be sure to visit SPP’s site to learn more!

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, classic rock, and darts. You can follow him on Twitter – his handle is @AveryKerr22

MAR 2: Best from the blogosphere

New NIA study says we may need to work longer before retiring

New research from the National Institute on Ageing (NIA) entitled Improving Canada’s Retirement Income System sheds some new light on the age-old question of when to retire.

Writing about the research for the Advisor, James Langton sums up the study, by noted retirement experts Keith Ambachtsheer and Michael Nicin, this way – “greater pension coverage, higher savings and longer working lives will all be needed to ensure an adequate retirement for Canada’s aging population.”

The paper, reports the Advisor, warns that “retirement is getting more expensive and harder to achieve.”  The research found that the cost of long-term care in Canada will “triple to $71 billion in the next 30 years.”

So the costs of looking after older folks are going through the roof at a time when “pension coverage has steadily declined, and private saving is proving harder to achieve amid rising costs for housing, education and childcare,” the Advisor notes, again quoting the NIA paper.

The authors of the study also note that even those who do save are doing so in less favourable conditions, the Advisor tells us. “Today, we face historically low bond yields and uncertain equity returns in the face of climate change and political turbulence across the world. This means retirement savers may not get as much help from favourable financial markets as they did in the post-World War II decades,” the Advisor states, quoting from the paper.

The paper reaches the conclusion, the Advisor reports, that three important public policy considerations need to be met. Pension coverage must be increased, savings rates need to be boosted, and there needs to be thought given to ways to incent people to work longer.

Commenting on the same report in a Globe and Mail opinion column, the NIA’s Dr. Bonnie-Jeanne MacDonald elaborates further on these ideas.

“Canada can better keep up with the retirement income systems of other countries by improving the labour-force participation of older workers,” she writes.

“Having more older Canadians working will also increase tax revenue. With Canada’s aging population, it will help ease shortages in labour and skills supply as baby boomers contemplate their exodus from the work force over the coming decade.”

Working later also has an impact on saving, she notes. “If you work longer, you’ll need to save less for retirement. Every year you delay your retirement is one fewer year you’ll need to draw on your savings, and one more year for those savings to grow,” she explains in the Globe article.

The takeaway here is this – you may live for a long time. If you don’t have a workplace pension, you will have to save on your own for retirement. If you haven’t saved enough, you will have to work longer than you planned.

A step you can take on your own to address this problem is joining the Saskatchewan Pension Plan. This is a great resource if you don’t have a workplace plan or are not sure how to invest. SPP does the heavy lifting for you, growing your savings at a very low cost (and with a great track record) and then turning those savings into an income stream at the time you leave the workforce. It’s never too late to get cracking on saving, so 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, classic rock, and darts. You can follow him on Twitter – his handle is @AveryKerr22