Things to start getting rid of before retiring

An article by Gabrielle Olya, writing for GoBankingRates via Yahoo! Finance, notes that when we retire, we tend to downsize, both in terms of our living space and – for nearly all of us – our income.

Her article identifies 25 things we can sell prior to retiring, in light of the twin truths that we may not only be living in smaller quarters, but with less income.

First, she suggests, is your home. By selling off your current abode, “you can use the funds to buy a smaller place or put the money toward rent and deposit any leftover money into savings. Downsizing your home can not only save you money, but it also can save time and effort because you have a smaller property to maintain.”

You won’t, she continues, need your fancy work clothes anymore, and may be able to get some dollars for them at a consignment shop. With more time and workout options at hand, maybe the home gym equipment can be sold off as well, Olya writes.

Another area for downsizing is the garage, she notes. “Even if you’re done paying off your car, it can still be a major expense between gas, insurance, maintenance and repairs. If you and your partner each own a car, consider selling one of them. Even if you only have one car, it might be cheaper to sell it and get around using rideshare services or public transportation.”

Consider, Olya suggests, selling off “bulky furniture” if you are moving to a smaller place; this can be done easily via Facebook Marketplace or Kijijii, or you can go “old school” and sell via consignment shops.

Other things the article mentions that can be sold off include holiday decorations, old computers (that still may be worth something), old kids’ toys that your adult children (or their kids) don’t want or need, the book collection, and, notably “collectibles and antiques.”

“Like books, collectibles and antiques can take up a lot of space that you might no longer have if you downsize your home. It’s fine to hold onto a few things with sentimental value, but assess whether these items would be worth more to you if you turned them into cash for your retirement savings,” writes Olya.

For years, Save with SPP had a large collection of boxed items that made the move, years ago, from Barrie to Waterloo, and on to Toronto and finally Ottawa. When we finally had time to open all the boxes up, we found it was mainly keepsakes and low-value collectibles that mostly ended up at Value Village. So take inventory of what you have boxed up in the basement, and see if any of it has resale value or can be gently donated. Your future you will thank you.

The money you save through this process will give you more spending power in retirement. And if you trim back on things before retirement, this newfound money can form – as the article says – a part of your long-term retirement savings. If you’re a Canadian with registered retirement savings plan (RRSP) room, consider the Saskatchewan Pension Plan (SPP), a voluntary defined contribution plan that may be just what you’re looking for to help you save. You can contribute up to $7,000 a year to SPP, and can also transfer up to $10,000 annually from other RRSPs. Check out this made-in-Saskatchewan solution today!

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U.S. study suggests annuity holders “feel more on track” in retirement

A new U.S. study has found that Americans who have annuities feel more “on track” and have a more positive outlook on retirement than those who don’t have annuities in their portfolios.

The study, conducted by Athene, a “leading provider of savings products,” was reported on in a recent article posted on Yahoo! Finance.

The study found that 75 per cent of those with annuities felt “on track” for retirement, versus a figure of 26 per cent for those without them, the report notes. The Athene study also found that 55 per cent of Americans worry they will run out of money in retirement, the article states.

An annuity (available to Saskatchewan Pension Plan members as a retirement option) is a financial product. In return for converting some or all of your savings into an annuity, you will receive a monthly lifetime pension for the rest of your life. And the higher rate of interest we’re experiencing is actually good news for those considering an annuity, since the higher the rate at the time of purchase, the larger your monthly annuity payment will be.

The study, which found that soon-to-be retired Americans worry about such things as inflation and market volatility, also found that not all respondents fully understand annuities. Twenty three per cent said they did not know what an annuity was, the article reports. However, 71 per cent said they would prefer to get regular monthly payments from their retirement savings versus “a lump sum,” which was preferred by just 29 per cent of respondents.

As well, only 22 per cent were aware that annuities “offer protection in down markets,” since once an annuity is selected, your monthly payment remains the same regardless of any market downturns, the article adds.

Getting a professional’s input is also seen as an important factor for those choosing an annuity, the article notes.

“In addition to ownership, working with a financial professional can also bring greater awareness of what an annuity is. Thirty-six per cent of adults who have never worked with a financial professional say they do not know what an annuity is, compared to the eight per cent of adults currently working with a financial professional who stated the same,” the article states.

“As market volatility and inflation continue to rise, it’s crucial for financial professionals and retirement savers alike to debunk the myths and truly understand the benefits and functionality of annuities,” states Adam Politzer, Senior Vice President of Product Actuary at Athene, in the article.

Those of us who have workplace pensions tend to either have a defined benefit plan, where you get a lifetime monthly payment based on a formula that looks at your earnings and years of employment, or some sort of capital accumulation plan where you save during your working years and then convert the savings to income on retirement.

The payout from a defined benefit plan is basically the same as annuity – retirees get a monthly payment for as long as they live, and there are options for survivors, including a lifetime pension based on some or all of the member’s pension.

In our own case, for example, we both plan to choose lifetime annuities from SPP, with 100 per cent of the payment going to whoever is the last standing. This is the same option we both chose for our workplace pensions, and as the article says, annuities feel more like getting a paycheque than getting one big payment a year might be. It also means we will have less “lump sum” money to manage overall – we think running the investments might feel more difficult once we are in our 80s and hopefully beyond.

With SPP, you can choose from a variety of annuities to convert some or all of your savings into monthly income when you retire. It’s pretty unique for any voluntary savings plan to offer an annuity option right within the plan – just another reason why so many Canadians are looking to SPP to play a part in their retirement savings program.

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Taking a look at common barriers to retirement

Writing for the GoBankingRates blog via Yahoo! Casey Bond provides a rundown of the barriers that get in the way of our retirement plans.

Although Bond is writing for a U.S. audience, many of the topics raised are equally relevant here in Canada.

Bond begins by citing TransAmerica Centre for Retirement Studies research that found half of American workers agreed that “I don’t have enough income to save for retirement,” and 57 per cent said they planned to continue to work after hitting retirement age. A whopping 80 per cent of that group cited “financial reasons” as the reason why they won’t be leaving work.

Bond’s article cites these key barriers to being able to retire.

High debt: While having some debt in retirement can be coped with, high levels of debt are a problem, the article notes. High levels, the article explains, are mortgage costs exceeding 28 per cent of your “pre-tax household income,” and total debt of more than “36 per cent of your pre-tax income.” Certified financial planner Melissa Hannum is quoted in the article as saying “if you are already struggling to keep your debt below these percentages, then you are not ready to retire.”

Spending more than you earn: Hannum states that if “you are spending more than you’re earning, you are not on track to retire.” She tells GoBankingRates that those of us still working have a chance to pay down debt via a pay raise or a bonus – you don’t get either once you are retired.

Little to no emergency funds: You should, the article notes, “have at least one full year’s worth of expenses saved in a liquid and conservative form of investment.” They suggest a money market fund, guaranteed investment certificates (known as certificates of deposit in the U.S.) or a high-interest savings account.

You haven’t reviewed your retirement savings portfolio: If funds earmarked for retirement savings, in a registered retirement savings plan, tax free savings account or other account are in a portfolio you haven’t been keeping an eye on, that may impede your retirement.

“Taking on excess risk as you near retirement can be extremely hazardous and your portfolio could take a major hit just as you’re ready to call it quits,” Hannum states. Your investment focus should be changing towards “wealth preservation” rather than growth as you near retirement, Hannum states.

Social plan: Are you, the article asks, mentally prepared for retirement? “If your social circle is strictly co-workers and Facebook friends, you may not be ready to retire,” Hannum states in the piece.

Summing it up – you need to pay your future self first via dedicating a portion of your current income towards retirement savings. You need to try to get rid of debt before you retire (it will be harder to pay it off after). Become someone who spends less than they earn, build a one-year emergency fund, and have an idea of what you’ll do with all your newfound time. It’s a great take on the subject by the GoBankingRate folks.

If you are among the fortunate few with a workplace savings plan, be sure you are taking part to the fullest. If you don’t have a plan, and aren’t so sure about investing and the tricky “turning savings into income” stage, any Canadian has another option – the Saskatchewan Pension Plan. SPP will invest your savings professionally and at a low cost in a pooled fund, and when it’s time to punch out for the final time, you’ll be able to choose from several options, including a lifetime monthly pension via an SPP annuity. You can transfer any bits and pieces from past pension plans into SPP to collect a unified amount from a single source! Check them out!

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SPP touted as a do-it-yourself retirement program

A recent Financial Post article outlines a major problem – how so many Canadians lack a workplace pension plan – and then shows how the Saskatchewan Pension Plan (SPP) can provide a do-it-yourself option.

The article, written by Sigrid Forberg, notes that the old days of working your entire career for one company, and then getting a pension from them, are “long gone.”

While 5.5 million Canadians were covered by “either a defined benefit or a defined contribution plan” by the end of 2019, that means that “only 37 per cent of Canadians are covered by a pension plan – leaving the other 63 per cent to save for retirement on their own.”

In the article, Wendy Brookhouse of Black Star Wealth in Halifax looks at the options those without workplace pensions have for saving.

“There are a lot of preconceived notions, there’s lots of rules of thumb out there that may or may not serve people, you know … ‘you need a million dollars to retire,’ or ‘you need X per cent of your pre-retirement income,” says Brookhouse.

Workplace plans make the savings simple, as an amount is deducted directly from your paycheque. But if you don’t have a plan at work, putting away money on your own “might feel like a big sacrifice,” Brookhouse states in the article.

Brookhouse recommends regular savings on your own, via either a registered retirement savings plan (RRSP), a tax free savings account (TFSA), or even life insurance.

Or, the article continues, Canadians without workplace plans could take a look at the SPP.

“Another option for those without workplace pension plans is the Saskatchewan Pension Plan (SPP). This plan was created by the Saskatchewan government in 1986 to help fill the gap for residents of the province who didn’t have access to a professionally managed pension plan. The program has since been expanded to all Canadians,” the article notes.

“The goal was to provide a collective non-profit — a trusted collaboration where people could finally get the really low fees they typically would get through a professionally managed plan,” states SPP’s executive director Shannan Corey in the article.

“In 2022, you can put up to $7,000 into the fund, depending on your personal RRSP contribution room. The fund currently has 33,000 members, with about $600 million invested. The historical returns are about eight per cent and annual fees are less than one per cent,” the article states.

With SPP, your contributions are locked in until you reach age 55, the article notes. At that point (or any time before you reach age 71) you can decide to convert your SPP savings into income, either by drawing the income down and/or receiving an SPP annuity. Saskatchewan residents have the added option of a variable benefit, the article explains.

“Our plan was designed for people who had gaps,” says Corey in the article. “The flexibility that we offer can really help people navigate those ups and downs a little better.”

Without having some sort of do-it-yourself retirement program in place, your options might be limited to working longer. The article cites the views of an actuary who argues that government pension benefits, which currently must be collected by age 70, should be allowed to be deferred to age 75. Do we really want to keep working that long?

Save with SPP can attest to the effectiveness of the SPP program; both this writer and our better half are members. There are no pre-set contributions, you can contribute in dribs and drabs up to $7,000 per year. So for us, small lottery wins, insurance payouts on dental visits, rebate cheques, and bottle deposits are sources of retirement savings. We also take advantage of making lump sum transfers from our other RRSPs into SPP.

Now, with retirement in sight for the boss, our SPP estimate says we are on track for a $500 monthly lifetime annuity payment for her next year.

SPP invests your money at a very low fee compared to typical retail mutual funds, and you are getting investing expertise at a time when markets are volatile and even a little scary. It’s an option that anyone lacking a workplace plan should check out – an all-Canadian pension solution built with Saskatchewan ingenuity! Check out SPP today.

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Newly-minted retirees finding golden years expensive, thanks to inflation

Writing in the Financial Post, Victoria Wells reports that new retirees – who jumped ship on work due to the pandemic – are finding their golden years more expensive than they expected.

She notes that many folks left their jobs earlier than planned due to COVID-19.

“One-third of Canadians who recently exited the workforce say they moved up their retirement date, according to a poll of people aged 55 to 75 for RBC Insurance,” she reports.

Thirty-four per cent of those responding to the RBC survey said they “left their jobs earlier than planned” due to the pandemic, the article notes. “Another 30 per cent of those who haven’t yet made the leap to retirement says they’re planning a change in date, either sooner or later, thanks to the pandemic,” her report adds.

But, the article notes, there’s a problem – retirement is getting pricey.

“One in four said they’ve ended up spending more than expected, and 41 per cent said they’ve been hit with surprise expenses, including expensive house repairs and rising costs of health care and transportation, or having to provide unexpected financial support for family,” Wells writes.

Meanwhile, she adds, “inflation hit 6.7 per cent in March from the same time last year, the highest gain since January 1991, bringing sticker shock for consumers at the gas pump and grocery store.”

Since then, inflation has continued to climb, reports Wells, and the Bank of Canada hasn’t ruled out further rate hikes to try and combat inflation.

With those newly retired reporting higher costs, will soon-to-be-retired workers try and hold on to their gigs?

“The events of the last two years are clearly affecting Canadians — including those nearing retirement,” states Selene Soo, director of Wealth Insurance and RBC Insurance, in the article. “And with the current high inflation rate added to the mix, many are feeling concerned about their purchasing power and increasing expenses.”

Inflation is a worry for 78 per cent of those surveyed by RBC Canada, the article notes. Statistics from a C.D. Howe Institute study, authored by noted retirement expert Bob Baldwin, show that house prices have doubled in the last 20 years. As well, the study (cited in the Post article) notes, retirement assets (registered retirement savings plans, tax-free savings accounts, and workplace pensions) have jumped to $158,000 on average, more than twice what they were in 1999, there’s still concern out there.

A shocking 25 per cent of those aged 45 to 64 have no retirement assets at all, the article notes. Those without workplace pension arrangements tend to have little to no TFSA or RRSP savings, states Baldwin in the Post article.

“These realities suggest that a minority of the future elderly may have trouble maintaining their standard of living in retirement,” he states in the article.

Wells has done an excellent job of pointing out a very serious issue – the growing lack of workplace pensions.

If you are fortunate enough to have a workplace pension arrangement of any kind, be sure to sign up for it and contribute as much as you can. This is especially true if you haven’t planned (or started) to save much on your own for life after work.

If you’re not sure how to go about saving for retirement, the Saskatchewan Pension Plan may be the option you are looking for. You can contribute up to $7,000 annually to SPP, and can transfer in $10,000 more a year from other retirement savings vehicles. SPP will look after the hard work – investing your money in volatile markets – and when the time comes to give back your security badge and parking pass, SPP will turn those savings into income. Check out SPP today!

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End RRIF mandatory withdrawals, RRSP end dates, and create national RRSP: Pape

Well-known financial author Gordon Pape has been observing the Canadian investment and retirement savings system for many decades, and has come up with a four-point plan to make retirement more effective for Canada’s greying population.

Writing in the Globe and Mail, Pape observes that there are now seven million Canadians aged 65 and over.

“This has the makings of a massive demographic crisis,” he writes. “Where are the future workers going to come from? Who is going to support our rapidly aging population? What will happen to the tax base as people leave the work force and reduce their spending?”

He then suggests that one way to address the problem would be to encourage more Canadians to work past age 65, a plan that would “require a massive overhaul of our retirement system,” but that is “doable.”

As a starting point, he notes that the trend towards more working at home, born from our experiences with the pandemic, may be a good “carrot” for encouraging older Canadians to keep working. Working from home is preferable for most, he says.

But other carrots are needed as well, he writes.

Eliminate mandatory RRIF withdrawals: Currently, he writes, registered retirement savings plans (RRSPs) must be “wound up by Dec. 31 of the year in which you turn 71,” and are then mostly converted into registered retirement income funds (RRIFs). With RRIFs, he explains, you are required to withdraw a minimum amount annually, an amount that grows until you are 94 and must withdraw 20 per cent of the RRIF.

“RRIF withdrawals are a huge disincentive to work after age 71. Added to regular income, the extra RRIF money can quickly push you into a high tax bracket,” Pape writes.

“The solution is legislation to end mandatory withdrawals entirely. Let the individual decide when it’s time to tap into retirement savings and how much is needed. The government will still get its tax revenue. It will just be delayed a few years,” he posits.

End RRSP wind up at 71: A second “carrot,” he writes, would be to change the age that RRSPs must be closed, currently age 71. Why, asks Pape?

“RRSP contributions are tax deductible. Making RRSPs open-ended would therefore create an incentive to continue saving in later years, when people may have more disposable income (no mortgage, kids moved out). That would result in more personal savings, which should result in fewer people requiring government support in later years,” he writes.

Create a national RRSP: Pape proposes that a national RRSP – to be run by the Canada Pension Plan Investment Board – be created. “It would provide Canadians with first-rate management expertise, at minimal cost,” Pape writes.

This idea is needed, Pape says, because many people don’t know how to invest in their RRSPs and lack the advice they need to do so.

Allow CPP and OAS to be deferred longer: His final idea would be to allow people to start their Canada Pension Plan and Old Age Security later than the current latest age, 70. Again, this is to accommodate folks who want to work longer and don’t need the money as “early” as 70.

These ideas all make a lot of sense if the goal is to help people working longer. The idea of being able to withdraw RRIF funds as needed rather than based on a government mandatory withdrawal table is sensible. After all, who wants to withdraw money – effectively selling low – when markets are down? And if one is working into one’s 70s, why take away the effective tax reduction lever of RRSP contributions?

Let’s hope policy makers listen to some of Pape’s ideas. Gordon Pape spoke to Save with SPP a while ago, and he knows his stuff. He also spoke with our friend Sheryl Smolkin in an earlier Save with SPP column.

If you don’t have a workplace pension plan, investing on your own for retirement can be quite daunting, especially in times like these where interest rates are rising and markets are falling. Fortunately, there is a way to have your money professionally invested at a low cost by money managers who know their way around topsy-turvy conditions – the Saskatchewan Pension Plan. You’ll get professional investing at a low cost, and over time, your precious retirement nest egg will grow and be converted to an income stream when the bonds of work are cut off for good. Check them out today!

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Canada’s workforce greys as boomers hit the road to retirement

The Canadian workforce is “older than it has ever been,” reports the CBC, citing information from the latest national census.

“More than one in five working adults is now nearing retirement, says Statistics Canada — a demographic shift that will create significant challenges for the Canadian workforce in the coming decade,” reports the network.

There are more people aged 55 to 64 in the workforce than those aged 15 to 24 entering it, the article notes.

And that’s a big change.

“In 1966, there were 200 people aged 15 to 24 for every 100 Canadians aged 55 to 64, but that has now been flipped on its head. In 2021, there were only 81 people aged 15 to 24 for every 100 Canadians in the 55 to 64 age group,” the CBC report continues.

Boomers, the report explains, began retiring around 2011. The fact that so many of us are boomers – retiring ones at that – is “the single most important driver of Canada’s aging population trend,” the CBC notes.

It’s expected that the number of folks aged 85 and over will triple by 2051, with one quarter of the population being over 65 by that date.

Meanwhile, at the other end of the scale, Canada’s fertility rate hit an “an all-time low of 1.4 children per woman,” the CBC report adds, citing Statistics Canada data. There are six million young people under 15 in the country compared to seven million of us who are 65 and older.

This greying trend raises a number of concerns.

First, the article says, the traditional “transfer of knowledge” from older workers to younger ones won’t be easy to achieve if there is a shortfall of young folks entering the workforce.

Next – a question not posed in the article – we have to wonder if this grey wave of retirees will have sufficient retirement savings. The Canada Pension Plan, for example, uses CPP contributions from working Canadians to help pay the pensions of retirees, so a change in the ratio of working to retired Canadians could have consequences on that program. (The CPP Investment Board has set aside a massive contingency fund to deal with this exact problem, so that’s reassuring.)

Third, a point raised in the CBC video that links to the article, is the cost to society of looking after all those older folks, particularly as they hit their 80s and beyond. We may see a need for more long-term care spaces or a more determined effort to boost homecare – and both things will carry a future cost.

Younger folks may find that better jobs become more widely available, which is a silver lining to the issue.

Retirement can last many decades and carries a hefty price tag. If you have access to a workplace pension plan or retirement program, be sure you are signed up and contributing the most that you can. If you don’t have a workplace program, the saving responsibility is on your shoulders. Joining the Saskatchewan Pension Plan is a great option. Let the experts at SPP navigate the tricky waters of investment; they’ll grow your nest egg and when the day comes that work is an afterthought, SPP can turn your savings into steady retirement income. Check out SPP today!

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Volunteering gets top grades from retirees: survey

So you’ve been a saver, taken advantage of any workplace pension program you have, and have arrived at the finish line – retirement!

But without the need for a commute or transit ride to work, seeing the gang there for lunch and coffee, and then noodling through the day on the way back home, what’s a person to do with all the free time?

According to a recent article in the Financial Post, the answer may be to become a volunteer.

In a recent survey of members of the group ROTERO, the Post reports, “62 per cent of… members agreed that volunteering contributes to the enjoyment of retirement life.”

ROTERO, the article explains, “has been a voice for teachers, school and board administrators, educational support staff and college and university faculty in their retirement. The organization promotes healthy, active living in the retirement journey for the broader education community. Its vision is a healthy, active future for every member of the education retiree community in Canada. Volunteerism is a big part of that.”

Some of the other findings the Post reports from the survey of ROTERO’s 81,000 members are:

• 64 per cent of members volunteer regularly, compared to “the Canadian average for this age group, which hovers at around 40 per cent according to Volunteer Canada.”
• Most who volunteer average 20 hours per month.
• Asked why they volunteer, “members cited things like a desire to give back and make a difference (71 per cent), the social interactions related to the volunteer role (66 per cent) and the chance to make new friends and meet people (60 per cent).”
• A total of 72 per cent of those surveyed said they also volunteered before they retired.

“It gives a sense of purpose, an opportunity to meet and interact with others, and to contribute to the well-being of our neighbours however we can,” states one RTOERO member in the article. Or, as another member put it in the Post piece, “It feels good to help.”

Save with SPP has been embedded among the retiree population since leaving full-time work eight years ago and concurs with the views of the Post article. Most of us, while working, were part of a team and an organization that had some sort of purpose or goal that everyone played a part in. It’s not the same once you log out for the last time, but volunteering can provide you a new set of downs in terms of goals, objectives, teamwork and meeting new people.

If you want to volunteer in retirement, you’ll need to be sure you have enough income to afford to quit working! The Saskatchewan Pension Plan offers you a nice way to save for retirement – or to augment any savings you already have. With SPP’s voluntary defined contribution plan, you can contribute up to $7,000 a year towards your future – and you can transfer in up to a further $10,000 a year from other eligible retirement savings vehicles, such as a registered retirement savings plan. You’ll be amazed how your account balance can grow. Check out this made-in-Saskatchewan marvel today!

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Canadians sock away $50.1 billion in RRSP savings

It appears the venerable registered retirement savings plan (RRSP) is alive and well, reports Investment Executive – and pandemic-related extra cash may be the reason why.

Citing Statistics Canada data, the magazine reports that “the number of Canadians that socked money away in their RRSPs increased in 2020, and their contributions rose too.”

In 2020, Canadians collectively contributed $50.1 billion in their RRSPs, the article notes. That’s an increase of 13.1 per cent over 2019, the article continues, and the number of contributors rose as well by 4.9 per cent.

Investment Executive reports that “the median RRSP contribution in 2020 came in at $3,600, which is the highest on record.”

Why did more people put more money away?

Well, the article states, “savings rose as public health restrictions limited consumer spending.” With little to spend money on other that food and fuel, the average Canadian was able to stash away “$5,800 in extra savings in 2020 on average.”

So, that extra pile of money found its way into people’s retirement savings kitties.

“With the added savings on hand, more Canadians put money into RRSPs. The proportion of taxpayers that made RRSP contributions in 2020 increased for the first time in 13 years, StatsCan said, noting that the share of taxpayers making contributions has been declining since the Tax Free Savings Account (TFSA) was launched as a retirement savings alternative,” the article reports.

While things are not as locked down (thank heavens) today as they were a couple of years ago, the retirement savings bug is still with us, reports Baystreet.ca.

More than $10 billion found its way into Canadian mutual funds this February, the site reports.

“That brought the total amount of mutual fund assets under management in Canada to $2 trillion as of March 1,” Baystreet notes. “In all, Canadians put $111.5 billion into mutual funds in 2021. That’s nearly four times the $29 billion in mutual fund sales in 2020, which was in line with average annual sales going back to 2000.”

So, let’s put those two thoughts together – Canadians are putting more money away in their RRSPs, including managed mutual funds. The trend seems to be that more money is going this way each year.

The Saskatchewan Pension Plan allows you to contribute up to $7,000 annually towards your retirement nest egg. And you are allowed to transfer in up to $10,000 annually from other registered savings vehicles. SPP is a voluntary defined contribution plan – it has some of the characteristics of an RRSP and some of a managed mutual fund. Where SPP differs from a typical retail mutual fund is in the fees charged. SPP provides you with professional investment management, but SPP’s fee is typically less than one per cent – less than half of what most managed retail mutual funds charge. SPP has a stellar investing record, and – again, unlike a RRSP – SPP gives you the option of converting your accounting into a lifetime SPP annuity, among other retirement income options. Check out this made-in-Saskatchewan success story today!

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Having a withdrawal strategy should help your savings withstand inflation: McGugan

Reporting for the Globe and Mail, columnist Ian McGugan says retirees living off a nest egg of money need a strategy to cope with inflation.

“Unlike a truly rare disaster such as a global pandemic, the current inflationary outburst resembles a muted replay of the 1970s – and retirement planners have long used strategies designed to soldier through such episodes,” he writes.

He notes that a key tactic is the “four per cent rule,” developed by financial adviser William Bengen in 1994.

The rule, McGugan explains, “holds that a retiree planning for a 30-year retirement can safely withdraw an inflation-adjusted four per cent of their starting portfolio each year without fear of running out of money.”

Bengen, the article continues, based his formula on a “U.S. retiree with a portfolio split evenly between bonds and stocks,” and his research showed that even during the Great Depression, the Second World War or the “stagflation” period of the 1970s (a long period of very high, stubborn inflation), the four per cent rule would have worked.

Some industry observers, notably Morningstar, advise a lower withdrawal rate of 3.3 per cent, in light of “how bond yields have fallen,” he reports. Others say you could go up to 4.5 per cent.

McGugan notes that economist Karsten Jeske found “no strong relationship between prevailing levels of inflation and future safe withdrawal rates.”

He is more concerned, McGugan reports, about stock valuations as a problem for retirees.

“When stocks are expensive compared with their long-run earnings – as they are now – retirees should be cautious about how much they withdraw from their portfolio because high valuations are usually a sign of lower stock-market returns to come,” the article notes.

When talking about withdrawal rates, we should qualify the discussion by saying that certain retirement savings vehicles, such as registered retirement income funds (RRIFs), set out a minimum amount you must withdraw each year. When you look at the rates, you’ll notice they start out at four per cent when you’re 65, but gradually increase over time. If you make it to 95, the minimum withdrawal rate jumps to 20 per cent.

But if your savings are in a Tax Free Savings Account or any non-registered vehicle, the four per cent is worth consideration. We are all used to getting a steady paycheque, usually every two weeks or twice a month. If you got all your pay in January, you’d have to figure out a way to make it last so you don’t run out with a month or two left in the year. The four per cent rule is a way to make a lump sum of retirement savings last for the long haul.

The way that people used to deal with volatility in stock prices was to invest in bonds and stocks equally, as the article describes. Because interest rates have been low for decades, and bond yields have declined in recent years, modern “balanced” funds tend to add in some bond alternatives that deliver steady, bond-like income, like real estate, infrastructure and mortgages. If stocks pull back, these sources still generate reliable regular income.

A good example is the Saskatchewan Pension Plan’s Balanced Fund. The asset mix of the fund includes not only bonds, but real estate, mortgages, infrastructure and money market exposure, as well as Canadian, U.S. and international equities. This multi-category investment vehicle is a fine place to store your retirement nest egg. Check out SPP today.

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