In this first of a four-part series, Save with SPP talks to Janet Gray, CFP of Money Coaches Canada about what a money coach does and how they can help

Fresh from an interview with CTV Ottawa on record-high credit card debt, Janet Gray of Money Coaches Canada says that while money advice is a key part of her role, there is more to being a money coach than setting up budgets and financial plans.

“Yes, we coach people about money,” she begins. “But what’s a bit unusual about being a money coach is that unlike investment, insurance companies or most other financial planners, we aren’t product focused.” Money Coaches Canada doesn’t sell any investment or insurance products — their purpose is to offer advice and coaching, she explains. All the coaches are certified financial planners (CFP), she adds.

“We are CFP professionals who talk to you about how to optimally manage your money — taking the worry out of it,” she explains. “We help people to see the big picture — here’s your money in black and white, here are systems to manage your cash flow, your taxes. And assist in making your life plans like retirement or estate wishes a reality” And while money coaches can help you manage debts, they are not credit counsellors, she adds.

The money coach, she adds, is someone who can provide “a safe and non-judgmental space to have conversations about managing your money, and how to make things better.” And while getting people to understand their personal cash flow — “where is your money going” — is important, the goal is to have more of a relationship about money and life decisions between coach and client.

Money coaches can “aid in key life decisions — like having your daughter’s wedding coming up or a desired retirement lifestyle, and how to get there financially.” She notes that if you aren’t aware of where your money is currently going, it’s more difficult to save.

Some of the clients she helps already have plans, but no longer have an advisor, so things get stalled. A coach can get them back on track “to implement their plans, despite all the potholes that keep coming at us in life. It’s an ongoing lifetime relationship, not a `one and done’ thing,” she explains.

A key result of coaching is building people’s financial literacy, Gray explains. Beyond the basics of cash flow and financial plan, coaches find they spend “a lot more (time) on financial literacy; we are educating people all the time.”

“There is great information available that they hopefully can share with their kids — do they know about Tax Free Savings Accounts, and when they can be opened? Do they understand the importance of having a power of attorney document? These are things to know that can help them support their kids’ financial literacy as well” she explains.

Money, she says, is a topic many people are uncomfortable talking about. Years ago, she jokes, people didn’t like talking about sex — but now, it’s money and finances.

“I was on CTV Ottawa today talking about the fact that the average credit card debt in Canada is around $21,000. But we’ve seen clients with triple that debt or more. And it’s not the credit card interest rates that are the problem — they haven’t changed much. It’s the fact that everything else is going up — rent, mortgage interest, gas, and groceries. So there is less left over to pay off credit card debt.”

Gray has been a CFP for 23 years and helping Money Coaches Canada clients for about nine years. “It becomes like a relationship, and I also benefit from those ongoing relationships. I get to know these people and can counsel them for everything — financial decisions, are you still on track. And when you get close to people, and know them, they have someone to talk to about their finances in plain English.” Trust builds up and the relationships tend to grow over the longer term, she says.

She had one client who, facing terminal cancer, wanted to make sure his wife had a trusted advisor to talk to about money after he was gone.

“That’s a key point — it’s not just about money, it’s about lifestyle,” she concludes.

In part two of our four-part series, we’ll ask Janet Gray about one of our favourite topics — saving. Watch for part two next month.

What’s 36 years old, has more than 33,000 members, and manages more than $700 million in retirement assets? Why it’s the Saskatchewan Pension Plan! Find out what SPP can do for you when it comes to saving for retirement — check out SPP today!

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It’s no secret that Canadians are living longer lives than ever. According to Macrotrends, life expectancy in this country is now, on average, 82.96 years — in 1950, it was around 68 years.

What may be more of a secret is the tips that those age 90 and beyond know — what things they do and live by that account for their extremely long lifespan. Save with SPP took a look around to see what the extremely elderly think are key tips for living a long and happy life.

When the CBC looked into this topic, they found there was no single “right way” to go.

“For each healthy-living centenarian who stayed active in family and community, you’ll find an equally aged whisky-loving example who smoked unfiltered cigarettes and shunned company,” the broadcaster reports.

Toronto resident Mohammed, 110 at the time CBC interviewed him, had three tips, the report notes. “Stay active. Chew your food longer than you thought possible, and eat fruit every morning.”

Toronto’s Zoltan Sarosy, 107 years young, “stays sharp by reading the news and emailing friends and family — he bought his first computer at age 95,” the CBC notes.

Finally, the CBC says that Agnes Fenton of New Jersey, now 111 years old, “says a daily beer and whiskey are her keys to longevity.”

Writing for CNBC, minister Lydia Sohn says her preconceptions about the elderly “went out the window” once her work brought her in touch with many long-lived members of her community.

While her many interviews with the elderly did uncover common regrets — not having as good a relationship as they could have with kids, not putting kids on the right career path, and regrets about “not being a better listener,” there was consensus on what helped make a long life a happy one.

“According to my 90-something interviewees, the secret to happy and regret-free life is to savour every second you spend with the people you love,” writes Sohn.

“Put another way, when I asked one man if he wishes he had accomplished more, he responded, `No, I wish I had loved more,’” she continues.

The seniors she met may have had regrets, like not having enough time with their late spouses or family members, but all liked to “laugh like crazy, fall madly in love and fiercely pursue happiness,” the article concludes.

Okay, so attitude is essential — look forward, not back. What other tips do people have?

Across the pond in the U.K., the Guardian offers up a few more ideas.

Falkirk’s Jean Miller, age 94, worked in a salon up until a year ago and says it is essential “to keep active and interested in things.”

“The moment you stop and sit in a chair is when you struggle,” she warns. “Life is an education and if you don’t learn as go along then that’s bad. I’ve learned to see things in a different way over time. My biggest lesson is to be more patient. I used to worry about things but now I don’t. I’ve realized there’s a rhyme and reason for everything. In life you’ve got to take things as they come.”

Pam Zeldin, 94, from Manchester tells the Guardian “my main advice for people who want to live to a good age is to look after your health and live moderately. Also, get enough sleep, and don’t drink to excess.” Her older sister, who she lives with, still enjoys a little gin and tonic in the evening, she confides.

Finally, in an article in the New York Post, entrepreneur Sahil Bloom shares the advice he got from older people — via social media — when he asked for their life advice prior to his 32^nd birthday.

Among the responses were “now and then, break out the fancy china and drink the good wine for no reason at all,” the newspaper reports. “Tell your partner you love them every night before falling asleep,” another elderly person advised, since “someday you’ll find the other side of the bed empty and wish you could.”

Other gems included “do one good deed a day, but never tell anyone about it,” and to not delay difficult conversations. Finally, the article reports, the seniors advised him to “find the things in life that make your eyes light up,” and “laugh loudly and unapologetically whenever you feel like it.”

These are great little bits of advice. Recently our local TV news interviewed a 100-year-old, again asking him for his tips on longevity. He told the reporter that it was important to deal with problems promptly, and to resolve them, rather than hoping they will go away on their own. Also a nice bit of advice.

If we are going to live to see a birthday cake with 90 candles on it, our younger selves should be setting aside some money for that future birthday party. If you have a retirement program at work, be sure to sign up and contribute to the max. If you don’t, have a look at the Saskatchewan Pension Plan, an open, voluntary defined contribution pension plan that any Canadian with registered retirement savings plan room can join. You decide how much to contribute, and SPP does the heavy lifting of investing and growing that money. When it’s time to retire, your options include getting a lifetime monthly annuity payment based on some or all of your savings. Check out SPP today!

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New research commissioned by the Canadian Pension Plan Leadership Council (CPPLC) finds that Canadians want steady retirement income — and worry about running out of money in retirement.

We reached out to Alison McKay, who is the Co-Chair of the CPPLC, to ask a few questions about the findings.

The research suggests Canadians prefer plans that offered inflation-protected guaranteed income, and that fear of running out of money is a primary stress driver. While defined benefit (DB) style plans offer this sort of income you can’t run out of, defined contribution (DC) plans and registered retirement savings plans (RRSPs) don’t automatically do this. Should there be more awareness of the value of annuities in capital accumulation plans?

The stress many people feel planning for retirement underscores the need to enhance financial literacy among Canadians and raise awareness about their retirement planning options. Increasing costs of living and how to draw down on savings are two major challenges that retirees can better overcome with the right plan and planning. The research shows that promoting education, awareness, and incentives that highlight the value of retirement income options can improve retirement readiness, including options that offer a solution to safeguard against longevity risks if their workplace plan does not include such features.

It was encouraging to see the stat that a quarter of respondents rate retirement planning as an 8/10 factor when choosing careers. Does this mean that people are (finally) starting to focus on workplace retirement benefits as being as important as salary?

The research indicates that Canadians are considering their personal well-being in addition to traditional career-related factors, like salary, when making their career decisions and choosing employers. Given the potential impact of retirement planning stress on personal health, Canadians may view workplace pension plans as a benefit that serves their financial savings and well-being goals. It is notable that in both surveys, Canadians highly rated plans that provide predictable and monthly income, that is guaranteed to be paid for life, and that has inflation protection.

Is the fear of running out of money in retirement (hence the desire by so many for the lifetime, inflation protected monthly pensions) driven by the lack of independence this might create – such as having to downsize or rent unexpectedly, or depend on friends and family for financial help?

Canadians consistently rated “running out of money once retired” (47 per cent) as their biggest retirement savings stress. The next top concerns were consistently “being dependent on family once retired” (38 per cent) and “being dependent on social programs once retired” (34 per cent). This aligns with your suggestion that a lack of independence may drive some Canadians’ retirement planning stress.

We also see that Canadians express a strong desire for predictable, lifetime guaranteed income that is inflation-adjusted, while also placing priority on maintaining of their standard of living during retirement. However, the report highlights a significant gap in retirement income coverage, with only 29 per cent of Canadians feeling confident about retiring at their desired age and maintaining their desired standard of living.

Making a significant change like unexpectedly needing to move or depend on family can be a stressful situation at any point in a person’s life; it’s more stressful when you’re not earning a wage or salary, as in the case of retirees. The report emphasizes the importance of expanding retirement income coverage in Canada to address the concerns of Canadians and enhance overall retirement preparedness to achieve retirement goals and secure financial well-being during retirement.

The study’s results suggest that people are dipping into their retirement savings due to factors like higher prices, and as well, taking on more debt than usual. Are these the chief reasons that those without workplace pensions aren’t able to save for retirement?

Canadians have lost confidence in retiring on-time and debt-free. While we have seen significant economic volatility in recent years, the low confidence is specifically affecting Canadians without access to a workplace pension. Only one-in-five feel confident in their ability to retire when they want and maintain their standard of living, compared to the one-in-three with access to a workplace pension who lack confidence about reaching the same goals.

The lack of confidence in managing their own retirement savings plans further highlights the need for workplace pension plans that help Canadians save efficiently and automatically. The study also found that Canadians consistently report they are not well informed about sources of retirement income. Expanding retirement income coverage in Canada and investing in financial literacy programs can contribute to improving retirement readiness for Canadians.

What finding surprised you the most from this research?

The survey presented a valuable opportunity to gauge Canadians’ sentiments regarding their finances and retirement plans. While the results are somewhat expected given the economic climate in 2022, a surprising finding is the effects of retirement-related stress on individuals and families.

Something that differentiates the survey from many others is that we specifically asked about stress related to retirement planning, not general financial stress. The study points out that stress, specifically about retirement, permeates various aspects of Canadians’ lives. Notably, the research reveals an increase in retirement-related stress from 2016 to 2022, impacting both Canadians’ personal health and career decisions.

Almost half of those surveyed (47 per cent ) reported that the stress of planning for retirement affects their health, at least moderately. Of that group, 28 per cent said that stress about retirement highly effects their personal health. As 60 per cent of Canadians do not have a workplace pension plan, these findings underscore the significance of addressing retirement planning concerns and the importance of expanding retirement income coverage in Canada.

We thank Alison McKay and CPPLC for taking the time to answer our questions!

If you don’t have a workplace savings program, and are relying on your own investment skills to save for retirement, you may want to take a look at the Saskatchewan Pension Plan. Open to any Canadian with RRSP room, SPP is a voluntary defined contribution plan featuring pooled investing at a low cost. You decide how much to contribute, and SPP looks after growing your savings until it’s time to turn them into income. Check out SPP today!

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In a recent research paper published by the Canada Mortgage and Housing Corporation (CMHC), economist Aled ab Iorwerth found that Canada’s “very high levels of household debt — the highest in the G7 — makes the economy vulnerable to any global economic crisis.”

Save with SPP spoke to ab Iorwerth, who is CMHC’s Deputy Chief Economist, by telephone recently.

His paper notes that household debt in Canada “stood at about 80 per cent of the size of the economy” in 2008, rose to 95 per cent by 2010, and as of 2021 stands at 107 per cent of the nation’s gross domestic product.

That high level of debt, his paper notes, will “do most damage when a significantly negative external economic event happens — such as a global economic crisis – which leads to widespread job losses, as discussed above. It becomes difficult, if not impossible, for many mortgage holders to service their debt.”

Should we see any sort of economic turndown that leads to job losses, carrying high levels of debt into a time when unemployment is higher will “make any recession more severe,” his paper predicts.

We asked him if housing costs were one of the leading factors in the high levels of household debt here.

“I think so,” he replied, noting that mortgages represent “three quarters of that debt.” The rest, he explained, comes from credit cards and other forms of debt. This high level of indebtedness, he says, is nothing new — it is a “long-term trend” in Canada.

He added that high housing prices (which lead to large mortgages) are a particular problem “in big cities like Vancouver, Toronto, Montreal, and even Ottawa. It is a real issue in big cities.”

We asked if high levels of household debt restrict, or limit, the ability of people to save for long-term goals like retirement.

ab Iorwerth says that while he generally agrees with that statement, it gets complicated when you consider that housing is a type of debt (through a mortgage) but “also a form of savings,” since when the mortgage is discharged, you have an asset that is worth something.

“There are risks involved in saving through housing,” he adds, pointing to what happened in 2008-09 with the collapse of world’s credit markets. And he says households “tie up so much money in housing” that it does have a restrictive impact on other forms of saving.

We then asked for his thoughts on inflation’s impacts on lower-income Canadians.

There are a lot of impacts, he says, and again, some subtleties. For lower-income families, he explains, we are usually talking about rental payments rather than mortgage payments. But rental rates tend to go up in times of inflation. “If someone was living in a rent-controlled apartment, if they are looking to move, they will be facing a sharp jump in rental rates,” he says.

At the grocery store, inflation’s impacts “are felt more keenly.”

Overall, however, ab Iorwerth says “the situation is not good in the rental system — you are going to see a really big jump in rents.”

Asked if there is any sort of step governments could take to help with the country’s housing situation, ab Iorwerth says it has long been CMHC’s position that Canada needs “a dramatic increase in housing supply, right across the board.” More housing is needed not only for lower-income Canadians, but for the middle class as well, he explained.

“We need more apartments, more rental properties — more supply right across the board,” he adds.

Longer term, his research paper notes, “re-establishing housing affordability in Canada will be key to reducing household debt if (more Canadians) want to become homeowners.”

Asked what he found most surprising in his latest research, ab Iorwerth says it was really looking at “the international picture” and noting that Canada’s household debt was second only to Australia’s.

By contrast, his paper notes, the U.S. level of household debt was at 100 per cent of GDP in 2008 but has since dropped to 75 per cent as of 2021. Over the same time period, the paper notes, the U.K.’s level of debt versus GDP went from 96 per cent to 86 per cent.

We thank Aled ab Iorwerth for taking the time to speak with us.

Thinking about saving for retirement? If you don’t have a workplace retirement program of any kind, the Saskatchewan Pension Plan may be the plan for you. Any Canadian with registered retirement savings plan room can join. Check out SPP today, and find out how it has been helping Canadians save for retirement for more than 35 years.

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There’s been much written of late about the lack of financial literacy in Canada, and the need to make people better equipped to deal with complex financial situations. Save with SPP reached out by email to Léonie Laflamme-Savoie, Media Relations Strategist at the Financial Consumer Agency of Canada (FCAC) for more information on this important topic.

We asked her first for a bit of background on the FCAC.

“The FCAC’s role is to strengthen the financial literacy of Canadians and supervise the compliance of federally regulated financial entities, including banks, with their legislative obligations, codes of conduct and public commitments,” she writes. “As part of its commitment to strengthening the financial literacy of Canadians, FCAC provides unbiased and fact-based information to help consumers make informed financial decisions on topics such as banking services for seniors and saving for retirement,” she continues.

We also asked FCAC about the programs it has established to promote financial literacy.

“In 2021, the Agency published the National Financial Literacy Strategy which aims to achieve better financial outcomes for Canadians by fostering changes in the ecosystem – either by removing barriers or by catalyzing action – that will help Canadians strengthen their financial literacy and ultimately their financial resilience,” states Laflamme-Savoie.

“FCAC’s research indicates that financial vulnerability affects a wide range of people, regardless of culture, community or background. While vulnerability is not limited to specific demographic segments, systemic barriers contribute to the fact that certain groups, such as seniors, are more likely to face financial vulnerability,” she adds.

She expanded a bit on challenges facing “current and future” seniors, particularly with retirement in mind.

“Increasing financial literacy decreases the risk of vulnerability and increases the likelihood of financial resilience. Financial literacy is key to help seniors make money decisions and manage their day-to-day personal finances. With increased financial literacy, current and future seniors are more likely to: 

• look at retirement in a holistic manner (to consider their future sources of income/including government benefits/credits, the need for budgeting and building short/long-term savings/investments, accumulating/managing other financial assets, ensuring adequate insurance coverage, being informed about tax implications, about power of attorney, etc.). 
• make more informed decisions and better prepare for retirement by building personal savings and assets; considering desired lifestyle, longevity/life expectancy and increasing cost of living (food, rent/housing, utilities, medication/health care, etc.) and other unique costs that can arise later in life (i.e., retirement living accommodations, living with a chronic illness/disability, losing or caring for a sick spouse, etc.) 
• make sound decisions about when and how to retire  
• choose financial products that make the most sense for their needs  
• plan for and cope with major financial decisions related to life transitions (for example, losing a partner and taking on financial management responsibility) 
• navigate and better understand how public programs and services can help them  
• recognize and protect themselves against financial abuse, fraud and scams  
• determine the appropriate advice and supports to help with financial decisions and with managing their finances.”

Laflamme-Savoie provided a little more detail on how financial literacy programs can help seniors.

“By providing opportunities for seniors to learn at “teachable moments” and in contexts relevant for their own situations, financial literacy programs can support them in planning for and navigating through important life events in retirement,” she writes, adding that “financial education can help seniors to: 
 

• protect themselves from fraud and scams and/or from financial exploitation by family members, friends and/or support workers.   
• adapt to changes in the banking industry, like the increased digitalization of banking products/services. With the proper support, seniors can build their knowledge and learn how to use these new products or technological innovations, thus building their digital financial literacy. 
• understand how economic issues (i.e., economic growth or downturn/recession, rising inflation, falling interest rates, etc.) can have an impact on their financial situation, and help them prepare for and adapt their financial affairs accordingly, from both a short- and long-term perspective.”

“The National Financial Literacy Strategy recognizes these important issues and calls on all stakeholders to take them into account when designing products and services, including adopting approaches and tailoring programs to seniors’ needs,” Laflamme-Savoie continues. “FCAC offers Your Financial Toolkit, a comprehensive learning program that provides basic information and tools to help adults manage their personal finances and gain the confidence they need to make better financial decisions. Topics include, but are not limited to, Retirement and Pension.”

Finally, she writes, “as part of its mandate, FCAC oversees the compliance of regulated entities with federal regulations such as the Code of Conduct for the Delivery of Banking Services to Seniors which guides banks in their delivery of products and services that meet the needs of seniors.”

We thank Leonie Laflamme-Savoie and FCAC for taking the time to answer our questions.

She is correct — being a senior is complicated financially. You’re dealing with estate issues from your late parents, you have new and complex tax issues due to having more than one source of income. A great defence is to boost your level of financial literacy.

If you don’t have access to a workplace pension plan, and are feeling a bit overwhelmed by the prospect of setting up your own savings plan for retirement, the Saskatchewan Pension Plan may be just the resource you are looking for. It’s open to any Canadian with registered retirement savings plan room. Check out SPP today, a made-in-Saskatchewan retirement income solution!  

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While here in Canada it’s up to employers to decide whether or not to offer a retirement program, Australian employees are covered by an all-defined contribution (DC), all employer-funded system of superannuation funds, or “supers.”

This Australian superannuation system now has more than $3 trillion (Australian) in retirement assets under management,

Save with SPP reached out to the Association of Superannuation Funds of Australia (ASFA) by email, and ASFA’s CEO, Dr. Martin Fahy, was kind enough to provide answers to our questions on how retirement savings are handled down under.

Q. Does the Australian superannuation system involve mandatory pension plans for all workers, with contributions made exclusively by the employer? And without any contributions from either the government or (required) contributions from individuals? (we are imagining that employees might be allowed to top up the contribution to their supers).

A. Yes, the Australian superannuation system requires employers to make mandatory contributions (known as Superannuation Guarantee contributions) to their employee’s superannuation. Currently, 10.5 per cent of wages are paid by the employer to superannuation. Individuals can make additional contributions (both before and after tax) within limits/caps prescribed by government.

Not all workers are covered by the system. For example, self-employed individuals and some contractors (dependant on the nature of the work arrangement) do not receive Superannuation Guarantee contributions.

Q. Thinking of things like the pooling of investments and the lower management fees large funds can charge, what are the chief advantages of the DC model? Can people move from job to job without transferring their supers or are transfers simple to make?

A. Individuals can choose to keep their super in the same fund when they move roles – it is not tied to their employer.

Access to professional investment management at wholesale rates, and the ability to participate in investment opportunities that would otherwise be unavailable to individuals, is one of the chief advantages that a scaleable DC model provides. Australia’s DC system is characterized by strong governance, regulation and prudential oversight. Retirement outcomes are dependent on the level of contributions (which are mandatory and the rate of which is increasing) and investment performance over time (with funds required to meet annual performance benchmarks to continue operating). Workers are not exposed to more extreme problems that have arisen in some defined benefit (DB) systems, such as reductions (or in the worst cases eradication) of workers’ entitlements due to failures in assets/liability matching or fiscal tightening.

Recent changes to the Australian system “staple” a worker to their superannuation fund, so that they maintain a single fund unless they choose otherwise (either to switch to a new fund or maintain multiple funds). This alongside other reforms and higher levels of consumer awareness has reduced account proliferation and the incidence of unintended multiple accounts being held by individuals. This will lead to reductions in fees paid by individuals and improve long-term retirement outcomes.

Q. This system appears to have succeeded on many fronts, but the percentages of Australians with pension coverage must be close to 100 per cent. If this is true (probably the best coverage in the world), what are the other great things about the Australian super model?

The Australian retirement income system is a “three pillar” system:

• Pillar 1 Government funded Age Pension
• Pillar 2 Compulsory superannuation
• Pillar 3 Voluntary savings (both inside and outside of superannuation)

As the superannuation system matures (that is, as more individuals have had the benefit of superannuation at higher contribution rates for their entire working life) the role of compulsory superannuation in providing retirement income is becoming primary. Most retired Australians today still receive some form of means tested government-funded Age Pension (a safety net payment set around the poverty line), however this is increasingly a part-pension due to higher levels of superannuation savings. One of the most remarkable (current and projected) achievements of the Australian superannuation system is its role in maintaining Age Pension payments around 2.5% of GDP over coming decades, well below what is being spent by international counterparts.

Q. Here in Canada, funds in a registered DC plan must, by the time the plan member is 71, either be converted to a life annuity or transferred to what is called a registered retirement income fund, a fund that mandates annual withdrawals (minimums). Taxes are deferred until the withdrawal stage. How does Australia handle decumulations? Are there rules similar to that?

A. There is no compulsion to convert to an annuity or allocated pension. However, there are incentives in place within the system to encourage this (for example, a zero-tax rate on investment earnings in pension phase, vs a 15 per cent rate in accumulation phase). The previous government legislated a Retirement Income Covenant that requires superannuation fund trustees to consider their retirement phase offerings and make them appropriate for their members. Last year funds submitted their initial strategies to the prudential regulator on this front and are now in the process of updating products and services in line with this.

Once in pension phase there are minimum withdrawal requirements. This is one mechanism to ensure that accrued savings are utilised for their intended purpose – retirement income that enables individuals to live a comfortable retirement.

Our thanks to Dr. Fahy and ASFA for their time and help. Here’s a link for more information on Australia’s superannuation system.

If you don’t have an employer-sponsored retirement program, or want to augment what you have, the Saskatchewan Pension Plan may be a program worth investigating. As an open DC plan that is not sponsored by your employer, SPP shares some similarities with the Australian system — it’s a large, pooled fund, which keeps investment management costs down, and as in Australia, portability is built in when you change jobs — you won’t have to transfer your benefits from one employer-sponsored plan to another. Check out SPP today!

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One of the few things that cost less when interest rates go up are annuities, long a key piece of the puzzle when turning retirement savings into income. 

Save with SPP reached out to the Canadian Life and Health Insurance Association (CLHIA) to find out if this recent higher-interest environment is making Canadians think harder about annuities. 

According to the CLHIA, Canadians purchased over $1 billion in individual pay-out annuities in 2021. This includes both life and term-certain annuities from registered and non-registered funds.

You can buy an annuity from a provider, usually an insurance company. In exchange for a lump sum, the provider will pay you a monthly income for life or for a selected period of time. We contacted Noeline Simon, Vice President of Taxation, Pensions and Reporting for CLHIA, to ask a few other questions about annuities. 

Q. With higher interest rates of late are CLHIA’s members seeing more interest in annuities? 

A. All else being equal, higher interest rates should result in higher annuity benefit payouts. This should have a favourable impact on demand for the product, however, there may be some time before we see the full evidence of this in the market.

Q. Do you see one benefit of annuities being insurance against volatility? (If markets go down, your annuity payments stay the same.) 

A. Yes. A significant benefit of guaranteed life annuities comes from the down-side protection against adverse market conditions and the annuitant out-living their anticipated savings. 

Q. Did the last 20 years or so of low interest rates sort of deaden interest in the idea of annuities versus registered retirement income fund (RRIF) conversions? 

A. The prolonged low interest rate environment did contribute to dampening annuity sales, even with increasing interest rates it will take time to change retirees’ demand for annuities.

Q. What do you see as the pros and the cons of annuities? 

A. Canadians who are retiring or nearing retirement should consider guaranteed life annuities as a part of their plan, since they provide downside protection against adverse market conditions and reduce the risk of outliving one’s savings. Life and health insurers believe that retirees really can benefit from having a range of choices in terms of products and solutions that can help them optimize their income in retirement. To this end, the CLHIA and others have advocated for a variety of decumulation tools, such as Advanced Life Deferred Life Annuities (ALDAs) and Variable Payment Life Annuities (VPLAs) and will continue to so into the future. 

We thank Noeline Simon for taking the time to answer our questions! 

Did you know that the Saskatchewan Pension Plan is also an annuity provider, and offers a variety of annuity options for its retiring members? According to SPP’s Pension Guide, SPP offers a life only annuity (no survivor or death benefits, but highest payment to you), a refund life annuity (provides a benefit to survivors on your death), joint and last survivor annuity (provides a lifetime pension on your death to a surviving spouse or common-law partner). The joint and last option allows you to choose, for your survivor, a pension equal to 60, 75 or 100 per cent of what you were getting. Contact SPP for more information about the annuity option at retirement. 

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It’s an age-old question — and also, an old age question: do people spend less money as they age?

For answers, Save with SPP reached out by email to Dr. Susann Rohwedder of the RAND Corporation in California. She recently discussed the findings of a 2022 research paper, entitled Explanations for the Decline in Spending at Older Ages (Rohwedder, Hurd, Hudomiet 2022).

In her presentation on the research, Dr. Rohwedder says it is important for people to be aware of what their spending patterns in retirement could be, in order to plan on how much to save. Her research suggests that real household spending (adjusted for inflation) declines as people age and their health declines. 

We asked her a few questions on the general finding that people spend less as they age.

Should people be more or less concerned about running out of money?
Our findings are about the shape of the spending trajectory which helps individuals and households better anticipate their spending needs over their retirement years. We consistently find declining (real) spending trajectories across various groups, and it appears that for most households the declines are due to reductions in enjoyment related to various types of spending as health declines and other ageing related changes occur (e.g. widowing, loss of friends/social contacts). Households who thought that real spending would increase with age could use this information to update their expectations, possibly easing some worries of running out of wealth.

Often income replacement rates are mentioned as a retirement savings target — what do you think of this kind of planning target?
Regarding replacement rates, I do not find them a useful concept for financial planning for retirement in a world of where much of retirement wealth is not annuitized, and where the concept of retirement is not that well defined (such as retirement in dual earning households; and what about those who return to work/unretire?). In their financial planning for retirement, households should start with considering their spending needs over the course of their retirement years. Because of the shorter time horizon, working out desired living standards for the early retirement years tends to be easier than anticipating spending needs some 20-30 years into the future. Once having decided on the level of spending at the beginning of retirement, households can use the shape of the spending trajectories, that is, the rates of spending change that we have estimated, as a broad guide for how their spending will evolve in their later retirement years. Contrary to the common assumption that real spending in retirement will be constant or even increase, we found that spending tends to decline for most households, and this does not appear to be the result of tightening budget constraints with age. This is also what we found in another recent report on Spending Trajectories After Age 65.

Do people oversave?

Some do, some don’t … there is substantial variation across households. An important consideration in this regard is the economic position of households throughout their working years. Among households that reach retirement with few economic resources, some were not always poor and could have saved more. Those who have always had to live on very limited means, saving more earlier in life would have meant cutting necessities (food, rent, etc.). This demonstrates that the assessment of over- or under-saving should be viewed in the context of households’ lifetime resources.

Our finding about the shape of spending trajectories at older ages is a critical input to improving financial planning for retirement and also to assessments of whether people over- or undersaved. For individuals and their households is not easy to anticipate spending needs some 20-30 years into the future. Traditional wisdom suggests flat or even increasing spending at older ages. However, our estimates suggest that spending after age 65 declines consistently by about 1.7 – 2.4 per cent in real terms. This finding applies broadly, even among those in the highest initial wealth quartile, and our earlier paper provided plausible explanations for declines in spending at older ages: declining health and other factors that reduce enjoyment of some types of spending. While financial constraints play a role for some, we did not find evidence of tightening financial constraints at advanced ages.

Are there any other findings in this context you found surprising?

In the second (and quite related) report we showed that there was only modest variation in the estimated declines in spending by initial wealth quartile (measured when the individual was between 65-69 years old). So, even among those in the highest initial wealth quartile we found very similar rates of decline in spending as for less well-to-do households. This reinforces our earlier findings that the declines in spending are for the most part not driven by tightening budget constraints with age.

We thank Dr. Susann Rohwedder for answering our questions.

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Paying down debt, along with building money management skills, are key steps in the process of getting ready for retirement, says Jay Zigmont, PhD, CFP®, who is the founder of Mississippi-based Childfree Wealth.

Save with SPP was able to connect with him by e-mail recently for his views on these topics.

Do people understand the need to pay down credit cards, lines of credit, loans and other non-house debt before they retire? (Thinking here about the difficulty of retiring WITH debt)

While I recommend being debt free when you retire, it is often one of the more controversial topics.  You should make getting out of debt a priority.  Paying off your consumer debt will most likely give a better tax-free return than investing.  Once your consumer debt (credit cards, loans) are paid off, your goal should be to pay off your house before retiring.  With all of your debts paid off, your retirement expenses can be controlled and should be a lot less.  When you enter retirement, you are on a fixed income, so keeping your expenses low may be the key to success. 

What’s the most important financial planning step that folks can take to turn around their (lack) of money management skills?

Learn how to manage your money.  The only thing I was taught growing up was how to balance a chequebook, which is a complete waste of time now.  You can choose at any time in your life to learn how to manage your money.  You can learn on your own, or by working with a financial planner.  Either way, your goal should be to understand your own money behaviours and how to get the most out of your money. 

Is it ever too late to start saving for retirement – what are your views on the importance of setting aside money for the future?

Saving for retirement is more than just putting money into accounts and investing it.  Paying down your debt is saving for retirement.  Learning how to live on a budget is a skill for retirement.  Your age is not what determines your ability to retire, your net worth and money behaviours are what matters.  No matter where you are in life, you can always learn more and save more. 

What’s the one thing that surprised you the most about people and money?

What surprises me most about money is how people compare to others and try to apply rules of thumb that do not fit them into their life.  For example, I work with Childfree and Permanently Childless people.  Most (if not all) general financial advice assumes that you either have kids or will have kids.  For Childfree people, who don’t have kids and aren’t planning on having kids, these guides just don’t fit well.  The key is not to compare yourself to others or benchmarks, but to compare your progress toward your goals year over year.  Your life and your money are your own, stop comparing against others. 

Childfree Wealth, notes Zigmont, is a Life and Financial Planning Firm based in Mississippi. He is a Fee-Only, Advice-Only, Fiduciary, Certified Financial Planner™, Childfree Wealth Specialist, and author of the book Portraits of Childfree Wealth.  His PhD is in Adult Learning from the University of Connecticut, and he specializes in helping Childfree and Permanently Childless people to learn how to manage their money.  

We thank Jay Zigmont for taking the time to answer our questions.

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Asked how important being mentally and emotionally ready to retire is versus being financially ready, Certified Retirement Coach Anna Harvey says both things have equal importance.

In a telephone interview with Save with SPP, Harvey, a retirement transition specialist with Boost Potential in Victoria, BC says “the financial piece is important because, without it, money worries stress us.  However psychological and emotional readiness is just as important, Harvey says. “We want a retirement of vibrant wellbeing. We want to create a great next life chapter.  Both require self-awareness.”

Harvey says that the financial emphasis in retirement preparedness is understandable. Employers, she explains, often offer employees retirement benefits therefore most also offer benefits-related pre-retirement webinars.  Financial professionals and institutions actively promote financial awareness both pre- and post-retirement.

The result for retirees can be financial “overfocus” which, she explains, can be to the detriment of looking at mental and emotional retirement readiness. “We ignore this at our own peril.”

She gives the example of a gentleman who found himself lost and adrift after retiring.  “In an attempt to fill the void he experienced upon retiring he, in his own words, ‘burned through money’ buying three new cars in a year.  He was underprepared emotionally and mentally to replace the satisfaction he got from his career.”

Many of us will miss our work, she says. Our career has spanned decades and our work environments have provided not only tangible financial benefits but also equally satisfying non-tangible benefits, she explains.  “A built-in social network is one of those,” Harvey says.  “We engage almost constantly at work – water cooler chats, team meetings, company functions. Colleagues become friends.  In retirement, that network substantially disappears.”

As well, Harvey has noticed that those in the professions and C-suite executives can be particularly challenged upon retirement.  “There’s a status piece that is typically associated with being a doctor, lawyer or CEO.  Without some pre-retirement emotional and mental preparedness, they can really struggle with the ‘who am I now?’ question.”

That’s where Harvey says retirement coaching can help pave the way for a smoother transition.

According to her website, “retirement can be made more fulfilling, satisfying and purpose-driven if your decisions and actions are aligned with your passions, strengths and values.”

Harvey offers individual and group coaching, with the goal of answering that question of “who am I now” as well as the related question of “what’s next,” the site notes.

Harvey walks us through a typical exercise.

“I created an exercise called `shelf or suitcase,’” she explains. Thinking back on all the things career and workplace provided, we can make conscious decisions about those attributes we want to “pack” in a suitcase to take into retirement, or to leave behind “on the shelf.”

“It’s a powerful experience for people to stop and consider: What part of the job have I enjoyed?  What parts were the stressors?” Things like deadlines and meetings are typically shelved, she says, and what’s packed are positives – often including autonomy, creativity and being part of an innovative team. At the end of the exercise, those positives can become part of a fulfilling retirement.

“It’s my dream that companies start to recognize the importance of the psychological and social aspects of the retirement transition,” says Harvey.  “By pairing financial awareness in equal measure with self-awareness, they can provide employees a full set of tools to create a fulfilling retirement.”

She has a different take on the often-expressed idea that retirees need “goals” to keep their post-work lives in focus. “Not everyone is motivated by goals,” she explains. “Some cherish freedom from goals – especially in the early stage of retirement.  But they can feel guilty relaxing after years of achieving, accomplishing and deadlines.  They feel they need permission to slow down. Many times I’ve said to a retiree, ‘it’s OK to relax. You’ve earned it.’”

She says that this early part of retirement includes a “honeymoon stage” where people enjoy working through their “bucket list” which can include exciting travel, renewed hobbies, and home renovations. Then, after about 18 to 24 months, folks enter the “now what” phase, where they realize the span of life still ahead.

That’s when they need to think deeply about what brings them life satisfaction.  “Life satisfaction is unique to each of us.  It’s based on who we most authentically are, our core values, our strengths, and how we want to continue to be of service.  Finding new purpose is often a key part of this phase.”

Too many retirees do “retirement by default”, Harvey says, by picking up a generic concept of retirement.  “I refer to the three Gs – golf, gardening, and grandkids. Yes, this may truly define life satisfaction for some, but by remaining curious about all that is out there, we continue to learn and grow – factors that are known to provide life satisfaction.” she says.

She points out two things today’s retirees have clearly in view:  longevity – we are living longer lives than ever before; and ageism – she predicts that as boomers retire, they’ll take a proactive stand against older adult stereotypes.

She concludes by sharing her insight that “there is increasing awareness of the value in understanding and addressing the psychological and social aspects of retirement.  When self-awareness is fully paired up with financial awareness as preparation for retirement, retirees will launch some very fulfilling and interesting next life chapters.”

We thank Anna Harvey for taking the time to speak with us.

While the emotional and psychological aspects of retirement are important, so too is the financial side. Be sure you are factoring in both! If you don’t have a retirement program at work, consider the Saskatchewan Pension Plan, which has been helping people build retirement security since 1986. Open to anyone with registered retirement savings plan room, SPP can help grow your savings into future retirement income. Check them out today!

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