By Sheryl Smolkin

This week we have a number of interesting blogs on a variety of topics relating to how you save and spend your money.

On Boomer & Echo Marie Engen asks How Safe Are Your Bank Deposits? Canada is widely considered to have one of the safest banking systems in the world.  But several large financial institutions have failed in the past, so it is  important to understand Canada Deposit Insurance Corporation limits for banks ($100,000/account) and provincial plans covering Credit Unions and Caisses Populaires.

Jim Yih discusses a hypothetical financial counselling session with Jack and Jill and how they decide to save their extra cash flow of $500/month. They choose to contribute $200 extra to their RRSPs for the long term as long as their incomes were higher than the 32% marginal tax rate.

Their tax saving will be used to pay down the mortgage unless they believe he markets will produce future returns of 7% or more. They will also allocate the remaining $300 per month to their TFSAs. This will give them flexibility to use savings in this account to pay a lump sum on their mortgage, top up their RRSPs or open RESPs in the future.

On Canadian Dream: Free at 45, Dave shares how he and his wife are living a (relatively) stress-free life. They live on one salary so if either of them loses his/her job they can still manage financially. The fact that they don’t have children or other dependants helps to make this a practical alternative.

If you have just opened a trading account with a new discount broker or you have accounts in different places and want to consolidate, you’ll need to transfer your holdings between brokers. The Canadian Capitalist has put together a detailed checklist on what you have to do to make this process as painless as possible.

And on Sustainable Personal Finance, Miranda questions whether there are times you should put your ideals ahead of your pocketbook. That could mean giving just a little bit extra to causes that are near and dear to your heart, or making a commitment to socially-responsible investing.

Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere. Share the information with us on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.

By Sheryl Smolkin

Retirement income has to last a long time and stretch to cover the increasing need for care required by disabled or older seniors. That’s why it is important for seniors, their children and their advisors to fully understand and take advantage of available tax exemptions and deductions.

Here are two tax breaks you may not know about.*

1.    Disability tax credit (DTC)

The disability amount is a non-refundable tax credit that a person with a severe and prolonged impairment in physical or mental functions can claim to reduce the amount of income tax he/she has to pay in a year. In 2013 the maximum tax credit for people over 18 is $7,697.

To be eligible for the DTC, The Canada Revenue Agency must approve Form T2201, Disability Tax Credit Certificate. You can apply for the DTC at any time during the year. Retroactive payments may be made if the individual was disabled for several years before applying for the tax credit. Last year we got over $9,000 back for my mother.

If you qualified for the disability amount for 2012 and you still meet the eligibility requirements in 2013, you can claim this amount without sending in a new Form T2201. However, you must send one if the previous period of approval ended before 2013, or if requested to do so by CRA.

You may be able to transfer all or part of your disability amount to your spouse or common-law partner or to another supporting person.

If you received attendant care and you are eligible for the DTC, there are special rules that apply for claiming those expenses. For more information, see Attendant care or care in an establishment.

CRA has an interactive online quiz you can take to find out if you or your family member may qualify for the DTC. Also see Who is eligible for the disability tax credit? for all of the requirements that must be met to qualify for the DTC

2.    GST/HST for homecare expenses 

The goods and services tax (GST) in Saskatchewan (or the harmonized sales tax (HST) in Ontario, Nova Scotia, New Brunswick, and Newfoundland and Labrador) is not payable on publicly subsidized or funded homecare services.**

However, if an individual is not approved for municipal or provincial homecare services, a private agency must charge GST/HST.

Nevertheless, if a government agency approves even a small amount of subsidized homecare services (i.e. 2 hours/week), then ALL public and private homecare services become GST/HST exempt.

That’s why Lorne Lebow, a partner in the accounting firm Stern Cohen LLP recommends that in any situation where an individual requires home care services, an application should be made to the relevant government agency for subsidized or free services before or at the same time a private home care worker is retained.

“Even if a government agency authorizes services for only one or two hours a week, it’s enough to trigger the GST/HST exemption for additional privately-retained home care services. With GST/HST rates ranging from 5% (Saskatchewan) to 15% (Nova Scotia), that can quickly add up,” Lebow says.

He also advises individuals receiving both public and private home care services to inform the agency they are working with and request that invoices do not include GST/HST.

In the event that someone you know has inadvertently paid GST/HST you can apply to the CRA for a rebate going back two years.  Saskatchewan residents must send the completed General Application for rebate of GST/HST CRA (Form 189) three-page form with a letter from the government agency confirming the client is receiving subsidized care plus copies of the original invoices to Summerside Tax Centre 275 Pope Road Summerside PE C1N 6A2. 

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*Also see Guide RC4064, Medical and Disability-Related Information and discuss your family’s situation with your accountant or other financial advisor.

** Effective March 21, 2013 the definition of “homemaker service” in the GST/HST legislation has been expanded to include cleaning, laundering, meal preparation and child care provided to an individual who, due to age, infirmity or disability, requires assistance in his/her home plus  personal care services such as bathing, feeding, and assistance with dressing and taking medication.

Also see:
Tax tips for seniors – getsmarteraboutmoney.ca‎
TaxTips.ca – Saskatchewan Income Tax
TaxTips.ca – Seniors Income Tax and Government Benefits

By Sheryl Smolkin

If you haven’t started to think about filing your 2013 income tax return, this week is as good a time as any. You’ve made your 2013 Saskatchewan Pension Plan and RRSP contributions and T4s are in the mail.

Last April, on Million Dollar Journey, the Frugal Trader wrote a great blog to help readers prepare for filing their 2012 income taxes. It is equally relevant this year – a great checklist to get all your paperwork in order before you sit down to complete your return.

If this is the first year your home was your principal place of business, you’ll want to read what Canadian Finance Blog’s Tom Drake has to say about how you can reduce your taxes with business-use-of-home expenses.

On a similar note, in Canadian Living, blogger Krystal Yee offers income tax tips for freelancers so those of you in that category you can get all of the deductions that you qualify for. She also warns the self-employed to put money away for taxes on a regular basis so there are no surprises at the end of the year.

Media-savvy accountant and author Evelyn Jacks writes about claiming employment expenses. Even employees may claim certain specific expenses, depending on whether their employer will verify that this was a necessary condition of employment. Allowable expenses may include travel costs, the cost of using an automobile to earn income, supplies used up in the course of employment, the cost of an assistant, and home office costs.

Retire Happy blogger Jim Yih reminds us to take advantage of the Pension Income Tax Credit. He says if you are age 65 and do not receive a pension (other than a government benefit) you should open a Registered Retirement Income Fund and transfer $12,000 from your RRSP. If you draw down $2,000/year until age 71 you will be entitled to the pension tax credit and effectively receive the money tax-free. An unused pension tax credit can also be transferred to your spouse.

Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere. Share the information with us on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.

By Sheryl Smolkin

Hi,

Today we are continuing with the savewithspp.com 2014 series of podcast interviews with personal finance bloggers by talking to Edmonton-based financial educator and author Jim Yih.

Jim’s blog Retire Happy was recognized as the 2011 Best Personal Finance Blog in Canada by the Globe and Mail. He is very active in social media and also made MoneySense’s 2013 list of the top 10 financial tweeters.

While he has been blogging for just over three years, Jim is well known as a personal finance columnist in the Edmonton Journal and other Canadian media for the last 14 years. He also has written eight books.

His company Retirement Think Box consults with innovative employers to incorporate financial education and wellness into their benefit programs using the full spectrum of communication tools including workshops, web-based learning, audio/video presentations and electronic newsletters.

Thank you so much for joining me today Jim.

Thank you very much for having me. I’m excited about this Sheryl.

Q. Jim, you are well known to Canadians as a result of your column in the Edmonton Journal for over a decade, your books and your speaking engagements. Why did you also decide to also start a blog?
A. Good question! Originally, the blog was simply a place to host all of the articles that I have written over the past 17 years. I never realized what blogging would evolve into and how interactive it can be.  At the end of the day, the reason for RetireHappy.ca is to help Canadians retire to a better life and make retirement the best years of your life. I hope that does not sound too cheesy but RetireHappy is a major Canadian resource for retirement, investing and personal finance. We really focus on timeless information.

Q. Tell me the topics that are covered in your blog?
A. Retirement is a big topic and we try to cover issues around things like investing, taxes, money management, estate planning, government benefits (very misunderstood) and really any issues around general finance.  We even cover lifestyle issues like health, working in retirement and psychological issues.

Q. How often do posts appear? How frequently do you personally post?
A. We publish new content 3 to 4 times a week. I used to write 2 to 3 times a week but it got to be too much.  I have a fulltime business as you mentioned. Now I only write once a week and I have brought on a team of other writers to provide opinions and content.

Q. Tell me about the group of other bloggers who post regularly and the added dimension they bring to the blog on a day to day basis.
A. I’ve been around for over 23 years in the financial industry. I’ve got lots to say and opinions to share but I also believe there are many different ways, ideas and strategies to achieve success. So I’ve brought on some great writers in the last 18 months with lots of experience and ideas and I think it makes for a better experience at RetireHappy.ca.

• Donna McCaw is retired and travelling the world and sharing practical retirement experiences. She has also written a retirement book called “Its Your Time”
• Sarah Yetkiner has built a nice following with her articles on money personalities and the psychology of personal finance.
• Doug Runchy is very active and specializes in writing about government benefits.  He responds quickly to all comments and he’s just a tremendous resource for our readers.

I’ve assembled some successful great financial advisors like Scott Wallace and Wayne Rothe. And we’ve got some other writers coming aboard this year like Chad Vinimitz, Sean Cooper and Meagan Balaneski. So we’re increasing our contingent of writers and I think it’s proven to be a good strategy.

Q. How many hits does your blog typically get?
A. We get 5000 to 10000 page view per day. We have thousands of people on our newsletter and email list and following us on Twitter. I’m humbled by how quickly this has grown and the size of our following.

Q. What have some of the most popular blogs been?
A. Since inception, my articles on CPP and taking CPP early have been consistently popular.  And now with the addition of Doug Runchey talking about it, all the articles on CPP and OAS continue to grow in popularity.

But we also have some Online guides that are designed to be great resources for readers. The most popular is our Online Guide on RRSPs, next would be the one on RRIFs, others include one on RESPs, Government Benefits and Financial Advisors. We are currently trying to update all of these.

Q. If someone is checking out your blog for the first time, should they just dive in, or do you recommend a place to start?
A. There is so much there. We often talk about how to make it easy for readers when there is 17 years of content on the site. So I have 3 suggestions:

• Use the search bar at the top. Type in anything related to retirement and personal finance and we’ve probably written about it.
• There’s also archive page where we’ve organized every article by category.
• Or if you have no idea what you are looking for, start at the bottom of the home page with the must read articles and the most popular articles.

Q. What have some of the spin-offs from blogging been for you? 
A. I think its interacting with awesome people online that is the most rewarding. I’ve met a lot of cool people across Canada and even around the world.

I’ve connected with great Media personalities like Rob Carrick, Gail Vaz-Oxlade, Bruce Sellery, etc. I’ve met awesome bloggers like Frugal Trader, Preet Banerjee, Blunt Bean Counter, the Canadian Couch Potato, Boomer and Echo, Tom Drake and so many others.

I also love interacting with readers who write in and tell us how the site has helped them.

Q. I recently read that Scotiabank found that 31% of Canadians planned to contribute to their RRSP for 2013, down from 39% last year. And BMO said 43% of those surveyed planned to contribute, down from 50% in 2013. Why do you think these numbers are dropping?
A. We live in a world that’s all about spending. Every major holiday has turned into an excuse to have a big giant sale. Saving money is simple but not easy. Spending is easier. Spending is more fun. There are more opportunities to spend than to save. That’s led to too much debt and I think for all of us, this can led to lower savings.

Q. What role do you think participation in the Saskatchewan Pension Plan can play in Canadians’ retirement saving plans?
A. What I like about SPP is that they have tried to make savings simple, easy and affordable. I think a lot of people need that. SPP has simplified investment options, the fees are lower, the returns are decent and the process is streamlined and easy. You can even contribute using your credit card!

I think the easier we make it for Canadians to save, they more likely they will do so. More choice sometimes paralyzes people from making decisions. So I think simpler options are necessary and SPP has done that and it’s available to all Canadians.

Q. How can people calculate how much they will need to retire and the amount of money they need to produce that income stream?
A. The average Canadian will need $2.654 million dollars by the time they retire . . . .

That’s a fictitious number of course, but we are all seeking a number. There are millions of calculators out there to help people find it.

However, for most people, the calculation is less important than their savings rate.  The formula is so simple. This is not rocket science. Save 10% of your income for as long as you possibly can. Start as early as you can. The more you save the more you will have in retirement.

Q. What do you think the biggest hurdle is for Canadians who want to get their financial affairs in order and save for retirement?
A. For most people, the hurdle is themselves. You need motivation, action and discipline. Eighty percent of what you need to become financially successful and retire happy you already know:

• Put together a game plan
• Set goals
• Spend less than you earn
• Pay off debts
• Pay yourself first
• Know your spending

Q. If you had one piece of advice to help Canadians get over this hurdle, what would it be?
A. Do something but not too much. Make small changes one step at a time. Find some like-minded people to support your goal. Try to make it fun. If you are competitive try to compete with someone to meet or exceed your savings goals.

Thanks Jim. It was a pleasure to talk to you today.

I really enjoyed our discussion, Sheryl.

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This is an edited transcript of the podcast you can listen to by clicking on the graphic under the picture above. If you don’t already follow RetireHappy, you can find it here and subscribe to receive blog posts by email as soon as they’re available.

By Sheryl Smolkin

RRSP season is almost over for another year so remember to make your Saskatchewan Pension Plan contribution by Monday, March 3, 2014 in order to get a tax deduction on your 2013 income tax return.  But the need to spend carefully and save regularly is an important part of everyday living.

On retirehappy.ca, Jim Yih reports that 7 Causes of Financial Stress including high debt levels, low savings rates and increasingly complex financial markets are keeping many people up at night.

In The Insanity of “RRSP Season” Young and Thrifty blogger Kyle says anyone with a basic handle on grade 9 math ought to know that making periodic contributions to a registered plan (either a TFSA or an RRSP) is a better choice than procrastinating until the last minute and then trying to scratch together the money to fit in under an arbitrary deadline.

Blogger Krystal Yee on givemebackmyfivebucks.com says she will have to dip into her emergency fund and suspend TFSA and RRSP payments for some time because she was recently laid off. But 44 comments from her fans leave no doubt that she will land another great gig before long.

The pros and cons of withdrawing RRSP contributions are explored once again by Tom Drake on the Canadian Finance Blog. While the lost opportunity cost of taking out money and losing RRSP room are important, he acknowledges that in some emergencies RRSP withdrawals may be unavoidable. The good news is that if you need money because you lost your job, you will pay taxes on the money at a lower rate.

Many of you may be aiming for early retirement as early as age 55. However Dave Dineen on Brighter Life reminds readers that some sources of retirement income don’t kick in for another five years or more so you need to have a plan to bridge the gap or early retirement could be a financial nightmare.

And on Boomer & Echo Robb Engen identifies 6 Fees Worth Paying and notes that trying to avoid fees can sometimes be false economy. For example, the return on investment if you buy a Costco card, use an annual fee credit card or join the CAA can easily exceed the initial amount you have to pay.

Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere. Share the information with us on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.

By Sheryl Smolkin

One of the best ways to ensure you retire with the pile of money you need to live on is to join your company pension plan. The Saskatchewan Pension Plan offers individual and business plans for employers to use as part of their employee compensation plans.

Since maximum annual SPP contributions are $2,500 per year, some participating employers also offer group registered retirement savings plans or defined contribution pension plans for RRSP contributions over the maximum SPP limit.

Here’s why saving for retirement at work can help you retire sooner with more money:

1. Employer matching: Employers generally make some kind of contributions on behalf of members. SPP offers several forms of matching options in their business plans:

• Dollar for dollar match: For every $1 an employee contributes, the employer contributes $1 up to the $2,500 maximum.
• Annual match: A set amount, for example $500 per year if the employee contributes a minimum of the same amount.
• A start-up plan where the employer contributes a one-time start up amount like $1,000 when the plan is set up.
• A performance plan: Employer contributions can be tied to a variety of different criteria, such as meeting sales targets, length of service and yearly performance.
• Other customized matching plans can be developed.

2.   Lower fees: The average management expense ratio for a retail mutual fund may be from 2.3 to 2.6 per cent depending on the asset class. In contrast, a company-sponsored plan administered through an insurance carrier can typically negotiate much lower fees. In 2013 SPP had a management expense ratio of 1%.

3.   Payroll deduction: Payroll deduction promotes disciplined savings. Also, taxes withheld from the rest of your pay are reduced. It’s like getting your refund through the year, instead of when you file your tax return in April.

4.   The pros manage your money: The people who manage group insurance plans are usually the same people who manage other pension plans. They tend to be long-term investors and so are less likely to react impulsively to short-term events.

SPP hires independent money managers to invest member funds. The Plan’s Board of Trustees establishes the Investment Policy and then delegates investment decision making responsibility to the fund managers. The Board monitors investment performance quarterly and reviews the investment policy at least annually.

5.  Available retirement planning services: Most employer-sponsored programs offer full retirement planning services and information specific to you. These features are largely unavailable to an individual investor. Free in-house retirement education sessions are often included.

6.   Transfer of other retirement savings: Your employer may allow you to transfer RRSP or pension money from other accounts into the company plan. There is a huge advantage to aggregating your money in one account instead of having pots of money in multiple places. That’s because it’s much easier to develop an investment strategy if the money is under one umbrella. Also, the more assets there are in the plan, the lower the fees for everyone. SPP allows you to transfer-in $10,000 from your RRSP.

7.   Locking-in: If you can’t get your hands on the money easily when you want a new HD television or a new car, chances are better that you will have a bigger balance at retirement. A registered pension fund must generally lock-in your money until your early retirement date and the SPP is subject to the same rules. Money in Group RRSPs cannot be formally locked-in, but your employer may discourage you from withdrawing funds by suspending the company match for some period of time when you do so.

8.   Post-retirement options: When you retire, you will have to transfer the money in your DC pension plan or Group RRSP into personal accounts with financial institutions. If your company plans are with insurance carriers, some of them have established Group RRIFs available only to former members of group plans they manage for clients. While investment fees in these Group RRIFs may not be as low as in the original employer plans, they will generally not be as high as retail fees charged to individuals.

SPP members have several options for dealing with the funds in their account when they retire. One option is the simplicity of SPP annuities, through which your funds stay invested in SPP while you receive a fixed monthly pension for your lifetime no matter where you live.

Also see:
Ten Things You Need to Know About Your Company Pension Plan…, Rob Carrick, June 9, 2012
Income that lasts a lifetime – MoneySense, Sarah Efron, April 2nd, 2012

By Sheryl Smolkin

Whether you are saving for retirement or for other long-term goals, the key is that you have to spend less than you earn.

In What is “Saving?” Gail Vaz-Oxlade says it’s also important to distinguish between saving to buy a car or go on a vacation which is planned spending and saving for another chapter in your life like retirement.

Big Cajun Man says in I did my RRSP and TFSA Now What? that opening accounts and depositing money are just the beginning. Unless you develop an investment strategy and make sure you aren’t paying exorbitant fees, your money won’t grow the way it should.

The Toronto Star’s Ellen Roseman recently wrote a great column about How to plan for retirement on a low income. She says people who expect to receive the guaranteed income supplement (GIS) to top up their old age security (OAS) pension after age 65 should save in a TFSA and not an RRSP because TFSA withdrawals will not impact GIS eligibility.

First Foundation is an Alberta and Saskatchewan based financial services company. In their owngrowprotect blog they have started a 52 week money challenge. The author of Go To Disney Land or Pay Bank Fees, Your Choice! calculates that his family can save over $500 per year by shifting to no-fee banking which in ten years will add up to a family visit to Disneyland.

And Mark Seed from My Own Advisor asks the million-dollar question how much money do you need to retire well? He says that the magic number is indeed $1m or more. Even if some costs disappear in retirement like saving for retirement itself and mortgage payments there are costs in your future like property taxes, utilities, gas and food that are going to grow over time.

For those of you who think saving $1m before you retire is an unattainable goal, frugal lawyer Dave explains how he reached $1M net-worth by the age of 34 in this post on the Million Dollar Journey blog. It helped that he rode his bike to work instead of buying an expensive car like many other young lawyers in his firm.

Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere. Share the information with us on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.

By Sheryl Smolkin

If an alien parachuted into Canada in the first two months of the year and needed to quickly understand the what, when, why and how of registered retirement savings plans (RRSPs), there is no better source of information than Gordon Pape’s new book RRSPs The Ultimate Wealth Builder.

The prolific writer has authored and co-authored over 20 books with down-to-earth investment advice, many of which have become best sellers. And this one is definitely another winner.

RRSPs were created by Louis St. Laurent’s Liberal government and have been around since 1959. Of course as Pape explains, there have been many important tweaks along the way.

• Contribution levels have jumped from 10% of earned income (maximum of $2,500) to 18% of the previous year’s earned income (maximum of $24,270 in 2014.)*
• Since 1996, unlimited carry-forwards of unused contribution room have been permitted.
• Contributions can be made until age 71. The maximum age was reduced to age 69 as part of the government’s austerity program in 1997, but raised back to 71 in the 2007 budget. Now there is growing demand to bump it up further to age 73.
• Registered retirement income funds (RRIFs) were added to the program in the 1970s, allowing taxpayers to further tax-shelter funds after retirement subject to mandatory minimum withdrawals.

Early chapters of the book set the scene with an extensive RRSP vocabulary (Chapter 2) and the rules relating to contribution levels, deadlines, carry-forwards and spousal plans (Chapter 3).

In Chapter 4 Pape says the most common mistake people make is to walk into their bank and say, “I want to buy an RRSP.” “You invest in an RRSP so the type of RRSP you select will have a huge impact on how your money will grow over the year,” he says.

If you are a regular RRSP contributor, you may think you have little to learn about the subject. But here are a few interesting tidbits I picked up that you may not be aware of:

• You can contribute in one year and defer your tax deduction to a later year when your earnings are higher and the deduction is worth more.
• If you don’t have sufficient cash but you have a self-directed RRSP, you can make a contribution “in kind” of another qualified investment at its fair market value. For example you can contribute a $5,000 GIC maturing in three years.
• If you receive a retiring allowance or severance pay it can be transferred directly to your RRSP without withholding tax even if you do not have contribution room. You can transfer in $2,000 times the number of years or part years you were with the employer up to and including 1995 without withholding tax. You can also make an additional tax-free contribution of $1,500 for each year or part year prior to 1989 in which no money was vested for you in a pension plan or deferred profit sharing plan.

Pape also shares important details about making RRSP withdrawals for buying a home or returning to school and the complex RRSP mortgage and repayment rules.

For example, did you know that if your RRSP funds are used to invest in a mortgage for you or your children, interest payments have to be made at market rates?

In addition, non-arm’s length RRSP mortgages must be administered by an approved lender under the National Housing Act and insured either through Canada Mortgage and Housing or a private company like Genworth MI Canada.

Chapters 12, 13 and 14 thoughtfully address the perennial questions: RRSP or mortgage pay down? RRSP or debt pay down? RRSPs or Tax-free savings accounts.

The one area where I disagree with Pape is on the merits of an employer-sponsored Group RRSP. He says they are often not a great deal because employers can’t contribute to them directly; Group RRSP contributions reduce your total contribution level for the year; and Group RRSPs frequently offer a limited number of investment options.

In my experience working as Canadian Director of Research for a global actuarial consulting firm, smart employers view their Group RRSP as an important attraction and retention tool. They generally incent employee participation by grossing up salary to match or partially match employee contribution levels.

In addition, fees are often lower than individual RRSPs opened with retail financial institutions and there is a large (but not too large) selection of diversified investment funds for employees to choose from. Interactive websites plus in person and online education are also frequent valuable group RRSP add-ons.

What I do not disagree with is that RRSPs can be a powerful machine for creating wealth that you ignore at your peril! RRSPs The Ultimate Wealth Builder can be purchased online from Indigo books for $13. An e-reader version is also available for $13.99 from the Kobo bookstore.

*Contributions to the Saskatchewan Pension Plan of up to $2500/year form part of your RRSP contribution limits. You can also transfer $10,000 from your RRSP to SPP each year until you are 71 without tax consequences. In 2013 the SPP balanced fund earned 15.77%.

By Sheryl Smolkin

It’s only February 11^th and it feels like personal finance writers should have run out of things to say about RRSPs by now, but somehow they still find more to write about.

One of the more interesting things I came across this week was the results of a BMO survey that reported 69% of Canadians expect the Canada Pension Plan (or Quebec Pension Plan) to cover their retirement costs with nearly one-third, planning to “rely heavily” on it. This is despite the fact that CPP has an average monthly payout of less than $600 a month! And many people are also pegging their hopes on an inheritance or a lottery win to fund their golden years.

Well, someone once told me that lotteries are “a tax on the statistically challenged,” so you should probably take careful note of Brenda Spiering’s blog on brighterlife.ca discussing how much you can contribute to an RRSP.

The annual maximum contribution for 2013 is the lesser of $23,820 and 18% of your earned income for the previous year. But you may also have unused contribution room from previous years that has been carried forward and you can over-contribute up to $2,000 without a penalty.

But don’t forget to save some RRSP contribution room to make your $2,500 maximum Saskatchewan Pension Plan contribution.

Also, check out Gail Vaz-Oxlade’s interesting  2014 RRSP Update. Did you know that kids CAN have an RRSP although they can’t have a Tax-free Savings Account until they’re 18? If a child contributes when she doesn’t have to pay any tax, don’t claim the deduction. Hold it for later when her income and her tax rate go up so she gets a bigger bang for her buck.

On moneysmartsblog.com Mike Holman pokes a few holes in the RRSP Myth that an RRSP is only advantageous if your marginal tax rate in retirement is lower than your marginal tax rate when contributing.

He gives examples to show that when you make a contribution to an RRSP the tax deferred from RRSP contributions is calculated at your marginal tax rate (or close to it, if your RRSP contributions span more than one tax bracket). However, when you withdraw money from your RRSP or RRIF – the tax is calculated using your average tax rate (after other income sources such as pensions) which is typically lower.

Finally on retirehappy.ca, blogger Scott Wallace weighs in on the new Pooled Pension Plans to be offered by the federal government and some provinces such as Quebec and Saskatchewan. PRPPs are intended to provide a savings vehicle for small business or self- employed people who don’t have access to larger pension plans..

Scott says the industry already has low cost Group RRSPs and DC pension plans. And of course my readers already know that SPP allows employers to set up an easy, no-cost workplace plan. That’s why I agree with Scott that the real issue is not creating new kinds of retirement savings accounts but finding ways to make more people save!

Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere. Share the information with us on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.

By Sheryl Smolkin

When you are planning to fully or partially retire, there are many decisions to make. Most Canadians are aware that they can elect to start receiving their Canada Pension anytime between age 60 and 70.

But many do not know that as of July 2013 if they become eligible for OAS benefits at age 65 they can also choose to defer receiving benefits for up to five years.

Regardless of whether you choose to defer your OAS or not, you must apply for benefits from this program when you wish to begin receiving payments.  It may make sense to wait, however, if at age 65 your income is still high enough that your benefits would be fully or partially clawed back. That would occur if you have net income between $71,592 and $115,716 on your tax return, and assuming you expect it to decline in future.

OAS is paid to seniors over 65 who are Canadian citizens or legal residents and have lived in Canada for at least 10 years after turning age 18. People living outside Canada at the time of application must have resided in Canada for at least 20 years after their 18th birthday. Your employment history is not a factor. A full OAS benefit is based on 40 years of Canadian residence.

For the period beginning January 2014, maximum OAS benefits are $551.54 per month or $6,618,48 per year. Benefits are indexed to inflation and adjusted quarterly. If you decide to delay collecting OAS beyond age 65, the benefit will be increased by 0.6 per cent for each month of delay to a maximum of 36%.

Therefore, based on the current annual benefit level (excluding future inflation), the pension you receive beginning at age 70 will be $9001.13.

Marissa Verskin, a senior tax manager at Toronto accounting firm Crowe Soberman, says the decision on whether to delay collecting OAS or claim it right away should depend on your personal situation. This includes your life expectancy, current and projected future income level and your expected rate of return.

Some of the other circumstances that may influence your decision are if you have chosen to work beyond age 65 or if you anticipate receiving a large one-time capital gain or lump sum at retirement (i.e., for accumulated sick leave credits or severance pay).

Doug Runchey of DR Pensions Consulting spent 32 years with Human Resources and Skills Development Canada. He says if you choose to defer receiving OAS beyond age 65 you can’t “double dip.”

That means if you are only eligible for a partial OAS pension because you have less than the 40 years of residence required for a full benefit, you can’t use the deferral period to both increase your OAS pension by counting it as additional years of residence and also receive a 0.6 per cent per month increase for voluntary deferral.

Service Canada is required to count the deferral period either as additional years of residence or a period of voluntary deferral — whichever is of the greatest benefit to the client.

Runchey also says there could be another collateral advantage to voluntary deferral of OAS. “If you delay and increase your OAS by 36 per cent to $9001.13 per year, you also effectively increase the maximum income claw back threshold to $131,599 from $115,716,” he says.

If you have started receiving your OAS benefits within the last six months but think you can benefit from the deferral, you can write to Service Canada and ask them to cancel your benefits for now. Once your request is approved, you will have to pay back the benefits received. Then you can reapply for OAS at a later date.

By 2023, gradual changes in the age of OAS eligibility from age 65 to age 67 will be fully phased in. This change will not affect OAS applicants or recipients born before March 31, 1958. But people born between April 1, 1958 and January 31, 1962 will have a date of eligibility between ages 65 and 67. For example, a person born in June or July 1961 will be not be eligible to collect OAS until age 66 plus eight months.

Also see:
Old Age Security
Changes to the Old Age Security program – Service Canada
Voluntary deferral of OAS – Retire Happy
Getting what’s yours when it comes to government pensions