Canadian savings rate jumps to 28.2%, says Statistics Canada

For decades we’ve been told that Canadians – once known as a nation of savers – had shifted to become spenders.

No more. According to figures from Statistics Canada reported on by U.S. News and World Report, we are piling up the savings these days. The article notes that by mid-2020, Canadians were saving an incredible 28.2% of their disposable income, up from just 2-3% before the pandemic.

“There’s a pot of cash that’s basically sitting there and we’re interested in monitoring where that goes,” states Statistics Canada economist Greg Peterson in the article. “It’s a kind of notable divergence from what we usually see.”

Peterson states in the article that Statistics Canada is curious as to whether Canadians will pay down debt with their stockpile of cash, or spend it on goods and services, which would benefit the re-emerging economy.

Where did the extra money come from?

“Disposable incomes jumped sharply on higher government transfers – namely emergency wage benefits – while household spending fell amid COVID-19 shutdowns,” the article tells us. That seems right. Back in the spring, when the first pandemic-related restrictions began, there wasn’t much to spend money on other than groceries and gas. Things have been slowly improving ever since.

And certainly many Canadians have been counting on the CERB benefit during these months of the pandemic.

Let’s face it; we are in a crisis situation and it’s always good to have a little money in the wallet to help tide you through.

A survey out in early September from Sun Life finds that nearly half of us “feel less financially secure due to COVID-19.”

Forty-four per cent of those surveyed by Sun Life who say their mental health has been affected by the pandemic cite “financial stress as the main factor,” a Sun Life media release notes.

Younger Canadians appear to be the most worried group, the survey finds.

So, putting it all together, we’ve suddenly changed back to a nation of savers, and it’s quite possibly the uncertainty of our recovering economy that’s to blame. While things are returning slowly to a more normal state, there are still people out there who haven’t been able to get back to work – not everything has re-opened, or re-opened fully.

Having a little cash on hand for emergencies makes a lot of sense in this situation.

However, if you are sitting on excess cash for the short-term, consider earmarking a little bit of it for your retirement savings as well. A good place to tuck away a few loonies can be the Saskatchewan Pension Plan. You can set up SPP as a “bill payment” using your online banking website, and direct some of your extra dollars to them, either a little or a lot. With SPP there are no pre-defined contributions; it is up to you to decide how much to chip in. Your future you will thank you for any stray dollars you can send his or her way.

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Gordon Pape is one of Canada’s best-known authors and commentators on investing, retirement and tax issues. Save with SPP reached out to him by email to ask a few questions about our favourite topic – saving for retirement.

Q. What are the three most important tips you can provide on saving for retirement?

A. Create a savings plan and stick to it. To do that, make sure it’s realistic. To maximize the odds of success, set up an automatic monthly withdrawal at your financial institution, with the proceeds going directly into a pension plan, Registered Retirement Savings Plan (RRSP) or Tax Free Savings Account (TFSA).

• Start as early as possible. Let the magic of compounding work for you for as many years as you can. If you invest $1,000 for 20 years with a five per cent average annual return, it will be worth $2,653.30 at the end of that time. After 40 years, the value will be $7,039.99.
• Use the tax system to your advantage. All RRSP and pension contributions within the legal limit will generate a deduction that will lower your tax bill. Contributions to Tax-Free Savings Accounts are not deductible, but no tax is assessed on withdrawals.

Q. Given today’s markets, are there any things you think people should be doing differently with their retirement investments?

A. This is a very difficult environment in which to invest because of the uncertainty related to the pandemic and the time it will take the economy to recover. In these circumstances, I advise caution, especially with retirement money. Aim for a balanced portfolio (typically 40 per cent bonds and cash, 60 per cent equities). Dollar-cost average your stock or equity fund investments over time. Always have some cash in reserve to deploy in market corrections.

Q. Given what seems to be a lack of workplace pension plans in many job categories, is saving for retirement more important than ever before?

A. It has always been important but it’s especially so if you do not have a pension plan (most people in the private sector do not). Few people want to scrape by on payments from the Canada Pension Plan (CPP) and Old Age Security (OAS). To enhance your retirement lifestyle, you’ll need your own personal retirement nest egg – and the larger, the better.

Q. Do you think we’ll see more people working beyond traditional retirement age – and if yes, why do you think that is?

A. Absolutely. We’re already seeing that trend. In some cases, the motivation is financial – people simply don’t have the savings needed to quit work. But in other cases, people keep working because they want to. I’m in my 80s and still work full-time. I enjoy what I do and don’t intend to stop until health forces me to. I know a lot of people that feel the same way.

We thank Gordon Pape for taking the time to answer our questions. Be sure to check out his website for more great information.

If you don’t have a workplace pension, or are looking for a way to top up what you are already saving, consider the Saskatchewan Pension Plan. It’s a one-shop, personal retirement plan that you can set up for yourself or your employer can offer it as part of a benefit package. Once you are a member, your contributions are grown via risk-controlled, low-cost investing, and when it’s time to receive the gold watch, you can choose from a variety of retirement income options including life annuities. Consider checking them out today.

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U.S. study finds retirees overestimate retirement income, undersave

A study by the University of Southern California, reported on by Next Avenue, has revealed some interesting findings.

It seems, according to the magazine, that retirees “were too optimistic about their retirement benefits, which led to them not saving enough during their working years.” In fact, the magazine notes, “if they could go back in time, they’d have postponed retiring, paid off debts before leaving the workforce and learned more about their personal finances.”

The study is called Subjective Expectations: Social Security Benefits and the Optimal Path to Retirement. And while the contents are aimed at a U.S. audience where retirement rules and programs are different, there is still some good information for us Canucks.

The study found that men were less optimistic about their future retirement benefits than women, which caused them to save more. Those with lower education levels also tended to believe they didn’t need to save, the article notes.

“Being mistaken in this way is costly for these groups because it makes it more difficult for them to realize they need to prepare to be appropriately ready for retirement,” states USC’s Maria Prados in the article. “Given the complexity of how benefits are determined, it is not surprising to see an educational and socioeconomic gradient in these misperceptions,” she states.

When the research looked at attitudes towards Social Security (it’s somewhat equivalent to our Canada Pension Plan and Old Age Security system), it found that 20 per cent of those surveyed regretted taking their benefits early, and 21 per cent found that the benefits they did get “were substantially different than what they expected; most expected more.”

A surprising 50 per cent said they don’t have a good estimate of what their future retirement benefits will be.

The article makes several key recommendations so that you don’t find yourself short in your Golden Years.

• Expect to live a long life: A big issue, the article notes, is “forgetting you may live to be 98.” And if you do, you’ll find that taxes, healthcare costs and caregiving expenses will all be much more, due to inflation.
• Get an estimate: If you are eligible for government retirement benefits, or benefits from work (or both), be sure to get estimates of what you’ll get before you get too far along in planning. Try to get estimates that show after-tax amounts.
• You can get more if you retire later: While the article focuses on U.S. programs, be aware that CPP is reduced if you take it before age 65, but is increased if you take it after 65; the latest you can start it is age 70.
• Create a lifestyle budget: Be aware of what you plan to spend in retirement – just as you need to understand your income, you need to also understand your future spending.
• Women should take a more active role in financial planning: There are many resources available online to get you up to speed on your retirement benefits from work and the government.

The article concludes with this good advice – “plan for more income than you think you’ll need.” It’s very true that the cost of living very rarely decreases.

If you’re a member of the Saskatchewan Pension Plan, you can estimate what your future retirement income will be using their Wealth Calculator. As well, you can see how your savings are doing online using MySPP. Be sure to check out these key tools soon, particularly if retirement is fast approaching!

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The pension industry has a big footprint.

With the top 300 pension funds around the world managing an eye-popping $19.5 trillion (U.S.) in assets – and with quite a few of those funds being Canadian-based – Save with SPP decided to take a look around to see what our own country’s pension leaders are saying about investment markets.

With $409.6 billion in assets, the Canada Pension Plan Investment Board (CPPIB) is the nation’s largest pension fund. CPPIB has identified four sectors of the economy it thinks will grow in the near future – e-commerce, healthcare, logistics (aka shipping/receiving) and urban infrastructure.

CPPIB expects “massive changes” in those areas, CPPIB’s Leon Pederson tells Tech Crunch. And while CPPIB invests for the long-term, the four areas identified by their research might “indicate where the firm sees certain industries going, but it’s also a sign of where CPPIB might commit some investment capital,” the magazine reports.

The $205-billion Ontario Teachers’ Pension Plan (OTPP) saw small losses in the first half of 2020, reports Bloomberg.

“Some of our hardest hit investments were among our private assets. Heavily-impacted segments were leisure and travel, including our five airports, and assets where consumer spending declined, which is our shopping malls and Cadillac Fairview,” OTPP’s CEO, Jo Taylor, states in the article.

However, losses were cushioned by the plan’s strong fixed-income returns, the article notes – in all, $7.9 million in income from its bond portfolio helped OTPP limit losses.

The $94.1 billion Healthcare of Ontario Pension Plan’s (HOPP) CEO, Jeff Wendling, recently told Benefits Canada that the plan is considering looking at some new investment categories as it pursues its “liability driven investing” strategy. With a liability driven investing strategy, the investment target is not beating stock market indexes, but ensuring there is always enough money to cover every current and future dollar owed to pensioners.

“We’re very focused on liabilities, but what you do when interest rates are at really extreme lows, in our view, is different than what we did in the past,” he states in the article. HOOPP, he adds, is now looking at infrastructure investing, insurance-linked securities, and increased equity exposure to generate income traditionally provided by bonds.

Large pension plans like CPPIB, OTPP and HOOPP have enjoyed a lot of success over the years. The takeaway for the average investor is that the large scale of these plans allow them to do things the average person can’t – like directly owning businesses (private equity), or shopping centres and offices (real estate) in addition to traditional stock and fixed-income investments. The big guys are taking advantage of diversification in their holdings, and so perhaps should we all.

Individuals and workplaces can leverage the investment expertise of the Saskatchewan Pension Plan. Its Balanced Fund is invested in Canadian, U.S. and international equities, bonds, mortgages, and real estate, infrastructure and short-term investments. And the fund has averaged an eight* per cent rate of return since its inception in the mid-1980s. Check them out today.

*Past performance does not guarantee future results.

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Is having a life coach for retirement the next new thing?

For nearly all of us, retirement is something we imagine as a wonderful life after work is done – and as well, something we should be saving money to pay for.

An article in Forbes magazine suggests that “the transitions surrounding retirement can lead to a time of anxiety and questioning.”

The article cites a 2019 study from McMaster University in Hamilton, Ont. as noting “much of this angst may stem from a loss of identity, family tensions and a sense of loneliness. Financial factors often play a role too. Living on a fixed income can be rough and the cost of living may exceed expectations.”

These factors, coupled with the general uncertainty due to the pandemic, can make “a retirement date that’s nearing seem daunting,” the article notes.

But, Forbes reports, there’s a solution to retirement anxiety – getting a life coach.

“You may be familiar with life coaches, who help people evaluate themselves, grow and implement lifestyle changes. Often, a life coach will provide a working plan to help improve a specific area of your life,” the magazine tells us.

“Retirement coaches frequently act as life coaches, with a specific focus on the retirement years. Like other life coaches, retirement coaches may specialize in certain things, such as finances or behavior,” the Forbes article explains.

New retirees can face obstacles that they don’t expect, states Monte Drenner, a Florida-based life coach interviewed by Forbes for the article.

The social networks built through work have to be rebuilt, he says. Travel plans may not be financially achievable – the dream is more expensive than savings permit, Drenner tells Forbes.

It’s important for them to realize that retirement is a phase of life and not a break from work, Drenner says in the article. ““Many people bring a vacation mindset to retirement,” he explains – but that thinking can lead to dull days if nothing much is planned in the time between travel dates.

Another life coach quoted in the article, Kay Goshtabi of San Diego, says self-awareness is something many new retirees need to attain.

“The majority of my clients who are reinventing in retirement tell me that this is the hardest challenge they have faced to date,” she tells Forbes, adding that before retiring. “people have not stopped to figure out who they are.”

It’s important, she says, to set realistic expectations about retirement. “I look at it as a marathon and not a sprint,” she says.

The article gives some examples of how you might reinvent yourself in retirement by working part-time at something you like, or developing projects to help your family such as a family-focused cookbook. Write down your “dreams, wishes and interests” prior to retirement to help keep you on track when you’re there, the article concludes.

It’s true that retirement is what you make of it, but some dreams are more expensive than others. That’s where the Saskatchewan Pension Plan can be of assistance. It’s like a personal pension plan you can leverage as your main retirement savings tool, or to augment benefits you’re getting from work. The SPP grows your savings and offers you many income options when it’s time to start chasing dreams, such as the ability to get a lifetime pension. Be sure to check them out today.

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Let’s face it – the spring, summer and fall of 2020 have been quite a downer. We’ve been made to be holed up at home, are restricted in what we can do, where we can go and who we can see, and are continually worried about our jobs, our kids, and the bills.

The pandemic has hammered our mental health, reports Global News. “A survey done in conjunction with the Mental Health Commission of Canada found that a whopping 84 per cent of those surveyed felt their mental health had worsened since the onset of the pandemic,” the network reports.

“Similarly, an Ipsos survey done for Addictions and Mental Health Ontario found 45 per cent of Ontarians reported their mental health had suffered during the pandemic, with 67 per cent saying they expect those effects to be `serious and lasting,’” reports Global.

Save with SPP took a look around to see if there are any ideas out there on how to ward off these feelings of depression and anxiety.

According to Triathlon Magazine Canada, research from the Journal of the American Medical Association has found that “by being physically active, depressive symptoms decreased.” Even five minutes of activity did the trick, the magazine reports.

Other tips – develop, and stick to, a routine, the magazine suggests. Avoid the “western diet” of “processed meat, high-fat dairy products, and refined grains” as it is associated with increased risk of depression, the magazine advises. Their final suggestion is to try, even with the restrictions in place, to stay in touch with friends and family. “While tedious, Zoom calls are good for our mental health, but in person is far better,” say the folks at Triathlon Magazine Canada.

Over at Psychology Today magazine, Dr. Erin Leyba offers some additional tips.

Taking a warm bath at least twice a week “may help relieve symptoms of depression… even more than exercise does,” she writes.

Exercises like “jogging, cycling, walking, gardening and dancing” help increase your blood circulation, which in turn helps shift your brain’s reaction to stress. Doing nice things for friends and family will produce a “helper’s high” that makes our brains feel better, she writes. Examples are calling or face-timing an elderly relative, delivering groceries to someone, thanking front-line workers via cards or buying them lunches, or donating money to help those impacted by COVID-19.

Reading, as well as calling or video-chatting with friends are also positive steps to ward off depression, she writes.

The advice from the federal government is similar. Let your doctor know if you think you are suffering from depression, the feds advise, as depression “is a serious but treatable illness.”

Avoid isolation, the federal website urges.

“One-on-one interactions, such as going to a movie or out for coffee with a friend are also good forms of social contact. Being around others provides support, companionship and has a good effect on your general health,” the site notes, agreeing that physical activity and a healthy diet are also pluses.

These are all good pieces of advice that we all should take note of as we watch the pandemic play out. A colleague of ours once said that every crisis has a beginning, a middle, and an end. It’s nice to imagine the end of this one.

If saving for retirement is one of your worries, a solution may be joining the Saskatchewan Pension Plan. It’s great to have professionals running your investments (rather than trying to figure it out yourself), and the SPP grows your money at a very low fee. When it’s time to turn your savings into retirement income, SPP offers a variety of lifetime pension options via annuities. Check them out today!

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Giving seniors online tools to help them cope with the pandemic

We recall how our dear parents (now departed) were not embracers of technology. When the folks finally broke down and bought a PC in the late ‘90s, dad said he had no interest in mastering “the device.” Mom fared a little better but was frightened off by pop-ups and other net nuisances. So “the device” sat, pristine and beautifully dust-free, in a faraway corner of the basement.

So it is understandable that many older seniors aren’t comfortable with computers.

An Ontario group hopes to help change that.

According to the Niagara Falls Review, the group Cyber-Seniors was designed to get younger people to teach their elders about how to use technology.

“We started Cyber-Seniors as a fun way to get seniors connected on the internet,” states the group’s co-founder Kascha Cassaday in the article. “But when COVID hit … it was more about they need to be on the internet in order to get the basic necessities to survive this pandemic.”

The group was started by Cassaday and her sister, Maccaulee, who just wanted to get their grandparents to use Facebook to stay in touch, the Review reports.

They did so by in-person sessions, attracting hundreds. When the pandemic forced them to move online, they started attracting thousands of people, the article says.

And the effort is producing results.

“(I was) afraid of breaking the computer because I didn’t know how to use it,” says 92-year-old Beamsville senior Patricia Harvey. Despite that, she joined Cyber-Seniors to try and figure out computers.

“I like to keep busy. I’m not a knitter or crocheter,” she tells the Review.

Now, using the Internet, she can talk to, and see family members who aren’t able to visit due to the pandemic. “You don’t feel quite so alone,” she says.

Recent research cited in the Review article says online tech can definitely battle isolation, but also can keep those over 65 “safe, stay at home longer, and live independently.”

The young volunteers are finding the work very rewarding, the article concludes.

Has COVID-19 changed your retirement plans?

CTV’s Pattie Lovett-Reid recently asked her Instagram followers if the pandemic had changed their retirement plans.

The short answer, she found, was yes. “Some are accelerating their plans, and others want to delay for as long as possible,” she writes. One follower who had retired has found the isolation and lack of travel so frustrating that she is planning to return to work. A small business owner had planned to sell his business and retire to the cottage, but can’t clear his inventory, the article notes.

Some have health issues and want to retire ASAP, while others are worried they’ll lose their jobs due to the pandemic and will have to delay retirement plans.

“Life can change in a heartbeat,” Lovett-Reid advises. It may be time to review your plan and make tweaks if necessary, she concludes.

The Saskatchewan Pension Plan can help you on both fronts. First, most of the plan’s services can be accessed online via MySPP. You can check your account balance, update your personal information, learn about SPP retirement options and much more.

If you’re tweaking your retirement plans, the SPP site is equipped with online calculators so you can figure out your income at different retirement dates. Check it out today!

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FP Canada recently released their annual 2020 Financial Stress Index. Save with SPP reached out to FP Canada’s consumer advocate Kelley Keehn, a noted financial author and educator, by email to find out about the survey’s results.

Q. Research shows money is number one worry, and that people worry about saving for retirement and debt. Is there a relationship between the two – like, if you are paying down debt you can’t save for retirement, and vice-versa? And maybe also did you find out what people think the consequences are of not having enough for retirement (working forever, a less exciting retirement, etc.)

Yes, money still is the #1 worry. FP Canada’s Financial Stress Index found yet again that people worry more about money than health, relationships or work.

The survey didn’t go into your exact questions, but I can anecdotally state that without a clear financial plan, it’s nearly impossible to figure out complex scenarios like paying down your debt vs. saving for an RRSP (or using the tax deduction to pay down on your debt), etc.  And you’re correct, that the consequences for not having saved enough for retirement means either living with less or working longer.  

Consistent with previous years, in 2020 money is the number one cause of stress for Canadians by a large margin. Money (38 per cent) outranks personal health (25 per cent), work (21 per cent) and relationships (16 per cent) as the top source of stress in Canadians’ lives. This is particularly significant given multitude of non-financial stresses related to the COVID-19 global pandemic.

The 2020 Financial Stress Index also reveals that as Canadians age, they feel less stressed about money – with 44 per cent of 18-to-34-year-olds listing money as their leading concern compared to one-in-four (25 per cent) of those aged 65+.

Q. Putting money aside for an emergency fund is a great idea – we would like to hear a bit more about this, if possible. Are people basically realizing they need to create one for the first time? Or are they moving from having a sort of contingency credit line to having actual savings? We guess it’s because of the pandemic that this is being considered more?

Before the crisis, many stats revealed that 50 per cent of Canadians were just $200 away from insolvency.  I don’t know the current numbers, but one could suggest that it’s much worse now.  And, many people don’t realize that the time to get a line of credit is when you don’t need it (i.e. not after you’ve lost your job). 

A recent Canadian Payroll Association survey revealed that it’s not the amount of income that you earn that reduces stress, it’s the financial buffer that you have.  The problem for younger Canadians is that they haven’t been in their career long enough to save (i.e. student loan debt, getting into a home). 

Q. The financial regrets part is fabulous. We wondered whether “having a better job” might refer to having a job with better benefits (or maybe just better money). We retirees sure wish we had had the brains to try and find a job with a good workplace pension earlier (this writer got such a job in his mid-30s). That sort of thing.

The survey didn’t dig deeper unfortunately.  But people really should think of their career as their fourth asset class. If you’re in a high-risk career like an entrepreneur, your investments should perhaps be less risky.  On the flip side, a professor with tenure likely takes less risk with their investments, but possibly should. It’s essential that your career is part of your financial plan (do you have a pension or not, benefits, etc.)

Q. The number one takeaway from the research – what results surprised you the most, and why?

That Canadians are still not reaching out for help and thus suffering sleepless nights.  We wouldn’t self-diagnose when it comes to our health, nor would we go on a new road trip without the help of Google maps on our phone.  Why do so many Canadians still not reach out to a financial pro like a Certified Financial Planner (CFP)?

We thank Kelley Keehn for taking the time to answer our questions, and her colleague Emma Ninham for setting things up.

Is the Saskatchewan Pension Plan part of your own financial plan? The SPP could serve as your personal defined contribution pension plan, a workplace pension or can supplement any workplace or government pension plans to which you belong. It’s a plan with a long history of successful investing returns at a very low management cost, and has averaged returns of more than eight per cent since inception. Consider checking out SPP as a way to help take the stress out of retirement saving.

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No question about it, A Simple Plan to Wealth by JL Collins is ideally suited for those of us who “have better things to do with their precious time than think about money.”  This book grew out of a series of blog posts that were designed, in part, to enlighten the author’s kids, we are told. While a lot of the retirement saving messages are aimed at our friends south of the border, there is a lot of solid advice in these pages.

“Spend less than you earn – invest the surplus – avoid debt,” Collins begins. “Do simply this and you’ll wind up rich. Not just in money.” Collins adds that carrying debt “is as appealing as being covered with leeches and has much the same effect.”

Collins says even at age 13, he was a saver. “Watching my money grow was intoxicating.” And while savings first earmarked for a convertible ultimately were needed to pay for his college education, the important aspect of the story is having savings “in this fiscally insecure world.”

“To this day it stuns me to read about some middle-aged guy laid off from his job of 20 years and almost instantly broke. How does anyone let that happen? It is the result of failing to master money,” he writes.

Credit cards draw us in and then live in our pockets, he says. Early on, faced with a chance to put a $300 purchase on a credit card, he found that after paying the minimum he would owe 18 per cent on the balance of $290 that “they were hoping I’d let ride. What? Did these people think I was stupid,” he asks. But credit is not personal. “They think the same of all of us. And unfortunately, all too frequently they’re not wrong.”

Collins is a big proponent of stock investing, and notes that $12,000 invested in the U.S. S&P 500 in 1975 would be worth $1.07 million thirty years later. However, he says, most people lose money in the market because “we think we can time the market,” or “we believe we can pick individual stocks” or “winning mutual fund managers.”

Collins likes exchange-traded-funds (ETFs), specifically citing the Vanguard series. He also is quite aggressive in his personal portfolio mix – 75 per cent stocks, 20 per cent bonds, and five per cent cash, with stock and bond holdings all done via index ETFs. ETFs, he writes, have far lower fees than mutual funds, and there’s an argument for buying the entire index rather than trying to pick those stocks on it that are winners. He notes that Warren Buffett had similar advice for his shareholders – “put 10 per cent of cash in short-term government bonds and 90 per cent in a very low-cost S&P 500 index fund.”

Collins is also a “four per cent rule” skeptic, saying it is safer to draw three per cent per year from your retirement savings in order to live well without running out of money. “Stray much further out than seven per cent and your future will include dining on dog food,” he warns.

The key message throughout this easy-to-digest book is to stick to the plan and live within your means. Nothing, he concludes, “is worth paying interest to own.”

Be sure to earmark retirement savings in your plan. As the book suggests, the longer your savings have to grow, the more they will. The Saskatchewan Pension Plan has averaged growth of more than eight per cent annually since its inception in the 1980s, and the fee charged is currently about one per cent. Get your savings growing for you and consider checking out SPP today.

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How much is the right amount to withdraw from retirement savings?

OK, so you’ve managed to squirrel away a nice chunk of money in your retirement fund. Now you’re ready to start taking the money out and you know, living off it.

But is there a sensible rule of thumb to employ so that you don’t run out of savings before you run out of life?

According to the Daily Mail in the U.K., there is a new idea making the rounds.

Investment company Vanguard says there’s a way to help make sure your money will last the 35 years or so that you may need it to last, the Daily Mail reports.

“The firm suggest savers determine their income by multiplying their portfolio by five per cent, then comparing it with the previous year and adjusting how much they remove accordingly,” the article says.

“If the fund is higher than the previous year, retirees should withdraw up to five per cent while if the portfolio has depreciated in value, income should be decreased by roughly two per cent.”

Simply put, don’t take out the same amount every year. Take out up to five per cent if your savings have gone up in value, and take out less, say three per cent, if it has not.

The conventional withdrawal rule that has been bandied about for years in the industry is that you can safely withdraw four per cent from your savings annually.

The new Vanguard formula flies in the face of that wisdom, and the four per cent rule was recently questioned by financial author Jason Heath in a MoneySense article.

“Over the half decade I’ve written this column and attempted to practice what it preaches, a central pillar has been the so-called 4 Per Cent Rule,” he writes.

“Problem is, with `lower for longer’ interest rates and the spectre of negative interest rates, is it still realistic for retirees to count on this guideline? Personally, I find it useful, even though I mentally take it down to three per cent to adjust for my own pessimism about rates and optimism that I will live a long, healthy life,” he writes.

He goes on to cite other experts who say four per cent “is a reasonable rule of thumb” for non-registered savings, but once RRSPs are converted into RRIFs, higher withdrawal amounts are mandated by the government anyway, making the withdrawal formula “moot.”

Let’s digest all this. You’ve got savings, you want to live on those savings. But up until now you have never had to live on a lump sum amount that gets smaller every year – you are used to getting a paycheque. Whether you take out two, three, or four percent (or some other mandatory percentage) of your savings every year, there will likely be less money in the piggy bank each year you get older, particularly at a time when interest rates are so low.

Do we want to be pre-occupied with withdrawal rates and decumulation strategies while we are trying to hit golf balls onto the fairway? Surely not.

But wait – if you’re a member of the Saskatchewan Pension Plan there’s a solution to this problem. SPP offers a variety of annuities for its members. When you come to retirement, you can convert any or all of your SPP savings into a monthly income payment – a lot like your old paycheque – that comes to you in the same amount for the rest of your life. You can never run out of money, no matter how long you live or what markets and interest rates do. Security is guaranteed. Check out SPP today.

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