By Sheryl Smolkin

Selecting a career is one of the most important challenges all of us have to deal with, and it doesn’t only happen once when we graduate from high school. I went to law school and embarked on an initial career as a family lawyer. However, nine years later I moved into pension and benefits law, and as a retiree I have a new career as a journalist. My husband has degrees in electrical, biomedical and software engineering, but spent most of his career in software design.

That’s why I think Bridget Eastgaard’s blog The future you are saving for does not exist on Money After Graduation is a “must read” for you and your kids. She says, “One of the most dangerous things you can do for your finances (and your happiness) is to plan your life under the assumption that everything will remain as it is. It won’t. I think we intuitively understand this, but you don’t know what you don’t know, and that makes imagining anything different extremely challenging. But these perspectives and biases can hinder us by limiting our flexibility to adapt to an ever-changing world. ”

So if you or your child are picking college or university courses or even if you are graduating from high school or with an undergraduate degree, how do you know what skills are in demand now and will still be highly sought four or more years from now?

The truth is none of us has a crystal ball. But you can check out Canada’s Best Jobs 2016: The Top 100 for a start. I’ll bet you’d never guess that the top three jobs on the list are: mining or forestry manager; urban planner and pharmacist. And construction managers, police officers and nurse practitioners are also highly ranked.

Heidi Grant Halvorson in the Harvard Business Review writes that The key to choosing the right career is to find a career that fits well with both your skills and values. She characterizes people in two ways. Those who primarily see work and life goals as opportunities for advancement, achievement and rewards have “a promotion focus.” The rest of us are mainly prevention-focused. We see our objectives as avoiding danger, fulfilling responsibility and being someone people can count on. Halverson believes that understanding our dominant focus can help with career selection.

In How to choose a career that you’ll love, New York Times bestselling author and founder of iwillteachyoutoberich.com, Ramit Sethi says, “The smart approach is to explore ALL the careers you’re interested in, test each to see if you’d really enjoy doing them, and move on to other jobs if they’re not a good fit. It’s kind of like window shopping at a mall. A shirt or pair of jeans may catch your attention. You might even try them on, but you wouldn’t just pick any random thing off the rack and say ‘I guess I’ll wear this for the next 10 years,’” he says.

Getting the chance to try different careers and work environments on for size is one reason why co-op co-op programs including one or more paid work terms are so valuable. An interesting blog on myuniversitymoney.com explores the pros and cons of co-op programs. Author Mr. Harvey is a former co-op student and he says the job hunt seemed to be an endless cycle of applying and interviewing for jobs which was a lot of work and stress on top of his studies. However he agrees that co-op students get lots of experience and many students are offered permanent jobs.

*****

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

Today I’m interviewing accountant Dave Trahair for savewithspp.com. Dave operates his own personal finance training firm, and he is also the author of five personal finance books. He offers seminars based on his books to organizations, including CPA Canada and its provincial accounting affiliates. His most recent book is The Procrastinator’s Guide to Retirement: How YOU can retire in 10 years or less, and that’s what we’re going to talk about today.

Q: What portion of the population do you think is 10 years or more out from retirement and not saving enough?
A: It’s hard to pin it down to a specific percentage, but I would say the vast majority of people who don’t have defined benefit pension plans are in that boat. Unfortunately, this type of plan is going the way of the dodo bird, because with the low interest rate environment and what’s happening in the stock market, the people running those kinds of pension plans can’t save enough to fulfill their promise. It’s hard to come up with a precise number, but I bet you 80% of people without a defined benefit pension plan are nowhere near ready, financially, to fund their retirement.

Q: Why do you think so many people procrastinate when it comes to planning and saving for retirement?
A: Well, I think for some, it’s just that they’re bad with money, and they spend more than they make. They run on credit card debt, and they’re never really even thinking about getting their lives under control, financially. For many of the rest of us, even if we aren’t fiscally irresponsible, it’s just that life is expensive.

Think of people in their 20s who have just graduated from university. Many of them are saddled with student loan debt and they are having problems trying to find a full-time job in their field. Forget retirement savings. That’s so far down the road. They’ve got more pressing concerns at that stage in their life.

People in their 30s and 40s tend to do things like get married, have kids, and buy a house. These kinds of activities are very costly and therefore, many people find that there simply isn’t any money, at the end of the day to save for retirement. It’s not because they’re wasteful spenders.

Q: Continuing with the same theme, if you ask most people, they’ll probably tell you they’re tapped out. They don’t have extra money left over at the end of the month. Where can these people find the money to save?
A: That’s a very good question, and one of the key concepts in the book. I always tell people when I’m asked, “What’s the first thing you can do to help get your finances under control?” The answer is to somehow track your personal spending.

For effective financial planning you have to start with what’s happened in the past. That is your personal spending. Once you have a handle on where all the money went in the past, then you can take proactive steps to get your finances under control and probably find some areas where you could cut back and free up some spare cash for your retirement savings.

One of the big problems out there is revolving credit card debt. According to the Canadian Bankers Association, only about 60% of Canadians pay off their credit cards each and every month and, therefore, don’t incur interest charges. That means about 40% of Canadians can’t even pay off their credit cards, which means, essentially, that they’re spending more than they make.

Q: My first thought when I got your book was that it’s a great road map for saving in the last ten years before retirement, but the information is quite similar to most of the personal finance books I’ve read. What’s different about your book? What makes it a must-read for all Canadians and, in particular, those who are only a decade from retirement?
A: Yes, fair question. The first point that I’d make in response is that there is no magic bullet when it comes to personal finance. It’s really pretty basic. You could sum it up in one sentence.

All you have to do is live your life, spend less than you make, and do something positive with the excess money. The problem is most people aren’t doing that. There are books out there that play upon peoples’ wish to get ahead financially, easily or automatically. That’s just taking advantage of readers. The really good personal finance books out there, attack the root of the matter (as my book does) which is that your spending has to be less than your income.

What makes my books different — this one and the other ones I’ve written — is that I give away Microsoft Excel spreadsheets people can actually apply to their own situations. I use the spreadsheets as examples in the book, and then I say, “Look, go to the next step. Download the free spreadsheet, punch in your own numbers, and see what conclusion you come to about your life.”

Q: If readers are approaching retirement with consumer debt and a mortgage, where should they put their money first? Should they hold off on making RRSP contributions until they are completely debt free?
A: Good questions. I would say that it depends on the type of debt. If we believe the Canadian Bankers Association that at least 40% of Canadians have ugly credit card debt, the only thing these people should be thinking about is trying to get rid of that obligation. Forget paying down the mortgage. Forget making RRSP contributions. Even if there is a tax refund on RRSP contributions, they are effectively financing it at a very high interest rate because the alternative would be to pay down their credit cards.

There’s a chapter in the book on four people in that situation, which basically lays out the different options for getting rid of credit card debt. The problem is that it really requires a mind shift. It requires people to change their basic habits and it is really, really difficult to get them to do this.

Once a family has paid off their credit cards, the decision becomes “contribute to an RRSP or pay down the mortgage.” The first observation I would make in that case is that either option is a good alternative. You’ve got extra money, whether you pay down the mortgage or make an RRSP contribution, you can’t lose in either case.

However, with the ultra-low interest rate environment right now and assuming the person we’re talking about is in a reasonably high tax bracket, making $80,000 or $100,000 or more, it’s difficult to beat the huge economic benefit of a tax refund.

Q: To what extent should Canadians planning for retirement take future health and long-term care costs into consideration, and how can they quantify these amounts, for budgeting purposes?
A: That’s a very difficult question to answer and a very challenging thing for many people. We have provincial health plans in Canada, so we’re a lot further ahead than our neighbors to the south. The government plans aren’t perfect, but they’re a good basis for covering many of your health costs.

However, some other areas related to healthcare are not covered by the provincial plans, and this becomes a big problem for couples, say, when one of them has an ailment that requires him/her to go into a long-term care facility or nursing home. That can be very, very expensive. This is when people get into trouble with their finances due to health costs. In a lot of cases, it will be one of the spouses who needs long-term care and the other one is still living in the house, so it essentially almost doubles the family’s living costs.

Many people are able to cover the high costs of long-term care because they bought their home and own it out right. That is why I always encourage people who can afford a home to buy it and pay off the mortgage. Then you’ve got something worth significant money so you could sell and downsize or even take out a home equity line of credit to finance costs related to long-term care.

It really is an individual thing that requires a lot of thought and is difficult to pin down. It’s difficult to budget for retiree health care costs and yet the expenses can be onerous if you’re not prepared.

Q: I noticed you were recently interviewed for the “Me and My Money” column in The Globe and Mail. Your investments are very conservative – a high-interest savings account and guaranteed investment certificates. This is very contrary to what even independent financial advisors usually recommend. Why don’t you hold any equities?
A: I have no exposure to the stock market. That’s because I’m a very conservative accountant. I don’t like losses. I have spent a lot of time studying the stock market. I wrote a book on it called Enough Bull a couple of years ago.

If you look at long-term historical rates of returns, say, for the Canadian stock market, the S&P/TSX composite total return index which includes reinvested dividends, has done fantastically well —  9% per year. The problem is, for many reasons, most people come nowhere near what the ideal index has made.

That’s because they get emotional when the stock market crashes. They panic and sell at the wrong time. They sell low and buy high, which is the opposite of what you’re supposed to do. The other issue is that when it comes to personal finance, who has fifty years to go to retirement? You can’t assume that you’re going to earn the long-term, fifty year historical average rate.

I love fixed income products like GICs because they’re easy to understand; they’re guaranteed if you buy them from a financial institution, like any of the big six banks that are members of the CDIC (Canada Deposit Insurance Corporation); and, you can’t lose your money. The downside of course is they’re not paying very much interest. You’d be lucky to get about a two percent average rate of return.

The problem is most people using the recommended strategy of an investment advisor have a lot of exposure to the stock market. They think they’re making six or eight percent after fees and, therefore, laugh at GICs making two percent, but in many cases, they aren’t earning what they think they are.

Q: At age fifty-seven, you’re less than ten years from the normal retirement date of age sixty-five. Do you have a planned retirement date in mind?
A: I don’t really have a retirement date in mind. I mean, I love most of what I do. My plan is to slow down, do less hours, hopefully do some of the things I currently do, like writing and giving seminars, and earn some money doing that. I plan to slow down but I really don’t have any dreams about stopping work at sixty or even sixty-five, so again, that’s an individual choice.

Q: In closing, if you had one piece of advice for people who are ten years out from retirement, what would it be?
A: Well, first of all, I would say you have got to track your spending. I know it’s boring. I know it’s time consuming. I know not everybody is a specialist or likes dealing with spreadsheets. But that’s the most powerful information you can get because it’s personal. That’s what you need to start with: your family’s personal spending.

Q: Thank you, Dave. It’s a pleasure to talk to you today.
A: Thanks for having me, Sheryl.

 

 

 

 

 

 

 

David Tahair, author of
The Procrastinator’s Guide to Retirement: How to Retire in 10 Years or Less

By Sheryl Smolkin

My husband and I helped our daughter buy her first house and a few years ago we bought my son a car. We also partially paid for their education so they were able to graduate debt free. I consider these gifts as an excellent investment because we could afford it and it was our pleasure to share our good fortune with them when they needed it most.

So when I came across Sean Cooper’s blog Why Millennials Should Save Their Down Payment and Not Rely on the Bank of Mom and Dad, I figured I’d better find out what he has to say. Sean believes that parents who cough up all or part of the down payment for a house are generally hurting their offspring instead of helping them. “By showing your millennial child tough love, you’re teaching your kids a valuable lesson: not everything in life is handed to you in a silver platter,” he says.

In an excerpt from his book The Bank of Mom and Dad: Money, Parents, and Grown Children published in the Globe and Mail last year, Derrick Penner says the first question the family should explore is whether the timing is right. For young adults just setting out on a new career, it might be more logical to rent (assuming they’ll also be able to save some money) and kick-start an investment plan that would lead to home ownership later than to buy real estate before they’re really ready.

But if you do decide to give cash to your kids for a down payment, How to help your kids buy a home by Michele Lerner on Bankrate.com has some great tips. First and foremost, she says make sure your own retirement needs are adequately funded before you part with a large lump sum. Also, if you co-sign on a mortgage or loan, understand that you will be liable if your child defaults, so make sure in a worst case scenario you can also afford to make the mortgage payments.

Help your child buy his/her first home, a post on GetSmarterAboutMoney.ca says if you do decide to go ahead, there are three common options: loan your child the money; co-sign your child’s mortgage; or pay some or all of the costs as a gift. Make sure you understand the pros and cons of each option, and how your tax situation and financial plan could be affected.

And finally, an article last year by Adam Mayers in the Toronto Star correctly notes that Emotions can run high when helping the kids buy a house. He says that if family-financing is in the home-buying cards for the younger generation, some issues to consider are: securing any loan via promissory note or against title; the pros and cons of joint ownership; and, how to get your money back. In a mini-poll in the article 68% of those who voted said they would be willing help their kids with a down payment for a home.

*****

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

You have filed your income tax return and now all you are waiting for is to see your overpayment appear in your bank account. While paying too much taxes and getting it back at the end of the year really means you are giving the Canada Revenue Agency a no-interest loan, the fact is that particularly with interest rates so low, many of us look forward to a windfall every spring. 

Because my husband retired in June 2015, we are getting a nice chunk of money back and we are planning to spend it on a cruise to Australia and New Zealand for our 40^th anniversary this fall. But depending on your age and stage of life, there may be many better places to spend the money than taking an exotic vacation.

Here are some options for you to consider in no specific order: 

Pay off high interest debt
If you have credit card or other high interest consumer debt and can only afford to make minimum payments, double digit interest rates mean the amount you owe is growing instead of shrinking. Consider consolidating your debts a lower rate of interest and paying them down with your income tax return.

Seed your emergency account
Everyone knows somebody who has lost their job or had to stop work earlier than planned due to family illness. Most financial experts suggest you have at least three months’ salary in your emergency fund. This calculator from RBC can help you figure out how much you need. Your income tax return can help you seed or top up an emergency fund.

Pay down your student loan
Canada Student Loans are interest-free for six months after you graduate or leave school. You can choose between a fixed interest rate (where the rate doesn’t change for the duration of your loan) and a variable, or “floating,” interest rate (where it can fluctuate). For Canada Student Loans issued on or after August 1, 1995:

• The fixed interest rate is prime + 5%

• The floating interest rate is prime + 2.5%

The sooner you pay off your student loan, the sooner you can free up disposable income to save for other family priorities like a house or a car.

Pay down your mortgage
The longest running personal finance debate is whether you should use an income tax return or other windfall to pay down your mortgage or contribute to an RRSP or TFSA. Typically if you are paying a higher interest rate than you are earning in a savings vehicle, paying down your mortgage is more advantageous. Also, if at all possible, try to pay off your mortgage before you retire.

Contribute to a TFSA
In 2016 you can contribute $5,500 to a tax-free savings account. Contribution room from previous years can be carried forward. There is no tax deduction for contributions but your principle and any interest accumulates tax free and there is no tax on withdrawals. Also, if you take money out your TFSA contribution room is restored. Using your tax return to contribute to a TFSA allows you to accumulate money for retirement or other major purchases in the years prior to retirement. It is also a good place to park your emergency fund.

Contribute to an RRSP
Are you one of those people who scrambles to come up with a registered retirement savings plan contribution in February every year? By contributing your tax return to your RRSP you will get a head start on this year’s contribution and reach your retirement goals much sooner. 

Contribute to an RESP
Tuition fees alone for Canadian undergraduate programs are currently about $6,000/year and they will be much higher before your young children graduate from high school. College tuition is lower but by the time you add books, living expenses and transportation costs these programs also cost thousands of dollars a year. If you use your income tax return to contribute to a Registered Educational Savings Plan, the money will accumulate tax free and taxes will be paid by the student who will likely have to pay little or no taxes. Also, an annual contribution of up to $2,500 will attract a government grant of up to $500/year to a lifetime maximum of $7,200.

Give to charity
If you donate all or part of your tax refund to an approved charity, you will not only benefit others, but you will get a non-refundable tax credit. If it is the first time you have made a charitable donation you may be eligible for the first-time donor’s super credit  which supplements the value of the charitable donations tax credit by 25%. The FDSC applies to a gift of money made after March 20, 2013, up to a maximum of $1,000, in respect of only one taxation year from 2013 to 2017.

Upgrade your education
You want to upgrade your skills to put you in line for a promotion. You are bored with your current job and want to train part-time for another one. You’ve always wanted to fix your own car or learn a new language. You can use your income tax return to upgrade your education and you may also be entitled to tax credits for the tuition paid.

Invest in your health
Your dental plan does not cover the braces your child needs. You need a new pair of glasses that cost way more than the $150 every two years paid by your medical plan. You want buy training sessions at your gym to reach your fitness goals faster. Your income tax return can be used to invest in you or your family’s health and wellness.

By Sheryl Smolkin

I can never get too excited about the make and model of the car I drive. All I expect it to do is to reliably get me from A to B and cost as little as possible to run. But there has been a lot of press about the pros and cons of electric cars lately, including the latest luxury Tesla.

If owning a Tesla is on your bucket list, you may be interested in a blog from the self-proclaimed tightwad Mr. Money Mustache describing his 1400 miles of non-driving in a Tesla with a friend who recently acquired one for over $75,000 USD. He says the autopilot actually works, and the company has lined U.S. interstates and major cities with high-speed electric charging stations fueled with free solar electricity available 24 hours a day.

However for the rest of us, the more realistic option when we are looking for a family car is to purchase or lease a new or used vehicle from a car dealer in our community. Automobiles – Buying and Selling, an interesting post from Saskatchewan’s Public Legal Association discusses the pros and cons of these alternatives and your legal rights and responsibilities in each situation to help you make the decision that is best for you.

If a used car is in your future, take a look at What You Need to Know Before Buying a Used Car. When it comes to inspecting a car you are interested in, TrueCar.Advisor says be a “DIY detective.” For example, he suggests bringing along a little fridge magnet and placing it all over the car (lower door, front fender, etc). If there is any plastic body filler present, the magnet won’t stay in place, indicating the vehicle has been in an accident. If you want a more in-depth list of possible DIY Detective skills, visit the DMV guide.

Andrew Wendler acknowledges on caranddriver.com that vehicle listings on Craigslist are always free of oversight and may include half-truths and incomplete vehicle histories. However, this classified advertisements website can be a highly effective tool for locating the car of your dreams, so he provides 10 Tips for a Successful Car-Buying Experience on Craigslist that should help you separate fact from fiction and make a satisfactory purchase.

And finally, in a guest post on the Canadian Finance Blog, Retire Happy’s Jim Yih warns readers Don’t Fall for This Amazon Payments Car Scam. Unfortunately there are phishing scams out there that make you think you’re paying through services like Amazon Payments or PayPal, but you’re really sending your funds to a fake site and are unlikely to ever see that money again. He recounts how he almost got taken in by an Amazon Payments scam when he was looking for a used car a few years ago and includes screen shots, illustrating how you can identify signs of a bogus offer

*****

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

A press release I read recently titled “What will you do with your 2,000 hours a year when you retire?” made me stop and think about how my husband and I have spent our time since I left my corporate job 11 years ago and he fully retired in mid-2015. 

An RBC survey of 1,500 working Canadians age 50 and older found almost three-quarters (73%) are unsure what they’ll do with that extra time. While the study found nearly two-thirds (64%) have done some planning for how they will finance retirement, less than half have planned for retirement lifestyle decisions, such as where they will live, where they will travel (44% each) and what activities they will do (46%). 

I was 54 when I retired from a benefits consulting firm with a reduced pension and post-retirement medical benefits. I never intended to stop working and had a job lined up as editor of an employee benefits magazine working from home. That eventually morphed into a freelance writing business. 

My husband had no pension other than government benefits when he retired from his position as a software engineer with a major telecommunications company at age 65. However, over the years he made maximum allowable contributions to individual and Group RRSPs. After a couple of months’ break he contacted his former employer about contract work, but no opportunities have materialized.

We moved to a new “infill” house in Toronto near the subway in 2001 and since then, the value of our two-story plus basement home has doubled in value. We’d love to renovate a large bungalow and stay in the area, but the prices of even much smaller homes have increased so much that we would end up with significantly less house for the same amount of money. 

Based on a previous mobility issue, I‘d like to be living on one floor sooner rather than later, but for now we are staying put. We go to the gym regularly and climbing stairs helps us stay fit. When we were both working we paid for regular housecleaning, snow removal and grass-cutting. We now employ outside help less frequently but we are prepared to ramp it up again if one or both of us has health problems. 

Vacations are a high priority for us and our favourite mode of travel is cruising. We want to see and do as much as we can as long as we are healthy and able to purchase comprehensive travel health insurance. At least once a year, we try to bring our daughter’s family living in Ottawa on holidays with us so we can spend more quality time with them. 

Paying for expensive travel is one explanation for why I continue taking on freelance writing jobs. But the other reason is that I thrive on deadlines and I really love to get paid for something I enjoy doing. My hobbies include reading, working out and singing in a community choir but interviewing and writing provides me with both structure and a creative outlet. I work about 30 hours a week so I have loads of flexibility to fit in personal appointments, travel and family time. 

In contrast, my husband has found a whole new creative outlet since he retired. He finished off a coffee table that he has been working on for years and there is a matching end table on the drawing board. He has also designed and a produced a series of beautiful cheese boards, bread boards and cutting boards (see above) that friends and family have received as welcome gifts. While in future he may consider selling a few of his pieces there is no pressure for him to do so. 

I can’t say we exactly planned in advance how we would fill up our days when we left the world of work, but once our finances were in order, we had the latitude to make it up as we went along. We know that retirement in our 50s and 60s (the go-go phase) is likely to be different than in our 70s and 80s (the slow-go phase) or even 90s (the no-go phase) but I think we’re on the right track. I’ll know when it is time to send out the last invoice and together we will decide when it is the right time to sell our house and downsize. 

Have you thought about how you will spend your time once you leave the office for the last time? Tell us how you are spending your 2,000 hours by sending an email to so*********@sa*********.com.  We’d love share your story.

By Sheryl Smolkin

We’re back and there is more than ever to share with you! We took a two-month break, but our favourite bloggers were still hard at work. So we have lots of great stories to tell you about in the weeks to come.

The Liberal government’s first Federal Budget was tabled last month. It eliminated some measures enacted by the Conservatives and others will be phased out over time. On the Financial Independence Hub, Paul Phillips from Financial Wealth Builders gives a financial planner’s perspective on Budget 2016. One surprise he notes is the elimination of the tax deferral on fund switches within a mutual fund corporation.

The significance of not having a great credit rating may not hit until you apply for a credit card or mortgage and are either turned down or not approved for the amount you need. Blogging on Money after Graduation, Bridget Eastgaard discusses five easy steps to build good credit. Because 18% of credit reports contain errors, she regularly checks her credit report to ensure her student loan payments have been properly recorded, no credit cards were opened under her name through identity theft, and that companies have complied with her requests to close credit accounts.

Robb Engen is a well know blogger at Boomer & Echo and over the years he has shared lots of ideas about how to more effectively earn and save money. While he does not encourage calls from his office on evenings and weekends, he says it is a fair trade off because his employer covers his cell phone bill. In fact, he estimates that he has saved more than $9,500 over the last 12 years (144 months x $66 per month) because in a series of jobs over that period he has never spent a dime out of his own pocket on a cell phone plan.

As the balance in your RRSP grows over time, it can be hard to resist the temptation to tap into your nest egg in an emergency or just because you “need” something that is above and beyond your current budget. Retire Happy’s Sarah Milton gives three good reasons why withdrawing money from your RRSP before retirement is not a great idea.

And finally, personal finance maven Gail Vaz-Oxlade recently announced she has written her last blog. While we know from personal experience that blogging week in and week out can be challenging, her fans (myself included) will miss her consistently great advice. Fortunately, most of the archived blogs are timeless.

So for those of you who are considering buying a home this spring, we are linking to one of her better articles. She makes a great argument for spending a little time saving for a down payment rather than locking yourself into a mortgage payment that strangles your cash flow while you pay exorbitant amounts in interest and insurance premiums.

*****

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

There has always been a friendly rivalry between Canada and the United States in sports like hockey, baseball and skating. But a recent study from Franklin Templeton Investments reveals that that in the retirement savings arena Canadians are winning, because more of us are stashing money away to support ourselves in our later years. Nevertheless, the majority of Canadians are still concerned that they will not have enough money to retire.

According to FTI’s 2016 Retirement Income Strategies and Expectations (RISE) survey, 70% of Canadian pre-retirees have started saving for retirement, a steady increase from 2015 (63%) and 2014 (60%). In contrast, just 59% of US pre-retirees are saving for retirement, continuing a slide from 61% in 2015 and 65% in 2014.

“One possible driver of the rising retirement savings rate among Canadians could be the increasing use of workplace savings opportunities. Our survey results show that 26% of Canadians (up from 20% in 2014) are saving for retirement through workplace salary deduction programs,” said Duane Green, managing director, Canada at Franklin Templeton Investments Corp. “However, despite this positive savings trend in Canada, we tend to see some recurring anxieties about retirement, both from our annual survey and anecdotally in our ongoing retirement discussions with individual Canadians.”

The annual survey revealed that 82% of Canadians are worried about paying their expenses in retirement, with anxiety about retirement expenses peaking well before actual retirement.

“As retirement appears on the horizon, people increasingly start worrying about the financial aspects of it. Our survey reveals that an astonishing 92% of Canadians who plan on retiring in the next 11 to 15 years have some concerns about paying expenses in retirement,” said Matthew Williams, head of Defined Contribution and Retirement at Franklin Templeton Investments Corp.

According to the survey, pre-retirees’ perceptions and the actual spending habits of those in retirement are also at odds. Williams highlights survey data indicating that 69% of pre-retirees anticipate spending less in retirement, but only 32% of retirees say their expenses have actually decreased. So, there is a disconnect between what pre- retirees foresee and the actual experience of retired Canadians.

Williams notes, “The older we get, the greater the probability of unforeseen health issues – whether mental or physical – as well as rising prescription drug expenses or needing long-term care. We continue to notice an awareness of health care-related concerns, which are likely to increase as people age.”

While those younger than 55 expect that running out of money (33%) will be a bigger concern in retirement than health or medical issues (23%), the trend reverses significantly as age increases. Over a third (36%) of those aged 55 to 64 expect health and medical issues to be their top concern during retirement, whereas 19% anticipate their primary concern will be running out of money.

Individual retirement planning is particularly critical given that 63% of Canadians do not have a workplace pension plan, according to the survey. The lack of pensions, according to 2015 Statistics Canada data is particularly acute in the private sector, where just 22% of employees have a workplace pension plan — a sharp contrast to the 60% coverage rate for private sector employees in the US.

Among those who do have a workplace pension plan, complacency can be an issue: Almost half (48%) of Canadians with a workplace pension plan do not know what their personal contribution rate is, and just 12% (vs. 18% in 2015) worked with their investment advisor when selecting investment choices in their workplace pension plan.

Other key survey findings:

• Regionally, on the high end, 81% of those not yet retired in the Prairie Provinces have started saving for retirement, but only 58% of Quebec pre-retirees have started. Nationally, 70% of Canadian pre-retirees are saving for retirement.

• Over half (53%) of those in Atlantic Canada are very or somewhat concerned about outliving their assets or having to make major sacrifices to their retirement strategy vs. only 27% in Quebec. Nationally, 44% of Canadians are concerned about outliving their assets or having to make major sacrifices to their retirement strategy.

• 43% of Canadian retirees say their expenses have increased since they retired, up sharply since 2015 (33%). In contrast, the same survey response data in the US indicated very little difference between 2016 (38%) and 2015 (37%).

By Sheryl Smolkin

Today I am interviewing Tim Cestnick, Managing Director of Advanced Wealth Planning at Scotia Wealth Management for savewithspp.com. Tim also writes a personal finance column called, “Tax Matters” that has appeared every Thursday for almost twenty years in Canada’s national newspaper, The Globe & Mail. We’re going to talk about some of the things you need to know to complete and file your income tax return.

Welcome Tim and thanks for joining me today.

Q: What are some of the tax credits or deductions that many people aren’t aware of or that they may miss?
A: There are so many kinds of tax credits now. It’s important to really check to make sure you’re not missing something that you haven’t claimed in the past that is now available. Some of the things we see people missing are for example, interest deductions. Interest is deductible where you borrow the money for the purpose of earning income from a business or from an investment.

Also, I think fitness tax credits and tax credits for children are another area that people sometimes overlook. Don’t forget if you’ve paid for any kind of sports activities for your kids or even artistic classes like music or piano lessons, you can claim a tax credit for these amounts.

The amounts have actually been increased for fitness tax credits. You can claim up to a thousand dollars of eligible activities. It would get you pretty decent tax relief, probably two hundred and fifty dollars in tax relief federally plus maybe in total about four hundred dollars in tax relief from local and federal governments together, so it’s worth claiming those credits.

People also sometimes forget about the education and textbooks tax credits. But based on the March 2016 budget this will be the last year for many of these tax credits. 

Q: Are receipts required in all cases?
A: Yes, you do need receipts. You don’t have to turn them in with your tax return when you file electronically, but you have to keep them on file.

Q: Why should tax returns be filed for children, even if they don’t have any taxable income?
A: There are a couple of reasons why it might make sense to file a return for a child, even a minor child. Some people don’t even realize you can do this. If your child has earned any type of income at all from babysitting, or cutting grass, or delivering papers, report that income on a tax return because they’re not going to pay tax anyway if their total income is under $11,400 for 2015. However, they will create RRSP contribution room for later when they graduate and are working full-time.

Also, once your child reaches age 19 there’s good reason to file even if they have no income because they will be entitled a GST or HST credit which results in cash back to them of almost $300. 

Q: If taxpayers own stock in an unregistered portfolio, what are the advantages of making a charitable donation using stock instead of selling the shares and donating cash?
A: You’ll be better off donating securities that have appreciated in value than donating cash. You get a full donation tax credit for the value of the shares you are donating and on top of that, the government eliminates the capital gains tax on the securities. 

Q: What is the advantage to taxpayers of filing electronically instead of submitting paper forms?
A: There are a couple of reasons why you might want to do this. First of all, if you’re expecting a refund, you will get it faster by filing your return electronically. They can process it sooner and you will get your money much faster.

Also, it’s just simple to not have to send in all the paperwork. Some tax returns would be two inches thick if taxpayers had to send in all their receipts and what not. It’s just easier and quicker. 

Q: Do slips and receipts always have to be sent in with a paper filing?
A: Yes, you do have to send a number of slips and receipts. However, there are things you don’t necessarily have to provide. For example, if you’re an employee and you are claiming a certain employment expenses like use of your car, you don’t have to file a Form T2200 signed by your employer to say you had to pay for those costs. But you have to keep it handy. 

Q: Why is it getting a big tax return not necessarily a good thing?
A: A tax refund is not necessarily a good thing because what it really means is that you’ve been lending money to the government over the course of the year and they’re only now going to give it back to you. The perfect scenario is that you file a return and you owe nothing and you receive nothing back. The reality is most people actually owe or get a refund of some kind. You just want to make sure the refund is not too big. 

Q: If an individual is reporting self-employment income and wants to deduct expenses, what are a couple of things that they should do to ensure that the expenses are allowed if CRA comes knocking?
A: The first thing is to make sure amounts you’re claiming are allowed. That includes any kind of expenses you have incurred for the purpose of earning income from your business but expenses also have to be reasonable in amount. In most cases, as long as you’re paying a third party for some of these expenses that shouldn’t be an issue.

You also have to make sure that you do keep any receipts or invoices that you paid as part of your expenses just in case CRA asks for them. There was a court decision that was handed down a number of years ago which established that if you don’t have a receipt for something it may still be deductible if you can demonstrate you paid that amount and the cost is reasonable. But it’s just easier if you keep all of your receipts. 

Q: What are the penalties if Canadians file their tax returns late?
A: If you don’t owe taxes then there’s no penalty for filing late. Of course you won’t get your refund as soon as you should so it’s nice to file on time. If you owe money and don’t file your return on time, there is a five percent penalty on the tax owing the day after the due date. The key is to make sure you file your tax return on time even if you don’t have the money to pay your taxes immediately. By doing that you’ll avoid any penalties.

Q: If you do file on time and you owe money, when do you have to pay it?
A: The money is owing  as of the due date of your tax return. Typically, for most people that would be April 30^th. If it’s not paid by that time, you will end up paying some interest on the outstanding tax balance — not a penalty, just interest. 

Q: If CRA sends a notice requesting quarterly tax installments is it ever safe to ignore it?
A: You should never exactly ignore it. The reason they send you the statement is because they expect that you probably owe installments for the coming year. What you need to do is to evaluate whether or not the amount  they’re asking for is correct.

If you’re receiving a lot of investment income or you are a senior and don’t have employment income, you may end up  owing taxes when you file your return. Your best bet is to take a look at your income for the coming year, assess whether or not you think your taxes will be less or more than they were in the past year and actually do the math on your installments. When CRA sends you a statement you don’t have to abide by it, but don’t ignore it because you may actually owe  quarterly payments.

Q: So if you think your earnings will be lower, you do not necessarily have to remit the whole amount?
A: There have been situations where people have been asked to pay installments because they had a certain amount of income that was a one-time event. In that case, you may not have to make installments next year at all. You have to know really what your income is going to look like in this coming year compared to where it was last year to be able to make a decision about whether you can ignore a request for installments or pay a smaller amount.

—–
This is an edited transcript of a podcast interview with Tim Cestnick recorded in March 2016.

 

With the RRSP deadline a mere three weeks away, we thought providing you with an FYI blog would make this time of year easier for everyone.

Monday, February 29, 2016 is the final day to contribute to your RRSP for the 2015 tax year. SPP contributions must be received at the office in Kindersley on or before that day.

There’s several fast convenient ways to make your SPP contribution in order to meet the deadline.

• Use your credit card via;
  • yours online banking service;
  • call our office (1-800-667-7153) during regular business hours or;
  • you can use our website.
• Cheques can be mailed into our office, please make sure you mail them no later than mid February.
• If you are in the Kindersley area come visit our office and make your contribution in person.

In case you missed it, the SPP balanced fund returned 6.25% in 2015.  The short-term fund return was 0.45% in 2015. You are can see your full returns here.

A couple of weeks ago we posted an SPP quiz in this blog. If you haven’t already taken the quiz, check it out at http://wp.me/p1YR2T-1dI. There is a chance to win prizes!

Finally, watch the snail mail for tax receipt and member statements coming your way over the next month.

You can reach us at in**@sa*********.com or check out our website:  saskpension.com.  We have an enhanced wealth calculator that can help you determine how long your money will last in retirement.

Thanks for your continuing support of SPP.