Most Canadians “financially prepared for retirement” if they stick to the plan: HEC

More than four-fifths of working households in Canada “would be financially prepared for retirement if their intended retirement age and saving strategies are realized,” according to research from HEC Montreal’s Retirement and Savings Institute.

Results of the study were covered off in a recent article on Advisor.ca.

“The report defines financial preparedness as households that can replace at least 65 per cent of their net income in retirement after taxes, transfers, savings and debt payments, or for households in the lowest income quintile, 80 per cent,” the article notes.

The study, the article continues, takes into account “both private and public sources of retirement income, with the latter being most important to middle and low-income groups.”

The research, based on data from 2022 is “little changed” from a previous study using 2018 data. “Only 18 per cent of households have less than an 80 per cent chance of being prepared,” the article notes.

Pension plans make a difference in retirement preparedness, the article continues.

“Prepared households are more likely to have a defined benefit (DB) pension plan, earn lower income and expect to retire later,” the article explains. However, the study says that the preparedness level could drop if “the generosity of DB pensions decreased…. in the next decades, it is possible that the coverage and generosity of DB plans will be eroded.”

OK – so who is most as risk for not being financially prepared for retirement? Let’s read on.

“Households most at risk of being unprepared have higher than median income and no savings, with a 52 per cent chance of being prepared for retirement. On the flip side, those earning below the median income who also have no savings have an 89 per cent chance of being prepared,” the article notes.

Let’s unpack some of this.

If you aren’t a high-income earner, government benefits will provide a pretty good replacement ratio of your pre-retirement income. Our late sister reported to us that she was actually better off once her Canada Pension Plan and Old Age Security benefits kicked in.

And she was right. For those making a modest income, the modest government benefits are pretty good, providing an income close to what you were making before. But those with higher incomes will find that CPP and OAS benefits, even at the maximum, are quite modest.

If there’s a pension plan available at your workplace, be sure to join it and contribute as much as you can. If you haven’t started saving for retirement on your own, and don’t have a workplace plan, the Saskatchewan Pension Plan (www.saskpension.com) may be just what you’ve been looking for.

With SPP, you decide how much to contribute, and SPP does the heavy lifting, growing your savings through professional investment in a low-cost, pooled fund. And when work is in the rearview mirror, SPP members can choose the security of a monthly annuity payment for life, or the more flexible Variable Benefit.

Check out SPP today!

Join the Wealthcare Revolution – follow SPP on Facebook!

Living costs, debt are main barriers to saving: IG research

A recent study by Winnipeg’s IG Wealth Management took a hard look at what’s preventing Canadians from saving for retirement – and the high cost of living, and personal debt, are near the top of the list.

A recent article on Advisor.ca, authored by Jonathan Got, took a look at the survey’s key findings.

An overwhelming 80 per cent of the 1,500 Canadians surveyed cited “the rising cost of living” as their chief barrier to saving for retirement, the article notes. A significant percentage of the sample – 38 per cent – said they “put off saving for that goal (retirement) to repay debt.”

Only 18 per cent of those surveyed took the position that living in the now is more important than saving for retirement – they said they “preferred to enjoy their current lives,” the article tells us.

Forty-six per cent of the sample felt that their priorities should be on current living costs. They said, “they prioritize spending on their current needs and wants, despite many wishing to save for retirement to travel or take on other hobbies,” the article adds.

“Rising costs and mounting debt repayment challenges often undermine Canadians’ ability to save for retirement,” states Christine Van Cauwenberghe, head of financial planning at IG Wealth Management, in the article.

The article goes on to note that those surveyed spent “roughly 67 per cent of their income on basic living expenses, 20 per cent on leisure activities and 12 per cent on retirement.”

Other findings cited in the article:

• One-third of respondents planned to keep working in retirement “to afford basic living expenses, supplement income, or maintain social connections.”
• Thirty-eight per cent of respondents want to travel in retirement; “one third would focus on hobbies and 17 per cent saw themselves working part-time or consulting.”

The figure that jumps off the page from this research is that people are spending 67 per cent of their income on basic living expenses.

The Statista Consumer Insights survey reveals another concern – that people are having to dip into their savings to pay for current living costs.

Fifty-nine per cent of Canadians say their cost of living has increased “notably,” the study notes, with 26 per cent of Canadians saying they had to dip into their savings to make ends meet.

Only Australians (at 29 per cent) were dipping into their savings more than Canadians.

What does all of this suggest? Obviously, saving for retirement is a difficult thing to do, particularly when you have no control over increases in the cost of housing, food, fuel, and overall living. You may have to start small, or reduce the amount you’re saving, but it’s important to keep that nest egg building, to help you in a future where you are no longer bringing home a paycheque.

If you have a pension program at work, be sure to sign up and contribute to the max. If you don’t, a smart option is to join the Saskatchewan Pension Plan. SPP will take on the hard part of retirement saving – the investing part. SPP will grow your savings in their low-cost, professionally managed pooled fund. You can make savings automatic by transferring money in from your bank account each payday – start small, and increase your savings when your income goes up.

At the finish line – retirement – your options will include a monthly annuity payment for life, or the more flexible Variable Benefit.

Check out SPP today!

Join the Wealthcare Revolution – follow SPP on Facebook!

How are things working out with the new First Home Savings Accounts?

For decades, the federal Home Buyers Program offered first-time home buyers a way to fund their down payment – money could be taken out of a registered retirement savings plan to put on the house, with the home buyer given a period of time to repay him or herself.

A more recent program, the First Home Savings Account (FHSA), was launched in recent years by the feds. Let’s have a look at how this program, in which contributions to the plan are tax-deductible but withdrawals are not, works.

Writing in The Globe and Mail, finance columnist Rob Carrick notes that 740,000 people opened a FHSA last year.

“FHSAs are a small-scale but promising example of government policy aimed at helping middle class young people get into the housing market. You can put up to $8,000 in these accounts each year to a maximum of $40,000. Contributions generate a tax refund, and both contributions and investment gains benefit from tax-free compounding and withdrawals. FHSAs are available to people aged 18 and up who did not own a home in the part of the calendar year before an account is opened or the previous four years,” he notes.

While the $40,000 cap, he writes, “is out of synch with the average resale housing price of a bit more than $700,000 in April,” the FHSAs “are nevertheless helping people with middling incomes build down payments for home purchases well into the future.”

Citing federal government statistics, Carrick notes that 44 per cent of FHSA account holders had a taxable income of $53,359 or less. A further 36 per cent of account holders had income in the $53,360 to $106,717 range, he adds.

Launched just last year, the value of all FHSAs topped $2.8 billion, with the average account value listed at $3,900, Carrick writes.

“We are still many years from first-time buyers being able to say their FHSA was a difference-maker in getting into the housing market, but we’re off to a decent start. In 2023, a little over 34,000 FHSA holders made a withdrawal from their accounts More importantly, FHSAs are catching on with exactly the people who will need all the help they can get to buy homes,” concludes Carrick.

An article in Advisor.ca took a look at why some people made withdrawals soon after opening the accounts.

Jacqueline Power of Mackenzie Investments tells Advisor that “it doesn’t surprise me in the least” that some FHSA account holders would “choose to make qualifying withdrawals soon after opening and contributing to the plan.”

“We’re all looking for [tax] deductions these days, any way that we can get one,” Power states in the Advisor article. Qualifying withdrawals from an FHSA allow “an individual to have that deduction and make that tax-free withdrawal.”  

“Launched on April 1 of last year, the FHSA is a registered plan that allows first-time homebuyers to save for a down payment on a tax-free basis. Contributions to an FHSA are tax-deductible, while withdrawals to purchase a first home — including from investment income — are tax-free,” the article notes.

It sounds like a pretty nice program for younger people to consider when saving for a new home.

This author was able to use the Home Buyers Program, where money is transferred out of an RRSP, and then used for the down payment, back in 2008. We are just now repaying the last $1,300 or so, even though the mortgage was paid off in 2021. The one interesting aspect of our use of the HBP was that we chose to “repay” ourselves via contributions to the Saskatchewan Pension Plan! We are now gearing up to start receiving a lifetime annuity from SPP this fall, when we will reach age 65.

It’s another example of how SPP can work for you! Check out Canada’s made-in-Saskatchewan retirement savings solution today!

Join the Wealthcare Revolution – follow SPP on Facebook!

I’m just catching up after a few weeks in the Punta Cana sunshine. The resort where we were staying had excellent wifi everywhere so there was no escaping the relentless news cycle, especially in my home province of Ontario where the Progressive Conservative party elected Doug Ford as their new leader.

Shifting the focus back to Saskatchewan, Advisor.ca reports that there will be no longer be a provincial sales tax on agriculture, life and health insurance premiums. Premier Scott Moe pledged to bring in the exemption during the recent Saskatchewan Party leadership race. He said in a statement that the government is committed to helping families and small businesses. He added it will not impact the government’s three-year plan to balance the budget by 2020. The exemption covers premiums for crop, livestock and hail, as well as individual and group life and health insurance. It is retroactive to Aug. 1, 2017, the same day the province started adding the 6% PST to insurance premiums.

Boomer & Echo’s Robb Engen did the math on investment fees and he says the results weren’t pretty. Readers who shared their portfolio details with him revealed accounts loaded with deferred sales charges (DSCs), management expense ratios (MERs) in the high 2% range and funds overlapping the same sectors and regions. Portfolios filled with segregated funds were the biggest offenders. Saskatchewan Pension Plan offers professional fund management for 1% per year on average.

If you are planning foreign travel in the near future, Rob Carrick’s Globe and Mail article One bank dings clients who travel, while another lightens the load is a must read. He notes that Scotiabank recently introduced a strong new travel reward credit card that doesn’t charge the usual 2.5% fee on foreign currency conversions. In contrast, TD has been advising account holders that effective May 1, it will raise the foreign-currency conversion fee on ATM withdrawals and debit transactions outside Canada to 3.5% from 2.5%.

On Money After Graduation, Bridget Casey offers tips on how to hustle as a new parent. As a self-employed individual she didn’t qualify for government-sponsored leave which means she had to self-fund her own maternity leave. She has managed to get her baby on a schedule (the EASY Baby Schedule, if you’ve heard of it), and she says her days of procrastination are gone. She has also stopped working for free for “exposure” or attending events to “network.” Finally, she has hired a part-time nanny.

Alan Whitton aka BIGCAJUNMAN started the Canadian Personal Finance Blog 13 years ago and he says he is still financially crazy. He believes debt is a bad thing, he doesn’t buy individual stocks and thinks pay day loans are the devil’s work  (all of which sound pretty sane to me). He links to previous blogs he likes to re-read and enjoy plus blogs he has posted that have received the most views.  Take a look here. No doubt you will find some interesting reads.

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Written by Sheryl Smolkin
	Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.