Canada Pension Plan

May 10: BEST FROM THE BLOGOSPHERE

May 10, 2021

“Mind shift” on taxation needed when you enter retirement

Writing in the Sarnia Observer, financial writer Christine Ibbotson notes that taxation – fairly straightforward before you retire – gets a lot more complicated after you retire.

“Managing your taxes during your working years is relatively generic,” she writes. “You maximize your registered retirement savings plan (RRSP) contributions, purchase investments that attract the least tax possible on investment income or buy real estate to increase your net worth.”  The goal with taxes is get them as low as possible, she explains.

It’s a different ball game in retirement, Ibbotson notes.

“As you transition into retirement, the tax planning process shifts onto withdrawing assets, and doing so in the most tax-efficient manner,” she explains. This requires what she calls a minor “mind shift” for most people, the article notes.

“Most are preoccupied with minimizing current taxes each year. But this cannot be at the expense of your long-term objective for maximizing after tax income for your entire retirement (often estimated at 25 to 40 years),” she notes.

For that reason, Ibbotson says retirees need to get a handle on how the various types of income they may receive are taxed.

“There are three main types of taxation to consider: interest income, dividend income, and capital gains. All are taxed differently, so this makes it easier to structure your portfolio more efficiently when you are creating your plan with your advisor,” Ibbotson writes.

“As a general rule you want to place income that is going to be unfavourably taxed, (interest income) into tax-sheltered products such as tax-free savings accounts (TFSAs) or RRSPs. Investment income that generates returns that receive more favourable tax treatments (dividends or capital gains) should be placed in non-registered accounts.”

If you are retiring, it’s critical that you know what your income is from all sources – government retirement benefits, a workplace pension, and “anticipated income” from your own savings. This knowledge can help you to “avoid clawbacks as much as possible,” she explains.

Other tax-saving suggestions from Ibbotson include the ideas of Canada Pension Plan/Quebec Pension Plan “sharing,” splitting employer pension plans for tax purposes with your spouse, and holding on to RRSPs, registered retirement income funds (RRIFs) or locked-in retirement accounts (LIRAs) to maturity. Those age 65 and older in receipt of a pension (including an SPP annuity) will qualify for the federal Pension Income Tax Credit, another little way to save a bit on the tax bill.

“Simply put, paying less tax translates into keeping more money in your pocket, allowing you to enjoy a better quality of life,” she concludes.

This is great advice. Save with SPP can attest to the unexpected complexity of having multiple sources of income in retirement after many years of having only one paycheque. You also have fewer levers to address taxes – while you might be able to contribute to an RRSP or your SPP account, it’s probably only on your earnings from part-time work or consulting. You can ask your pension plan to deduct additional taxes from your monthly cheque if you find you are paying the Canada Revenue Agency every year.

The older you get, the more you talk about taxes with friends and neighbours, and many a decumulation strategy has been mapped out on the back of a golf scorecard after input from the other players!

Wondering how much your Saskatchewan Pension Plan account will total when it’s time to retire? Have a look at SPP’s Wealth Calculator. Plug in your current account balance, your expected annual contributions, years to retirement and the interest rate you expect, and voila – there’s an estimate for you. It’s just another feature for members developed by SPP, who have been building retirement security for 35 years.

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.


No “magic formula” for decumulation, but frugality and realism help retirees: Dr. John Por

April 29, 2021

Recently, Save with SPP got an opportunity to speak with long-time pension expert Dr. John Por, whose 40-year career in pensions includes consulting work with large U.S. and Canadian pension boards and offering expertise on pension risk policy. He has also researched the tricky “decumulation” stage in which savings are turned into retirement income.

Our far-ranging interview covered decumulation, spending in retirement, frugality, advice on saving for retirement, and annuities.

Decumulation

Dr. Por says common mistakes with decumulation – the stage where retirement savings are used to provide retirement income – can include problematic asset allocation, lack of appropriate goal setting, high investment costs and, often, setting a withdrawal rate that’s too high or taking out too much money early in retirement.

So is there a correct withdrawal rate?

“At one point in time, maybe 20-25 years ago, four per cent was said to be the right withdrawal rate,” he explains.

Decumulation “depends on future interest rates, the stock markets, inflation, life expectancy and income needs,” says Dr. Por. A “correct” rate “is therefore unknowable.”

“It depends on the reigning circumstances, both personal and market,” he explains. “Who could have predicted, even five years ago, the current existing zero or the negative real rate of bond returns?”

“The problem is, though we desperately want to find a magic formula, how can you do this – we don’t know how it will be (in the future); no one knows.”

Noting the volatility in the stock markets in just the last couple of years, he notes that “even a Nobel Prize winner professed not knowing where the markets will go in the next 10 years, or how to invest your money after retirement.”

“This, of course, has not kept the retirement or investment industry from providing copious, and often prudent, advice, it simply means that looking for a, or the, magic bullet, or the infallible sage, will not be successful,” he adds.

Spending in retirement

While decumulation carries a lot of unknowns, much more is known about how much retirees actually need, Dr. Por says.

He says research by noted pension actuary Malcolm Hamilton shows that people need far less “replacement income” in retirement than the 75 per cent figure bandied about by the industry. 

Hamilton has for many years said the research suggests not everyone needs to save “heavily” for retirement, because of the existence of government income programs for retirees and lower costs once you are retired. (Here’s a link to a Globe and Mail interview with Malcolm Hamilton.)

Dr. Por agrees, calling an overall 75 per cent rule “misguided.”

“While this may be true for low-income people, they are supported by the above-mentioned government programs, so for them the 75 per cent is not a stretch, people at higher income levels are not likely to need 75 per cent of their earned income to pursue an age-appropriate lifestyle,” he says.

“One of the most important steps to understanding (retirement spending) is… knowing how much money you need to survive,” Dr. Por explains.

Rather than going through “painful” pre-retirement budget forecasting, he recommends a simpler approach.

“How much do you save in a month? If the answer is zero, your retirement budget will be what you spend now, minus what you won’t have to pay in retirement.” This can include things like your mortgage, tax savings when you earn less, childcare and education expenses, Canada Pension Plan and Employment Insurance, and so on. 

It’s a common-sense issue, he says. Individuals must decide “how much is necessary (spending) versus how much you would like to have.”

This knowledge is crucial for retirees, who have extremely limited options in dealing with income shortfalls, he explains. 

Working Canadians needing more money could “work harder – get a job that pays better, spend less, save more, take more investment risks, etc.… but when you are retired, you don’t have the same tools,” he explains.

 “Lifestyle becomes the main tool, you can cut back on your lifestyle (to save money), which is difficult,” he says. “Another tool still at your disposal is taking on more investment risk in retirement, but, if you’re not successful, it would easily lead to a further diminished lifestyle,” Dr. Por adds.

Frugality 

At 74, Dr. Por says he is “still engaged” and “living frugally.”

In this context, he defines frugality as bringing your lifestyle and realistic earning capability (and not your hoped-for future earnings) into a healthy balance. 

Living frugally is a key way to make your money last longer, and also that when in financial trouble, the cutback would be smaller thus less painful. Big expenses in the early years of retirement should be avoided, he says, because you may need your retirement savings for decades. “

While at age 65 it is hard to envisage how long you may live” he explains, “you may easily live beyond age 90.”

For example, he adds, if you are married, “the probability that either you or your spouse will live to age 93 is about 50 per cent. You can live for a very, very long time.” 

Working after retirement is a way to support your retirement spending and to keep your mind active, he says.

“Some people still work part-time after they stop working full time. You don’t realize how important your work is … not that many people spend their time well in retirement,” he says.

“Apart from the income work provides, it also structures your day, can add meaning to your existence after retirement (admittedly not everybody needs it), and equally important, it helps you maintain your links with the outside world and friends,” he says. His observation is that most people (especially men) form the majority of their extra-family relationships through work, and once they retired such contacts tend to fade away over time,” he says.

Dr. Por recommends that everyone consider living frugally at any age; he sees it as a great lifetime habit to get into.

Saving for retirement

While some people suggest you should save for retirement from early in life until the end of your career, Dr. Por says that view isn’t usually realistic.

“You can’t save in your 30s and 40s – you are paying for your kids’ education, your mortgage. So, save what you can, if you can, but (know) you may not be able to,” he advises. “No heroism is called for, as you also have to live a reasonable life.”

The optimum time to save “is in your 50s, and then, you can save 20 to 40 per cent,” he says. By then, “your children will be out in the world, your mortgage is paid… you can save.”

For savers, equities add the most value, but of course, it depends on the environment you happen to fall into. Bonds don’t provide as much income and growth, Dr. Por explains.

Pay close attention to investment fees, he advises. “With exchange-traded funds (ETFs), you can control costs – the management expense ratios are low.” However, financial advisers may not suggest this investment because they can make higher commissions on other products, Dr. Por says.

“Even a fee of one percent can, over 30 years, reduce your available assets significantly,” he says.

What you want to avoid is being forced to sell securities when the market is down, thus Dr. Por likes the concept of having a cash reserve to tide you through periods of market decline. 

“If you take on extra risk… by putting more money into equities, you should also have a cash reserve fund worth three to five years of spending,” he says. If equities perform well, you may wish to extend such cash reserves to cover longer periods. Overall, Dr. Por says, a chief problem with retirement saving is that most people “look at it as an investment issue,” and become focused on today’s investment risks, interest rates, equity return rates, and so on. Instead, you should be thinking about the income your investments will generate when you stop working. 

What’s going on today with investment risks and other factors “is not relevant 30 to 50 years out,” when you will be drawing income from your investments, he advises. Your focus should be on that long term, and not on volatility or return rates in a given year, Dr. Por says.

Annuities

Dr. Por talked about the “annuity paradox”. While financial experts like annuities, most people refuse to follow such advice. Most people shy away from the idea of taking a large lump sum of money – say $1.5 million – and turning it into an annuity that pays $60,000 a year. He noted that when he mentioned the concept to his wife (a highly educated professional, an MD), she refused the idea saying that “… if we die soon for whatever reason the children will get nothing.”

Also, retired people want to have cash available for future expenses, and, not always unreasonably, are afraid of inflation, and the potential extinction of the financial institution, which issued the annuity. 

But, he added, “annuities later in life is a good idea”. When you are getting too old to run your money – say by your late 70s or 80s – that’s the time to consider an annuity, he says. The older you are when you convert to an annuity, the cheaper the annuity is to buy. And today’s low interest rates make the conversion to annuities expensive. “The interesting phenomenon is though”, he added, “that when interest rates were exceptionally high, say in the late 1990ies, people still did not buy annuities, nor did the advisers promote the idea.”

Finally, he noted the importance of discipline. He speaks from experience, and says that had he followed all the major precepts mentioned in this piece, he would be now in a much better financial position himself. “Know your needs, be prudent in your expectations, live frugally, create a plan or direction and stick to it while making adjustments, if needed,” he advises.  

We thank Dr. Por for taking the time to speak with us.

Celebrating 35 years of operations, the Saskatchewan Pension Plan is a full-service retirement plan. SPP will invest the money you contribute, and at the time you retire, gives you the option of converting your invested savings into a lifetime annuity. Why not check out SPP today?

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.


APR 26: BEST FROM THE BLOGOSPHERE

April 26, 2021

Could a pension model be the way to address the costs of long-term care in Canada?

Writing in the Globe and Mail, Professor Carolyn Hughes Tuohy of the University of Toronto offers up an interesting solution on how Canada could improve its long-term care sector – and part of her thinking relates to the way the Canada Pension Plan is funded.

Professor Tuohy notes that while there have been calls for “national standards” for long-term care facilities in the wake of the pandemic, a key problem is that long-term care is currently a provincial responsibility.

“How do we achieve a common threshold of provision while respecting Canada’s federal system?” she asks.

She writes about the idea of having some sort of “nationwide pool” of funding, so that the “longevity risk, that individuals will outlive their savings and be unable to afford long-term care,” could be addressed.

And, she writes, while provinces and local governments are “best suited” to deliver long-term care, that can lead to “inequitable variation across divisions.”

For instance, she notes, the fatality rate at long-term care facilities in Ontario has been about four times higher than that of British Columbia.

A solution, Professor Tuohy thinks, may be found by looking at the Canada Pension Plan/Quebec Pension Plan as a possible model.

“The Canada Pension Plan, paralleled by the Quebec Pension Plan, is jointly managed by federal and provincial governments. It provides a dedicated source of public finance, funded by contributions from workers and employers. It is designed to be sustainable and sensitive to demographic change, in contrast with the periodic haggling around the Canada Health Transfer. And it makes sense to think of a model of public finance for long-term care as more akin to a retirement benefit than to health insurance,” she writes.

She notes that the government spends more on providing healthcare for those over 65 than the rest of us – and that living past 80 carries with it “a 30 per cent chance of requiring long-term institutional or home care.” That risk currently carries a cost that might be addressed via “a steady, pension-like benefit stream,” she explains.

She proposes “a long-term care insurance (LTCI) benefit… (that) could be attached to the CPP/QPP as a supplementary benefit. It would pay out a capped cash transfer to the beneficiary, set according to the level of health need as assessed through existing provincial mechanisms. Unlike the CPP/QPP, the benefit would be assignable to a qualifying third-party provider of institutional or home care, as chosen by beneficiaries in consultation with their local assessing agency.”

Such a benefit, she concludes, already exists in countries like “Germany, the Netherlands, and Japan.” She calls the proposal a creative way “to bring the full advantages of our federal system to the pressing issues of long-term care.”

Long-term care is something we all hope we’ll never need, but could be part of our retirement expenses. A best defence against unexpected retirement costs is, of course, retirement saving.

And an excellent way to do that is to consider joining the Saskatchewan Pension Plan. The money you contribute is professionally invested at a very low cost, and SPP has averaged an impressive eight per cent rate of return since its inception 35 years ago. Check out SPP today.

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.


Guide aims at folks planning on retiring in 10 years or less

April 22, 2021

If you are one of the many Canadians who is a decade (or less) away from retirement, and haven’t had time to really think about it, there’s an ideal book out there for you.  The Procrastinator’s Guide to Retirement by David Trahair walks you through all the decisions you’ll need to make, and the strategies you may want to employ, to have a solid retirement – soon.

Trahair makes the point early that you need to track your current spending to have an accurate sense of how much you need to save to fund your retirement.  He says the old 70 per cent rule – that you will be comfortable if you can save up enough to live on 70 per cent of your pre-retirement income – is “problematic… it may be the right answer for one person, but totally wrong for you because your financial situation is as individual as your fingerprints.” Knowing what you spend now, and will spend when retired, is a key piece of knowledge when setting savings targets, he explains.

Through the deft use of charts, examples and worksheets, Trahair explains that most of us have “golden opportunity” years for retirement savings when we have surplus funds, thanks to paying off a car loan, or having a child graduate from university. What you do during these periods of excess money “can make or break” your retirement plans, he advises, noting that an obvious destination for some of this cash is retirement savings.

He looks in detail at whether it’s a good idea to save for retirement in a registered retirement savings plan (RRSP) or pay off debt, like credit cards or mortgages, first. Trahair says anyone with high-interest credit card debt should pay that off first before saving for retirement, because of the “rate of return” you get by eliminating the debt.

“A lack of cash outflow is as good as a cash inflow, and better if that inflow is taxed,” he explains. In other words, all the money once spent on paying down the credit card is now in your pocket instead.

Whether to pay down the mortgage versus saving for retirement is a trickier calculation (Trahair has a spreadsheet for you to make your own choice). He says the “commonsensical” approach is to make an RRSP payment and then put the refund on the mortgage. However, later in the book he warns of the dangers of not paying off the mortgage until after retirement.

“If you went into retirement with a $200,000 mortgage, you’d need $293,254.75 extra in your RRSP just to break even,” he writes. “Put another way, you’d be just as well off as someone who had a zero-mortgage balance and $293,254.74 less in their RRSP.”

There’s a lot of good stuff here. There’s a chapter on selecting an investment advisor, and good advice for those investing on their own. He warns that those saving later in life often look for higher returns, which can be risky. “Hoping for a 10 per cent rate of return to solve your problems will mean you’ll have to take extreme risk… chances are good this strategy will result in dismal failure. So, he advises, have a disciplined investment approach, and manage risks. A rule of thumb he likes is the one that suggests 100 minus your age should be the percentage of your portfolio that is in fixed income. The rest should be in the stock market.

Later, he explains how GICs are his favourite investment, especially when held in RRSPs, Registered Retirement Income Funds (RRIFs) and Tax Free Savings Accounts (TFSAs).

He examines the concept of how much you’ll spend in retirement, noting that some costs, like Canada Pension Plan (CPP) contributions, car operating costs, dining out and dry cleaning will drop once you’re no longer going to work, well-dressed.

He talks about how you can maximize both CPP and Old Age Security benefits by deferring them until later – and covers the pros and cons of doing so.

Later chapters cover the “risk” of living a long life, the “snowball” versus “avalanche” methods of debt reducing, and estate planning.

This is an excellent resource for all aspects of retirement planning, and – even better – it is written for a Canadian audience.

If your retirement plan includes the Saskatchewan Pension Plan, you’re already getting professional investing help at a low fee of just 0.83 per cent in 2020. SPP manages investment risks for you – and has chalked up an impressive rate of return of 8 per cent since its inception 35 years ago. Why not to check out SPP today!

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.


APR 12: BEST FROM THE BLOGOSPHERE

April 12, 2021

Canadian millennials now focused on long-term saving: report

It’s hard to find many silver linings to the dark, terrible cloud that is COVID-19, but a report from Global News suggests the crisis has caused millennials to think longer-term when it comes to savings.

Carissa Lucreziano of CIBC tells Global that Canadians aged 24-35 “are very committed to saving more and investing.” That’s great news for this younger segment of our society, she states, “as actions now can have long-term benefits.”

The report also cites data from Semrush, an online data analysis company, as showing 23.6 per cent of millennials regularly visit their online banking websites, as compared to 20.7 per cent of older Canadians aged 35 to 44.

Semrush’s Eugene Levin tells Global this suggests younger people “are more conscious moneywise… they are using this time (the pandemic) to plan out their finances to either mitigate their financial insecurity or improve their financial security.”

Other findings – more people are searching for information on Tax-Free Savings Accounts (TFSAs), and investment apps like Wealthsimple and Questrade, the article reports.

CIBC data noted in the Global report found that 38 per cent of millennials have decreased spending, 34 per cent plan to add to TFSAs or Registered Retirement Savings Plans (RRSPs), and to establish emergency savings accounts.

While there is also interest in topics like payday loans and installment loans, the article finds it generally positive that younger people are thinking about long-term savings.

For sure it is positive news. Data from Statistics Canada reminds us why long-term savings are so important.

The stats show that as of 2019, 70 per cent of Canadians are saving for retirement, either on their own or via a workplace savings program – that’s up from 66 per cent in 2014, Stats Canada reports.

“Interestingly, this may reflect the fact that over the past five years, Canadians have become increasingly aware of the need to save for retirement,” reports Stats Canada. “For example, almost half of Canadians (47 per cent) say they know how much they need to save to maintain their standard of living in retirement—an increase of 10 percentage points since 2014 (37 per cent).”

Those who don’t save for retirement on their own (or via a workplace plan) will have to rely on the relatively modest government benefits, such as the Canada Pension Plan, Quebec Pension Plan, and Old Age Security, the article notes. And surely, the terrifying pandemic era has more of us thinking about our finances, both current and future.

So that’s why it is nice to see the younger generation is focusing on these longer-term goals. The best things in life, as the song goes, are free, but many other things carry a cost. The retired you will certainly be thankful that the younger you chose to stash away some cash for the future.

If, as the article notes, you don’t have a workplace pension plan and are saving on your own for retirement, there’s a plan out there for you that could really be of help. For 35 years, the Saskatchewan Pension Plan has been delivering retirement security; the plan now manages $673 million in assets for its 33,000 members. Check them out today!

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.


Pape’s book provides solid groundwork for a well-planned retirement

March 4, 2021

Gordon Pape has become a dean of financial writers in Canada, and his book Retirement’s Harsh New Realities provides us with a great overview of our favourite topic.

There’s even a shout-out to the Saskatchewan Pension Plan!

While this book was penned last decade, the themes it looks at still ring true. “Pensions. Retirement age. Health care. Elder care. Government support. Tax breaks. Estate planning,” Pape writes. “All these issues – and more – are about to take centre stage in the public forums.”

He looks at the important question of how much we all need in retirement. Citing a Scotiabank survey, Pape notes that “56 per cent of respondents believed they would be able to get by with less than $1 million, and half of those put the figure at under $300,000” as a target for retirement savings. A further 28 per cent thought they would need “between $1 million and $2 million.” Regardless of what selection respondents made, getting that much in a savings pot is “daunting,” the survey’s authors note.

Government programs like the Canada Pension Plan (CPP), Old Age Security (OAS) and the Guaranteed Income Supplement (GIS) help, but the benefits they provide are relatively modest. “If we want more than a subsistence-level income, we have to provide it for ourselves,” Pape advises.

He notes that the pre-pandemic savings rate a decade ago was just 4.2 per cent, with household debt at 150 per cent when compared to income. Debt levels have gone up since then. “Credit continues to grow faster than income,” he quotes former Bank of Canada Governor Mark Carney as saying. “Without a significant change in behaviour, the proportion of households that would be susceptible to serious financial stress from an adverse shock will continue to grow.” Prescient words, those.

So high debt and low savings (they’ve gone up in the pandemic world) are one thing, but a lack of financial literacy is another. Citing the report of a 2011 Task Force on Financial Literacy, Pape notes that just 51 per cent of Canucks have a budget, 31 per cent “struggle to pay the bills,” those hoping to save up for a house had managed to put away just five per cent of the estimated down payment, and while 70 per cent were confident about retirement, just 40 per cent “had a good idea of how much money they would need in order to maintain their desired lifestyle.”

One chapter provides a helpful “Retirement Worry Index” to let you know where your level of concern about retirement should be. Those with good pensions at work, as well as savings, a home, and little debt, have the least to worry about. Those without a workplace pension, with debt and insufficient savings, need to worry the most.

If you fall anywhere other than “least worried” on Pape’s list, the solution is to be a committed saver, and to fund your own retirement, he advises. He recommends putting away “at least 10 per cent of your income… if you’re over 40, make it a minimum of 15 per cent.” Without your own savings, “retirement is going to be as bleak as many people fear it will be.”

Pape recommends – if you can — postponing CPP payments until age 70, so you will get “42 per cent more than if you’d started drawing it at 65.” RRSP conversions should take place as late as you can, he adds. This idea has become very popular in the roaring ‘20s.

Pape also says growth should still be a priority for your RRSP and RRIF. “Just because you’ve retired doesn’t mean your RRSP savings need to stagnate,” he writes. And if you find yourself in the fortunate position of “having more income than you really need” in your early retirement needs, consider investing any extra in a Tax Free Savings Account, Pape notes.

Trying to pay off debt before you retire was once the norm, but the idea seems to have fallen out of fashion, he writes. His other advice is that you should have a good idea of what you will get from all retirement income sources, including government benefits.

In a chapter looking at RRSPs, he mentions the Saskatchewan Pension Plan. The SPP, he writes, has a “well diversified” and professionally managed investment portfolio, charges a low fee of 100 basis points or less, and offers annuities as an option once you are ready to retire.

This is a great, well-written book that provides a very solid foundation for thinking about retirement.

If you find yourself on the “yikes” end of the Retirement Worry Index, and lack a workplace pension plan, the Saskatchewan Pension Plan may be the solution you’ve been looking for. If you don’t want to design your own savings and investment program, why not let SPP do it for you – they’ve been helping build retirement security for Canadians for more than 35 years.

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.


Research suggests many should take CPP, QPP later – and use RRSPs to bridge the gap

February 25, 2021

Are Canadians doing things backwards when it comes to rolling out their retirement plans?

New research from Dr. Bonnie-Jeanne MacDonald of the National Institute on Ageing at Ryerson University suggests that in some cases, we are putting the cart before the horse when it comes to our Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) benefits.

Save with SPP spoke by telephone with Dr. MacDonald to find out more about her research.

In her paper, titled Get the Most from the Canada and Quebec Pension Plans by Delaying Benefits, Dr. MacDonald notes that “95 per cent of Canadians have consistently taken CPP at normal retirement age (65) or earlier,” and that a mere one per cent “choose to delay for as long as possible, to age 70.”

This, she writes in the paper, can be a costly decision. “An average Canadian receiving the median CPP income who chooses to take benefits at age 60 rather than at age 70 is forfeiting over $100,000 (in current dollars) of secure lifetime income.”

She tells Save with SPP that tapping into your (registered retirement savings plan) RRSP and other savings first, as a bridge to a higher CPP or QPP later, can make a lot of sense. “Rather than holding on to the RRSP, why not use the RRSPs sooner and CPP later,” she explains.

Even waiting one year – taking CPP or QPP at 61 instead of 60 – means you will get nearly 12 per cent more pension for life, she says. The longer they wait to start CPP, the more they get – about 8.2 per cent more for each year after age 65, Dr. MacDonald explains.

If you go the other route, and take your government pension at 60, “you don’t know what your savings will look like at 70,” she notes. As well, those savings may be harder to manage when you are older, especially if you are “drawing down” money from a registered retirement income fund (RRIF).

Many people, she notes, worry that taking government benefits at 70 is too late, and that they will potentially die before getting any benefits. Most people who are in good health will live long beyond age 70, she says; the data shows that only a small percentage of Canadians don’t make it past their 60s.

Dr. MacDonald notes as well that the retirement industry tends to help people save, but doesn’t help them on the tricky “decumulation,” or drawdown phase. It would be akin to having an adviser set you up with skis, boots, poles and bindings, and deliver you the top of the ski hill – where you would be on your own to figure out how to get to the bottom, she says.

While “Freedom 55” was a popular concept in decades past, the data shows that the retirement age is creeping back up to age 65 and beyond, she says.

“Finances… are part of the reason why people are retiring later,” she explains. Pension plans are less common these days, and not all of them still offer an early retirement window. Few offer incentives to late retirement, she adds.

Her paper concludes that Canadians – and the financial industry that advises many of them – need to rethink the conventional idea of taking CPP or QPP as soon as possible in retirement, and then hanging onto RRSPs until it is time to RRIF them up the road.

“Despite wanting and needing greater income security, Canadians are clearly choosing not to delay CPP/QPP benefits, thereby forfeiting the safest, most inexpensive approach to get more secure retirement income,” she writes. By showing, through the Lifetime Loss calculation, that Canadians can lose out on $100,000 of secure retirement income, the hope is that the industry and policymakers will begin to rethink how they present retirement strategies to Canadians, the paper concludes.

We thank Dr. Bonnie-Jeanne MacDonald for taking the time to speak with Save with SPP.

Celebrating its 35th year, the Saskatchewan Pension Plan (SPP) has a long tradition of building retirement security. SPP is flexible when it comes to paying out pensions – you can start as early as 55 or as late as 71. Check out SPP, it may be the retirement solution you are looking for.

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.


Now is the time to act on boosting retirement security: C.A.R.P.’s VanGorder

January 14, 2021

For those of us who aren’t yet retired, it’s difficult to put ourselves in the shoes of a retiree and imagine what issues they may be facing.

Save with SPP reached out recently to Bill VanGorder, Chief Policy Officer for C.A.R.P., a group that advocates for older adults, to find out what it’s like once you’re no longer working.

For a start, says VanGorder, all older people aren’t set for life with a good pension from their place of work. In fact, he says, “65 to 70 per cent of those reaching retirement age don’t have a (workplace) pension.”

As a result of that, most people are getting by on income from their own retirement savings, along with government benefits like the Canada Pension Plan (CPP), Old Age Security (OAS), and the Guaranteed Income Supplement (GIS).

“Politicians don’t understand what it’s like to live on a fixed income,” VanGorder explains, adding that any unexpected expenses hit those on a fixed income really hard. Right now in Nova Scotia C.A.R.P. is trying to stop plans to end a longstanding cap on property taxes – a move that would hit fixed-income folks the hardest.

In removing the cap, the province has suggested it would “look after” low-income seniors, but VanGorder points out that retirees at all levels of income are on fixed income. “It’s not just low-income earners… everyone would be hit by this,” he says.

It’s an example of how older Canadians seem to be overlooked when the government is writing up new public policies, VanGorder says. When the pandemic struck, all that older Canadians were offered was a one-time $300 payment, plus an extra $200 for the lower income group, he notes. Meanwhile younger Canadians were eligible for Canada Emergency Response Benefit payments of $2,000 per month, there were wage subsidies and rent subsidies for business, and more.

Older Canadians “feel they’ve seen every other part of the country get more economic assistance,” he explains. That’s because there’s a misconception that older Canadians “are already getting stuff… and are being looked after.”

“Their cost of living has gone up exponentially,” VanGorder says, noting that many services for seniors – getting volunteer drivers, or home support visits – have been curtailed for health reasons. These changes lead to increased costs for older Canadians, he explains.

C.A.R.P. is looking for ways to keep more money in the pockets of older people. For example, he notes, C.A.R.P. feels that there should be no minimum withdrawal rule for Registered Retirement Income Funds (RRIFs). “It’s unfair to force people to take their money out once they reach a certain age,” he explains. “A lot of people are retiring later (than age 71).” He notes that since taxes are paid on any amount withdrawn anyway, the government would always get its share eventually if there was no minimum withdrawal rule.

Another argument against the minimum withdrawal rule is the increase in longevity, VanGorder says. Ten per cent of kids born today will live to be over 100, he points out. “We’re adding a year more longevity for every decade,” he says.

C.A.R.P. is also pushing the federal government to move forward with election promises on increasing OAS payments for those over age 75, and to increase survivor benefits. While the feds did improve the CPP, the improvements will not impact today’s retirees; instead they’ll help millennials and younger generations following them.

Another area of concern to C.A.R.P. on the pension front is the rights of plan members when the company offering the pension goes under. “C.A.R.P. would like to see the plan members get super-priority creditor status,” he explains. That way, they’d be first in line to get money moved into their pensions when a Nortel or Sears-type situation occurs.

He notes that Canada is the only country with government-run healthcare that doesn’t also offer government-run pharmacare.

VanGorder agrees that there aren’t enough workplace pensions anymore. “Canada doesn’t mandate employers to offer pensions, making (reliance) on CPP and OAS more critical than it is in other countries,” he explains. The solutions would be forcing companies to offer a pension plan, or greatly increasing the benefits offered by OAS and CPP, he says.

“If we don’t start fixing it now, we are going to end up with a horrible problem when the millennials start to retire,” VanGorder predicts. Now is the time to act on expanding retirement security, he says. “They always say the best time to plant a tree is 20 years ago,” he says. “But the second-best time is today.”

We thank Bill VanGorder for taking the time to speak to Save with SPP.

Don’t have a pension plan at work? Not sure how to save on your own? The experts at the Saskatchewan Pension Plan can help you get your savings on track. SPP offers a well-run, low-cost defined contribution plan that invests the money you contribute, and provides you with the option of a lifetime pension when work’s in the rear-view mirror. An employer pension plan option is also available. See if they’re right for you!

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.


The Sleep-Easy Retirement Guide takes some of the surprises out of life after work

December 31, 2020

If there’s one thing that working Canadians can’t quite grasp with their imagination, it’s what things will be like when they step away from full-time work.

David Aston’s The Sleep-Easy Retirement Guide is a great and refreshingly Canadian-focused look at what lies ahead – and what you need to think about to ensure you make the best of it.

The book begins by noting that the old days of “full-stop” retirement at 65 are gone. “You can retire much earlier than 65 or much later. You can leave work full-stop, or you can work in a second career, or you can work as little or as much as you want or need to with part-time employment or on contract,” he writes. You can also start a business or just go for “the traditional retirement of leisure.”

So saving, Aston writes, is a bit tricky, because you normally start saving “many years ahead of when you will have a clear picture of what your financial demands will be in retirement.”

Aston sees three “paths” for retirement savings. The “Steady Eddie” approach involves saving “at a constant rate throughout your working life.” If a 25-year-old put 10 per cent of his or her salary into retirement savings annually for 40 years, there would be $1 million in the nest egg at age 65.

Other approaches give you the same result – a “gradual ramp up” means you start at six per cent per year and increase to 30 per cent for the 25 years before age 65. Or, there’s the “mortgage first, save later” approach where, after mortgage is done, you save 35 per cent of income for the 13 years left to retirement.

If working part-time, or at something different, is part of your “life after full-time work” plans, Aston provides a handy list of tips for older job-hunters, who may not have looked for work for a while. Among the tips are getting familiar with today’s more tech-focused approach to human resources, such as the use of Skype or FaceTime for interviews, and LinkedIn for shopping your resume around.

The book has many great chapters focused on decision points. Maybe you’re at age 65 with a reasonable stash of money in your RRSP. Aston’s detailed charts show how retiring at 68 instead can boost your annual cash flow by an impressive $11,360, thanks in part from holding off on withdrawals from savings and taking Canada Pension Plan and Old Age Security benefits later.

Another set of tables looks at what couples and singles spend in retirement. For an average couple, here’s what goes out: $44,000 a year for shelter, mortgage, vehicles, groceries, health and dental, home and garden, clothing, communication, financial services and transportation. But wait, there’s more – they’ll spend a further $16,400 on “the extras,” which include recreation and entertainment, restaurants and alcohol, a second home, travel, pets, gifts and charities, and miscellaneous perks.

Aston says an important concept is to have a “sustainable withdrawal rate” from savings, so that you don’t run out. He recommends taking four per cent out of your savings each year, if you start at age 65. The four per cent figure assumes “a blend of both investment returns and drawdown of principal.”

If you don’t want to risk running out of savings, Aston says an annuity may be for you. “An annuity gives you the opportunity to purchase your own defined-benefit pension plan,” he explains. They “are an ideal product for many middle-class Canadians who are concerned about outliving their wealth,” Aston adds.

This well-written, thorough and very informative book ends with some very good advice. “Behind the goal of a life well lived,” writes Aston, “it helps to have the support of finances well-managed.”

Did you know that Saskatchewan Pension Plan members have the option of receiving their savings in the form of a lifetime annuity? The annuity delivers you a payment that stays the same, and lands in your bank account every month for the rest of your life. And, depending on what annuity option you pick, it can continue on to your surviving spouse. Not an SPP member yet? Check their website and find out how you can sign up!

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.


Dec 28: BEST FROM THE BLOGOSPHERE

December 28, 2020

Retirement income will come from many different buckets – so be aware of tax rules

When we are working full time, taxes are fairly straightforward. Our one source of income is the only one that gets taxed. Very straightforward.

It’s a far different story, writes Dale Jackson for BNN Bloomberg, once you’re retired. Income may come from multiple sources, he explains.

“Think of your retirement savings as several buckets with different tax consequences: registered retirement savings plan (RRSP), spousal RRSP, workplace pension or annuity, part-time work income, tax-free savings account (TFSA), non-registered savings, Canada Pension Plan (CPP) and Old Age Security benefits (OAS), and home equity lines of credit (HELOC),” he explains. 

“The trick is to take money from the buckets with the highest tax implications at the lowest possible tax rate and top it off with money from the buckets with little or no tax consequences.” Jackson points out.

A company pension plan is a great thing, he writes, but income from it is taxable. “If you are fortunate enough to have had a company-sponsored pension plan – whether it is defined contribution or defined benefit – or an annuity, you have the misfortune of being fully taxed on withdrawals in retirement,” he explains.

It’s the same story for your RRSP – it’s fully taxable. Both pension income and RRSP income may be eligible for income splitting if you qualify, Jackson notes.

He explains how a spousal RRSP can save you taxes. “If one spouse contributes much more than the other during their working life, they can split their contributions with the lower-income spouse through a spousal RRSP. The contribution can be claimed by the higher-income spouse and gives the spouse under 65 a bucket of money that will be taxed at their lower rate,” Jackson writes.

CPP and OAS benefits are also fully taxed, and the latter can be clawed back in whole or in part depending on your other income, he notes.

Other buckets to consider include part-time work. “More seniors are working in retirement than ever,” Jackson writes. While income is taxable, he recommends that you talk to your financial adviser – there may be work-related expenses that are tax-deductible. And you can always work less if you find your other sources of income are increasing!

Interest from non-registered investments like Guaranteed Investment Certificates (GICs) or bonds is taxable. Dividends on non-registered investments are also taxable, but dividend tax credits are available. You will be taxed on half of the gains you make on investments like stocks (again, if they are non-registered) when you sell, Jackson explains. There’s no tax on interest, dividends or growth for investments that are in a RRSP, a Registered Retirement Income Fund, or a TFSA, Jackson notes.

Tax-free income can come from TFSAs or reverse mortgages and HELOCs, but Jackson warns that “a HELOC is a loan against your own home… you will pay interest when the house is sold or the owner dies.”

The takeaway from all this great advice is this – be sure you’re aware of all your sources of post-work income and the tax rules for each. That knowledge will making managing the taxes on all these buckets a little less stressful.

The Saskatchewan Pension Plan is celebrating its 35th year of operations in 2021. Check out their website today!

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.