Canada Pension Plan

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.


Dec 7: BEST FROM THE BLOGOSPHERE

December 7, 2020

Pension expert Vettese warns that fixed-income retirement is challenging; stocks can be risky

In a recent interview with the Globe and Mail, pension expert, actuary and financial writer Fred Vettese has a few words of caution for those of us who like to avoid the risks of the markets by finding safe harbour in the world of fixed income.

Vettese has written a number of books on the subject of retirement planning; Save with SPP reviewed his book The Essential Retirement Guide and found it packed with great advice.

He tells the Globe that due to the economic uncertainty the pandemic has brought, “if you have enough assets now and can live with a less risky portfolio to achieve your lifestyle, then do it.” His message, the article notes, is specifically directed at those age 65 plus.

Noting that interest rates are the lowest they’ve ever been, Vettese states in the article that “we can’t say that we’ll put some money in bonds and it will stabilize the overall portfolio and we’ll still get a pretty good return. COVID has pretty much squeezed out any kind of risk-free income.”

So, he warns, “if you’re going to keep risk-free investments in your portfolio like bonds and guaranteed investment certificates (GICs), then you’re going to have to find a rational way to actually draw down the principal over your lifetime. You can’t live off interest from bonds and GICs.”

This last statement is a bit of a gobsmacker for those of us who have ardently believed in a balanced, bond/equity view of retirement saving! But he’s right, of course – bond yields, as he points out in the article, will deliver negative returns over the long haul at today’s interest rates.

What’s a retirement saver to do?

If you’re looking to replace the income that bonds used to provide you with high-dividend stocks, be careful, Vettese advises.

“Implicit in holding dividend stocks is the idea that those stocks are not going to suffer capital losses, that they’re not going to go down 20 or 30 per cent. And what if these companies start struggling and can’t keep up their earnings and have to cut their dividends? There’s a lot of risk in dividend stocks, even if we haven’t seen that risk showing its teeth yet,” he states in the Globe article.

Vettese says it is a tough time for savers – especially young ones – to try and invest on their own. He suggests that they get professional advice, and says most people would be better off in a low-cost market-based exchange traded fund (ETF) than they would be if they picked their own stocks. He’s also a proponent of waiting until age 70 to start your government retirement benefits, such as the Canada Pension Plan and Old Age Security, because you get quite a bit more income each month that way.

There’s a lot of great stuff to recap here. Fixed-income isn’t the solid pillar it once was, at least for now, and stocks paying high dividends can be risky. Advice with retirement saving is well worth it, and delaying your government benefits as long as you can will give you a bigger monthly payout.

There’s no question that investing all by yourself can be risky. You might be paying fees that are too high. You could pick a category that isn’t going up in value – or risky stocks that don’t pan out. If you’re not really ready to go it alone in the euchre hand of retirement investing, the Saskatchewan Pension Plan could be an option for you. SPP looks after the tricky investing part for you, at a very low cost, usually less than 100 basis points. 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.


Oct 19: BEST FROM THE BLOGOSPHERE

October 19, 2020

Watch out for these 20 mistakes retirement savers are making

The journey between the here and now of work, and the imaginary future wonderworld of retirement, is a peculiar one. We all imagine the destination differently and no one’s super clear on the route!

The folks over at MSN have a great little post about 20 pitfalls we need to avoid on the retirement journey.

The first, and probably most obvious pitfall, is “not having enough savings.” The blog post notes that “32 per cent of Canadians approaching retirement don’t have any savings,” citing BNN Bloomberg research. “Middle-aged and older Canadians should start saving as early as possible,” the post warns.

If you’re already a saver, are you aware of the fees you are paying on your investments? “High fees can eat up huge amounts of your savings over time if you’re not careful,” the post states.

Many of us who lack savings say hey, no problem, I’ll just keep working, even past age 65. The post points out that (according to Statistics Canada), “30 per cent of individuals who took an early retirement in 2002 did so because of their health.” In other words, working later may not be the option you think it is.

Are you assuming the kids won’t need any help once you hit your gold watch era? Beware, the blog says, noting that RBC research has found “almost half of parents with children aged 30-35 are still financially subsidizing their kids in some way.”

Another issue for Canucks is taking their federal government benefits too early. You don’t have to take CPP and OAS until age 70, the blog says – and you get substantially more income per month if you wait.

Some savers don’t invest, the blog says. “While it may seem risky to rely on the stock market, the real risk is that inflation will eat up your savings over time, while investments tend to increase in value over long periods of time,” the MSN bloggers tell us.

Raiding the RRSP cookie jar before you retire is also a no-no, the blog reports – the tax hit is heavy and you lose the room forever. Conversely, there are also penalties for RRIF owners if they fail to take enough money out, the blog says.

Other tips – expect healthcare costs of $5,391 per person in retirement each year, avoid retiring with a mortgage (we know about this one), be aware of the equity risks of a reverse mortgage, and don’t count on your house to fully fund your retirement.

The takeaway from all of this sounds very straightforward, but of course requires a lot of self-discipline to achieve – you need to save as much as you can while eliminating debt, all prior to retirement. And you have to maximize your income from all sources. That’s how our parents and grandparents did it – once there was no mortgage or debt they put down the shovel and enjoyed the rest of their time.

If you have a workplace pension, congratulations – you are in the minority, and you should do what you can to stay in that job to receive that future pension. If you don’t have a pension at work, the onus for retirement savings is on you. If you’re not sure about investments and fees, you could turn to the Saskatchewan Pension Plan for help. They have been growing peoples’ savings since the mid-1980s, all for a very low investment fee, and they can turn those savings into lifetime income when work ends and the joy of retirement begins.

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.


Start early and work the tax system in your favour, says Gordon Pape

October 1, 2020

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

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

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

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

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

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

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

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

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

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

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

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

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.


Sep 28: BEST FROM THE BLOGOSPHERE

September 28, 2020

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

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

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

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

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

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

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

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

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

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

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

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

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.


JUL 27: BEST FROM THE BLOGOSPHERE

July 27, 2020

Life without savings “difficult, but not impossible,” experts say

Like many things in life, such as quitting smoking or losing weight, saving for retirement – even though it is good for us – is often difficult to do.

Jobs aren’t as plentiful these days, household debt is at record highs, and there just isn’t always a lot of cash for putting aside long term.

But what kind of retirement will people who can’t or didn’t save face when they’re older?

According to a recent article in MoneySense, life without retirement savings (or a workplace plan) is “difficult, but not impossible.”

Canadians who have worked and paid into the Canada Pension Plan (CPP) can, in 2020, expect a maximum annual pension of “$1,176 per month – that’s $14,112 per year,” the article notes. However, the writers warn, not all of us will have worked long enough (and made enough contributions) to get the maximum.

“The average CPP retirement pension recipient currently receives $697 per month, or $8,359 per year. That’s only about 59 per cent of the maximum,” reports MoneySense

You can start getting CPP as early as 60 or as late as 70, and the longer you wait, the more you get, the article notes.

All Canadian residents – even those who don’t qualify for CPP – can qualify for Old Age Security (OAS). If you don’t remember paying into OAS, don’t worry – you didn’t directly pay for it via contributions. Instead, the OAS is paid from general tax revenues.

“A lifetime or long-time Canadian resident may receive up to $614 per month at age 65 as of the third quarter of 2020, which is $7,362 annualized. OAS is adjusted quarterly based on inflation,” MoneySense reports. 

There’s another government program that’s beneficial for lower-income retirees, MoneySense notes. The Guaranteed Income Supplement (GIS) “is a tax-free monthly benefit payable to OAS pensioners with low incomes. Single retirees whose incomes are below $18,600 excluding OAS may receive up to $916 per month, or $10,997 per year, as of the third quarter of 2020.”

What’s the bottom line? Someone qualifying for any or all of these programs can receive up to $23,721 per year, with “little to no tax required” per the rules of your province or territory.

The article notes that those saving $10,000 before retirement could add $25 to $33 a month to that total. Those saving $50,000 could see an additional $125 to $167 a month, and those putting away $100,000 will have $250 to $330 more per month.

The takeaway from all of this is quite simple – if you are expecting a generous retirement from CPP, OAS, and GIS, you may be in for a surprise. It’s not going to be a huge amount of income, but it’s a reasonable base.

If you’re eligible for any sort of retirement benefit from work, sign up. You won’t miss the money deducted from your pay after a while and your savings will quietly grow.

If there is no retirement program at work, set up your own using the Saskatchewan Pension Plan. Start small, with contributions you can afford. Dial up your contributions every time you get a raise. With this “set it and forget it” approach, you’ll have your own retirement income to bolster that provided by government, which will give you a little more security in life after work.

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 CAAT is out of the bag – any employer can now join established “modern DB” plan

July 9, 2020

We often hear how scarce good workplace pensions are, and how many employers, notably those in the private sector, have given up on offering them altogether.

But, according to Derek Dobson, CEO and Plan Manager of the Colleges of Arts and Technology (CAAT) Pension Plan, there is an option for any Canadian employer that doesn’t want to go through the effort and expense of managing a pension plan for their employees. That option is CAAT’s DBplus plan.

Dobson tells Save with SPP that there are three main themes as to why some employers – with or without their own pension plan – might want to look at DBplus.

Running what is called a “single employer” defined benefit (DB) plan means the risk of ensuring there’s enough money invested to cover the promised benefits rests on the shoulders of one employer. In a multi-employer plan, however, many employers are there to shoulder the load – the risk is shared.

As well, he notes, it might be a chance to upgrade pension benefits. “A lot of organizations want to have access to something better for their people… some employers offer nothing, or a group RRSP. Now they can move to a modern DB plan,” Dobson explains. One study by the Healthcare of Ontario Pension Plan (see this prior Save with SPP post) found that most Canadians would take a job with a good pension over one that pays more, Dobson notes.

A final benefit, he says, is the ability that DBplus has to move all employees to a common retirement benefit platform. “In many organizations, you may find that one group of employees has nothing, one has a defined contribution plan, others have a DB plan that is now closed to new entrants… DB plus allows you to put everyone on the same platform,” he says.

Noting that another large pension plan – Ontario’s OPSEU Pension Trust – has launched a similar program for non-profit organizations, Dobson says the idea of leveraging existing pension plans to deliver pensions to those lacking good coverage “is great…the long and the short of it is that there’s a general belief that these larger plans want to put up their hands to help where they can.”

“It’s the right thing to do,” he says.

Why are pensions so important?

Dobson points out some key reasons. “The average person these days will live to age 90, and on average, they retire at age 64 or 65,” he explains. “That’s 25 years in retirement. So having a secure, predictable income, one with inflation protection and survivor pensions, and that is not being delivered for a profit motive – that’s why these plans are so powerful.”

Another great thing about opening up larger plans to new employers is that it addresses the problem of “pension envy,” Dobson says. Instead of pointing out who has a good pension and who doesn’t, now “everyone has access to one, to the same standard.”

Those without a pension have issues to face when they’re older, he warns. “The Canada Pension Plan and Old Age Security systems weren’t designed to be someone’s only source of income,” he explains. “We had a three-pillar system in the past – CPP, OAS, and the third pillar, your workplace pension plan and your private savings,” Dobson says. But a large percentage of Canadians don’t have pensions at work, and a recent study by Dr. Robert Brown found that the median RRSP savings of someone approaching retirement age is just “$2,000 to $3,000,” Dobson says. Yet the same study found Canadians are willing to try and save 10 to 20 per cent of their income for retirement.

Dobson says he is energized by the goal of bringing pensions to more Canadians. “It’s a way of making Canada better,” he concludes.

Here’s a video about how the CAAT pension plan delivers on benefit security.

We thank Derek Dobson for taking the time to speak to Save with SPP.

If you don’t have a workplace pension, or the one you have offers only modest benefits, don’t forget the Saskatchewan Pension Plan. SPP allows you to decide what your savings rate will be, grows those dollars at a very low management rate, and can convert the proceeds to a variety of lifetime pensions when you retire. 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.


JUN 8: BEST FROM THE BLOGOSPHERE

June 8, 2020

Will pandemic make us rethink our retirement plans?

Financial author Alexandra Macqueen, writing in MoneySense magazine, notes that we’ve always planned for retirement based on the assumption that things will be pretty much stable between the “now” of working and the “then” of retiring.

But, she asks, how will things change when the “now” is totally thrown into chaos by the pandemic?

Up until recently, she writes, we have thought about early, late, or part-time retirement. “All of these variations on the retirement theme have been built on a relatively steady set of economic conditions and assumptions: that housing and financial markets will remain stable, the economy will continue to function, and Canadians will continue to pay the Canada Pension Plan premiums and income taxes that keep CPP and Old Age Security payments flowing,” she explains.

But, she writes, the global pandemic and its “resulting economic fallout… could reshape retirement in Canada.”

First, she says, the idea of early retirement has always been associated with the idea that there are “fallbacks” if things don’t go smoothly – “returning to paid employment, harvesting home equity or counting on continued asset growth.”

But if jobs are scarce, property values drop and “markets tumble,” Macqueen notes, “these backup plans may not be available. As a result, more Canadians may opt to remain in their paid employment (if they’re employed) longer.”

As well, Canadians may find work hard to come by generally, and if they work part-time or via “gigs,” retirement savings will also be difficult to come up with, another reason Macqueen gives for seeing fewer early retirements going forward.

The next big change Macqueen predicts is that of Canadians finally coming to terms with their debt.

“The economic fallout from COVID-19 also means that many highly indebted Canadians will need to take a fresh look at the spending that got them where they are, because the security of the income or assets they expected to use to retire the debt has diminished or even disappeared,” she explains.

With no investment returns to pay down debt with, and with housing prices uncertain, Canadians may be forced to downsize their primary residence purely to save on mortgage costs, cut back on big vacations and fancy home renovations, or in extreme cases enter “a consumer proposal or bankruptcy proceedings to resolve outstanding debt,” she warns.

Finally, the COVID-19 era and its volatile market may result in a return to simpler and less risky retirement finances, such as guaranteed investment certificates (GICs) and annuities.

GICs carry almost no risk – they pay out a set amount of interest depending on the term of the certificate.

“A life annuity is a financial product, sold by an insurance company, that pays a guaranteed monthly income to the annuitant(s) for as long as they are alive—sort of like a “DIY version” of a defined-benefit pension,” notes Macqueen, co-author of a book on the subject, Pensionize Your Nest Egg.

Summing it up – we may need to work longer to have enough savings to retire on, or to pay off debt first before retiring, and when the wonderful day arrives, we might want to convert savings into a guaranteed lifetime income via annuities and GICs.

If you’re a member of the Saskatchewan Pension Plan, the idea of converting your retirement savings into a guaranteed lifetime income stream is already part of your retirement tool kit. SPP has a variety of annuity options available that will ensure you get a monthly cheque for as long as you’re alive. Check it 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, classic rock, and darts. You can follow him on Twitter – his handle is @AveryKerr22