Women retirees receiving 17 per cent less than men: report

We’ve all known for a while that women tend to outlive men. But a new study from Ontario’s Pay Equity Office reveals that women, on average, receive 17 per cent less income in retirement than men do.

The study was highlighted in a recent story in the Financial Post, which took a deeper dive on the issue of what it calls “the pension gap.”

Having a gap is bad, but the Post informs us that the gap between the retirement income of Canadian men and women has actually worsened over time.

“The gender pension gap was 15 per cent in 1976, but despite women’s increased labour force participation, it widened to 17 per cent in 2021, according to Statistics Canada. The average retirement income for Canadian women in that year was $36,700 and the median was $29,700,” the Post reports.

“Women receive $0.83 to every $1 a man receives in retirement income. That is a 17 per cent gendered pension gap,” Kadie Philp, commissioner and chief administrative officer of the Ontario Pay Equity Commission, states in the Post article. “This stark reality isn’t just a number — it’s a concerning trend contributing to a notable gender disparity among older Canadians, particularly women.”

And even worse, many women are not only making less than men, but are living at or below the poverty line, the newspaper notes.

“According to the report, approximately 200,000 more women than men over the age of 65 were living below Canada’s low-income threshold in 2020. Twenty-one per cent of women who had incomes below the cut-off were above the age of 75 — 51 per cent higher than the portion of their male counterparts of the same age,” the Post article tells us.

So, we may all wonder, what’s going on here – what’s causing this “pension gap?”

The fact that women take time away from employment to bear and raise children is cited as one factor for having lower retirement income, the Post states. Additionally, and perhaps for the same reason, part-time work is higher amongst women than men – 24.4 per cent of women worked part-time in 2021 compared to 13 per cent of men, the article says.

Women also get less income when off on parental leaves than men do, the Post notes.  “A majority of insured mothers in Canada (89.9 per cent) took maternity or parental leave at a reduced income level compared with 11.9 per cent of insured fathers or partners,” the Post reports.

As well, there’s the big factor of pay equity generally. Women typically make 28 per cent less throughout the year (and 11 per cent less per hour) than men. We are left to conclude that if you earn less you are no doubt also saving less for retirement.

Finally, the Post discusses “historical biases,” citing the design of Canada’s public pension system that is “designed for heterosexual couples with a male counterpart.”

The takeaway from all of this seems clear. If you are a woman, you need to focus, and never overlook, the importance of retirement saving. If there’s a pension plan where you work, make sure you are signed up and contributing to the maximum – many plans allow part-time workers to join their retirement program.

If you don’t have a program in place for work, the Saskatchewan Pension Plan may be a key resource for creating your own future retirement income. SPP, after all, was first designed to provide pension benefits to people – such as farm wives – who didn’t have access to a retirement program via employment.

SPP will take the dollars you contribute and grow them via a professionally managed, low-cost, pooled fund. When it’s time to collect, you can choose from options like a lifetime monthly annuity payment, or the more flexible Variable Benefit.

Check out SPP today!

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The trickiest retirement problem – living off a lump sum

When we work, we get paid on some sort of regular basis – we’ve been paid monthly (with an advance on the 15^th), we’ve been paid every two weeks, we’ve been paid twice a month, and we’ve been paid every week.

But in retirement, you might find that instead of regular payments, you are living off a lump sum of money – a chunk that is at its biggest near the beginning of your retirement, and that declines as you get older. What’s tricky is figuring out how much to withdraw each year.

A recent Financial Post article looks at this tricky “drawdown” or “decumulation” phase, where retirement savings are turned into income.

Author Fraser Stark, who is president of the Longevity Pension Fund at Purpose Investments,  notes that a number of “rules” have sprung up about how much you should withdraw each year, such as the “the four per cent rule, the 3.3 per cent rule, (and) the 2.26 per cent rule.” He adds that “whatever your number, these prescribed income level rules of thumb seem to point to lower – and more precise – values.”

The question for retirees to answer, he explains, is “how much can I safely withdraw from my retirement portfolio each year without the risk of running out of money?”

And while no one wants to run out of money, Stark says not taking out enough money each year is also a risk. It means you may not be living as well as you could be, he explains.

“The premise of these rules is that the opposite — not running out — constitutes success. This is where the logic behind these rules begins to fray,” he writes.

“Honing in on the `correct’ value misses the point: the entire premise of holding a basket of assets and drawing from it blindly is a suboptimal approach that often leads to inefficient outcomes for retired investors,” he explains.

The granddaddy of all withdrawal rules, the four per cent rule, was posited by Bill Bengen in 1994, writes Stark. “His analysis determined that an investor who started spending four per cent of their original portfolio value… would have not fully depleted their balanced portfolio over any 30-year period,” he explains.

The idea, Stark continues, is four per cent (on average) is a rate of withdrawal that is less than long-term rates of growth. For example, the Saskatchewan Pension Plan has averaged a rate of return of eight per cent since its inception in the late 1980s.

However, the four per cent rule assumes that the retiree is going to be able to live with a “fixed spending level” throughout his or her retirement. “It is truly set it and forget it, which is not how people behave,” he explains.

As well, he writes, people are now living longer. Mortality tables suggest that a 65-year-old woman today has a “great than 34 per cent chance of living for 35 years,” or until age 100. So you are withdrawing funds for many more years than people did in the past, Stark explains.

What, then, do you do to avoid running out of money – especially if you find yourself blowing out 100 candles on your birthday cake? The answer, says Stark, is an annuity.

“A more effective approach is to annuitize a portion of your assets at retirement, thereby creating a stream of sustainable income and withdrawing from the rest of your portfolio according to your percentage rule of choice,” he writes. You can never run out of money in an annuity, as you’ll receive it for as long as you live, he explains.

He also suggests starting Canada Pension Plan and Old Age Security later – these payments are inflation-protected and also are paid for life.

“Much has changed over those three decades. In the face of rising living costs, greater macro uncertainty and continued innovation in financial product design, an optimal outcome for many investors can be achieved by more thoughtfully constructing an initial portfolio to meet their desired outcomes, and by dynamically responding to market and life conditions as the retirement phase unfolds. We deserve no less,” he concludes.

The option of a lifetime annuity payment is available to members of the SPP. When it’s time to collect your pension, you can choose to receive some or all of your account balance as an annuity, meaning you’ll get a monthly payment for the rest of your life. If you want more flexibility around the amount you want to receive, take a look at SPP’s Variable Benefit.

SPP’s varied retirement options, coupled with its professionally managed, low-cost investment strategy, make it a reliable partner for your retirement saving and income plans.

Check out SPP today!

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Despite focusing on slaying debt, Canadians still plan to retire at 60

Writing in the Financial Post, Victoria Wells reports that “more than half of Canadian investors say they’re concentrating on getting their bills paid over saving for the future.”

Yet, her article notes, despite the focus on debt reduction – brought on by higher interest rates – a CIBC study suggests “most still expect to retire around 60.”

OK, saving less, reducing debt, and still jumping over the wall of work at 60. Let’s hear more.

The focus on paying down debt, Wells reports, is “leading many to look past traditional long-term savings vehicles, such as the registered retirement savings plan (RRSP) to the Tax Free Savings Account (TFSA) instead. Indeed, 53 per cent of investors with both an RRSP and TFSA said they preferred putting their money into the latter so they could access their savings tax-free at any time. RRSPs, in contrast, may be locked-in, meaning withdrawals, which are taxable, can only be made at a future date.”

In fact, the article continues, again citing CIBC research, “one third of people with RRSPs don’t intend to make any contributions” by the annual deadline.

The fact that people seem to be preoccupied, in the present, with defeating debt seems to be impacting how they are investing generally, the article notes.

“The shift to a more conservative financial focus is also showing up in people’s investing strategies, and 42 per cent said they’re looking for predictable returns over outsized growth amid an uncertain economic environment,” the article notes.

“The preference for short-term liquidity and stable returns suggests many Canadians are focused on today and less so on long-term accumulation of wealth or retirement,” Carissa Lucreziana of CIBC states in the article.

OK, more interest on liquidity – having money available to use soon – than long-term growth. What’s driving that?

The article says anxiety may be the reason behind the switch in investment thinking.

“Inflation, higher interest rates and concerns the economy may tip into a recession have left many Canadians anxious about their finances. Worriers are spending an average of 17.7 more hours fretting about money than they were last year, according to separate research from the Bank of Nova Scotia,” the Post reports.

And some of those anxieties extend to retirement, the article adds.

Citing more data from CIBC, the Post notes that “more than half admit they either can’t afford to save for retirement or aren’t sure they’re saving enough. Another 57 per cent harbour fears they’ll run out of money in their old age, while higher inflation has forced one-third to push back their expected retirement date.”

The solution, the article concludes, is a balanced approach – focusing on debt while not overlooking long-term savings needs completely.

“Planning for both short and longer-term ambitions can help individuals move beyond their immediate needs and envision how they can live for today (and) save for the future, accumulating wealth over time to support their retirement years,” states CIBC’s Lucreziana in the article.

The article makes a great point. Of course, you should get rid of personal debt – the less you have of it in retirement, when you will probably have less income, the better. But it’s probably not a great idea to completely stop saving for retirement while battling debt. Maybe, one should consider retirement saving to be like any other bill you have to pay each month.

Members of the Saskatchewan Pension Plan can save as though they are paying bills – just set up SPP as a “bill” on your online banking, and you’re off to the races. You can also set up a “pay yourself first” pre-authorized contribution, and SPP also accepts credit card contributions. That’s one of the great features about SPP – flexibility.

Check out SPP today!

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Among the many strange aspects of life during the recent pandemic was the “work from home” boom. Office buildings stood empty, nearby convenience stores and food courts closed, and there was no “rush hour” traffic update on the morning news. Everyone was at home.

But that may be changing.

A recent CTV News report sums up how different things were during the pandemic.

COVID-19 caused “a mass exodus to remote work that had never been seen before,” the broadcaster reports. In 2016, “only seven per cent of workers in Canada said they `usually’ worked from home,” the article notes. As recently as early 2022, that number had soared to 24.3 per cent, or nearly one quarter of all workers.

But people are starting to “trickle” back to the office, CTV reports. The “working exclusively at home” number dropped to 20.1 per cent in May of last year, although there were still 11.7 per cent of workers in “hybrid” work arrangements (some hours at home, some at the workplace) as recently as November.

There are a couple of issues that have arisen due to remote work, reports Global News.

First, there seems to be a disconnect between what employers want – a return to work in the office – and what employees want – to be able to continue to work from home.

“A quarter of Canadians who usually work from home would like to work from home more, while one in eight would like to work from home less — which the report says is a challenge for employers,” Global reports, citing information from Statistics Canada.

“A mismatch between employees’ preferences for telework and the hours they work from home may negatively affect employee retention,” reports Global, again citing the Statistics Canada report.

The second issue is that offices in downtown centres, such as Toronto, are experiencing record vacancy rates.

According to the Financial Post, “the vacancy rate for downtown Toronto office buildings reached a record high at the end of last year as a flood of largely empty space from newly completed projects hit the market.”

“The downtown office vacancy rate in Canada’s financial capital rose to 17.4 per cent as nearly 58,100 square metres of new space came to market during the fourth quarter, according to data released Tuesday by brokerage CBRE Group Inc.,” the Post reports.

“The poor performance of the Toronto market helped push Canada’s national downtown vacancy rate to its own record last quarter, hitting 19.4 per cent, the data show,” the article notes.

COVID-19 is cited as the chief reason for the vacancies, as well as the fact that major office construction projects can take years, the article adds.

Because office towers take many years to construct, Toronto’s still working through office projects that began before the pandemic.

“With the city accounting for nearly half of all new office construction nationwide, Canada’s net-absorption rate, or the pace that office space gets leased when it becomes available, would have been positive without the impact from Toronto’s new supply, the data show. Instead, that rate was negative in the period,” the article concludes.

Some observers fear that the business of building and leasing office space may have been permanently damaged due to the COVID-related work-from-home trend.

The Canadian Press reports that “the COVID-induced work-from-home shift has ravaged the office market as many employers re-evaluated their office footprint. Firms have also looked at reducing their real estate holdings as a way to rein in expenses to help cope with the current weaker economy.”

“It is likely that 10 to 15 per cent of demand has been permanently destroyed with (work-from-home) trends,” Maria Benavente, vice-president and real estate-focused portfolio manager at Dynamic Funds, tells The Canadian Press.

This strange, once-in-a-lifetime (hopefully) situation may take a while to play out. It will be interesting to see if the trickle of “in-office” workers begins to become more of a river, correcting the problem of office vacancy and breathing life into downtown businesses that are supported by office workers. Or, will people fight for the right to work from their dining rooms? Stay tuned!

Wherever you work, saving for retirement is important. If you are lucky enough to have a workplace savings program, be sure you are taking part to the maximum. If you don’t, and are saving on your own for retirement, you may want to consider joining the Saskatchewan Pension Plan.

Open to any Canadian with registered retirement savings room, SPP’s voluntary defined contribution plan delivers expert investment management at a low cost, using a pooled fund. SPP will grow your savings, and when it’s time to put work behind you, you can choose between a lifetime annuity payment each month, or SPP’s Variable Benefit program. Find out why SPP has been helping Canadians build secure retirements since 1986 – check them out today!

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The strategy that almost no one tries – starting CPP later to get a higher payment

We frequently read that folks aren’t saving enough for retirement, for a variety of reasons. There aren’t as many workplace pension arrangements out there anymore, and inflation and debt, both at decades-high levels, make it difficult to save.

There is a way to dramatically increase your retirement income, writes Noella Ovid in the Financial Post, and it’s a strategy that very few of us try – starting our Canada Pension Plan (CPP) later, at age 70.

“You can start CPP as early as age 60 or as late as 70, but the longer you wait, the higher your monthly benefit will be since it will cover fewer years,” states Jason Heath of Objective Financial Partners Inc. in the Post article.

“Generally speaking, if you live well into your 80s, you can come out ahead by deferring your CPP to age 70. The problem? Nobody does it,” Heath tells the Post.

Even though waiting gives you a significantly larger benefit, only five per cent of Canadians do, the article reports.

And there are other ways to boost retirement income, the article continues.

“The most successful retirees Heath has seen are those who have transitioned to retirement through part-time, consulting or volunteer work, avoiding the extreme change from a 40 to 50-hour work week,” the article notes.

“The earlier you start to plan retirement, not only from a financial perspective, but from a lifestyle perspective, can be really rewarding and improve the transition,” Heath states in the article. “In a perfect world, it’s planned, it’s slow, it’s steady.”

He does acknowledge that life can get in the way of a good retirement plan – corporate decisions, health setbacks and other unexpected events can derail the best of plans, the article notes.

Another idea for stretching your retirement dollars is to move somewhere that, ideally, has better weather and cheaper living costs.

“Expat destinations for retirement are an option for Canadians trying to save money on the cost of living. Heath tells the Post there’s opportunity in countries such as Panama, Ecuador, Costa Rica and Mexico which are trying to attract retirees from other countries. Some of the benefits include lower real estate prices, food costs and easier travel to exotic locations,” the article reports.

Now that we’re seniors in our mid-60s, the topic of start CPP comes up frequently. We do know of friends who waited until age 65 to start CPP, since their workplace pension plan had early retirement benefits that dropped off at that age. We know folks who started CPP at 60 while working full time, and are continuing to pay into it. Some of them banked the CPP, others needed it for day-to-day costs.

So, think carefully, look at your expected post-retirement income and expenses from all sources, and consider the pros and cons of taking CPP early or late. It wouldn’t hurt to get professional advice on the topic.

If you are an SPP member, you have a little more flexibility in age ranges. You can begin to collect your retirement benefits as early as age 55, and “no later than December of the year in which you turn age 71.” For full details, have a look at SPP’s Pension Guide.

Among your retirement income choices are one of several SPP annuities – all of which pay you a monthly income for life – and, new for all members, the Variable Benefit. Check out SPP today!

Join the Wealthcare Revolution – follow SPP on Facebook!

Financially independent seniors require less government help: Frazer Stark

Writing in the Financial Post, Frazer Stark notes that the “looming crisis” of baby boomer retirements — with those boomers living longer lives than their forbears — can be solved with a little more focus on self-reliance.

“Retirees,” he writes, “face uncertainty on multiple fronts: market returns, cost inflation and their own physical health. Yet it’s the unknown length of an individual’s ultimate lifespan that creates a labyrinthine financial planning challenge.”

“Consider that a 65-year-old woman entering retirement can expect to live on average to age 87,” he explains. “This average hides variability: she still has a 10-per-cent chance of living past 100, a one-per-cent chance of living past 105 and a tiny chance of reaching 110 or even beyond that (the oldest Canadian on record passed away at 117 years and 230 days). This variability makes determining how much to safely spend from her nest egg rather tricky,” he writes.

This danger of outliving one’s savings, he explains, can be handled several ways. You can “play it safe” and avoid drawing down your savings, he writes. But that carries the cost of “not fully enjoying these special retirement years while we can.”

You could also simply ignore the problem of living into your 90s and beyond by spending “freely as you set into retirement.” This can backfire, Stark adds, and your future you may suffer as a result of early heavy spending.

Defined benefit (DB) pension plans, Stark continues, offer a form of insurance against longevity, as such pensions are paid for life. Yet, he says, we “continue to steadily transition away from the DB pension structures that offered comfortable, confident retirements to previous generations.” Less than nine per cent of private-sector workers have DB plans today, compared to 50 per cent in the late 1970s, he notes.

Because such plans are so scarce in the private sector (they are more common in the public sector), Stark writes that “some… are giving up, viewing retirement as an unattainable goal.” Recent research has found that many have “curtailed saving,” rather than cutting back on today’s expenses to save for tomorrow, he continues.

As an example, he writes that the average price of a new car in 2022 hit more than $61,000, while in the same year, “59 per cent of Canadians said they were saving nothing for retirement, or little at all.”

Only a small percentage of Canadians insure themselves against running out of money in retirement via the use of lifetime annuities, he writes.

There has been progress in rolling out low-fee retirement savings programs (Stark mentions Wealthsimple), but “a similar evolution is now essential for the decumulation phase,” when saved retirement dollars are turned into income.

“Last year, the Organization for Economic Co-operation and Development (OECD) updated its pension-program guidelines, recommending that member countries provide their retired populations access to income-for-life options, including `by non-guaranteed arrangements where longevity risk is pooled among participants,’” Stark writes.

While work is being started by government and the financial sector on programs that address longevity risk for retirees, the path to this future “remains largely untrodden, and much work remains,” he continues.

Stark sees a solution in boosting “baseline education” about finances, and developing for Canadians “a set of tools to solve the decumulation problem for themselves.” This won’t be easy, will require a lot of innovation, but will be worth it, he predicts.

“Every Canadian who can comfortably navigate their own retirement finances is one less person requiring expensive subsidized care from the public purse, which must come from either increased taxes, additional borrowing or reduced spending elsewhere. The fourth option would be to simply not provide aid, creating tremendous suffering among our vulnerable elderly population and a stain on our national conscience,” he concludes.

This is a very well-written and detailed look at an insidious problem that tends to bite you in the backside when you are too old to deal with it — running out, or running low, on retirement income.

There is a way out of this for members of the Saskatchewan Pension Plan. SPP has you covered on the savings side — your contributed dollars are invested in a low-cost, expertly managed pooled fund. But SPP also has you covered at the drawdown stage. You can choose from a variety of SPP annuity options when you retire. All of them will provide you with an income supply that never runs out — a payment nestled in your bank account at the beginning of every month.

Check out SPP today!

Join the Wealthcare Revolution – follow SPP on Facebook!

Millennial homeowners said to have easier time saving for retirement

Those of us of a certain age worry about our millennial kids and grandkids, chiefly because of the massive costs they face in order to own a home, and the higher interest (and mortgage) rates they are dealing with.

If there’s a silver lining, it may be that those home-owning millennials will have an easier time saving for retirement than their peers who rent — so says an article in the Financial Post.

“Owning a home could make all the difference between millennials having enough money to retire or being forced to work longer than their parents did,” the article explains.

“If millennials — who today are in their late 20s to early 40s — rent throughout their working lives, then they must save a lot more than homeowners in order to retire in their 60s, according to the 2023 Mercer Retirement Readiness Barometer,” the article continues.

“This is a generation where being able to retire is one of the top three challenges when we look at unmet needs,” Mercer Canada’s Jillian Kennedy states in the article.

The article says millennials who rent “will need to save eight times their salary over the course of their career to be able to retire at age 68.” But a millennial homeowner needs to “only” save 5.25 times their salary to be able to retire three years younger, at age 65, the Post reports.

These figures are based on a millennial earning $60,000 annually and saving 10 per cent of their salary to a monthly savings plan, starting at age 25.

OK, so why are the homeowners able to save so much less?

“Homeownership gives retirees flexibility, as retirees who downsize may be able to access a significant amount of money. Renters, conversely, must pay rent every month or face eviction – whether they are 25 years old or 85 years old,” the Post reports, citing a Mercer media release.

As many of us worrying parents and grandparents already know, the big problem millennials face with housing is its cost.

“The composite benchmark price of a home in Canada rose 87.4 per cent over the last decade to February 2023, according to date from the Canadian Real Estate Association,” the article notes. These days, the article continues, “mortgage payments as a percentage of income on a ‘representative’ home stood at 64.6 per cent in the fourth quarter of 2022.”

Housing is said to be “affordable” when it represents one-third of disposable income, the article concludes.

Things sure have changed. Our late dad used to tell us, when we were kids growing up, that a mortgage should cost no more than “two years’ salary,” and that housing costs were affordable as long as they represented 25 per cent of salary. Those rules of thumb probably worked in 1965 but you’d have to make a heck of a lot of money to be able to follow them today!

The article tells us that even those millennials fortunate enough to enter the housing market still need to save a lot of money to be able to retire at 65 — we assume this is absent a pension plan at work. If you are saving on your own for retirement, check out the Saskatchewan Pension Plan. SPP will take your contributions, invest them in a pooled fund at a very low cost, and — when it is gold watch time — will help you turn your invested savings into retirement income, including the option of a lifetime annuity payment.

SPP no longer sets any limits on how much you can contribute to the plan. You can make an annual contribution of any amount up to your available registered retirement savings plan (RRSP)room. And you can transfer any amount into SPP from an existing RRSP.

Join the Wealthcare Revolution – follow SPP on Facebook!

Investing is a lot like golf. Anyone can get some clubs and play the game, but very few of us get to the point where we’re breaking par. That level of skill tends to be the exclusive domain of professionals, or well-trained amateurs, rather than those teaching themselves via social media, websites, and “can’t miss” tips from friends.

With investing, again like golf, there are common mistakes to avoid that will improve your results. Save with SPP had a look around the Interweb to find out what folks think you should not do when it comes to managing your investments.

Writing in the Financial Post, Peter Hodson warns of the danger of “anchoring.”

“Do not anchor your expectations to where the stock has been in the past. Anchoring can cause you to keep a stock far longer than you should (it used to be $100, so it must be cheap now), but it can also keep you from buying a stock that has already risen (it is too expensive now). The only thing that should matter is what a stock may do going forward,” he writes.

He also warns about focusing too much on the yield of a stock.

“If the stock declines 25 per cent then of course that seven per cent (yield) was only just the `hook’ that got you into a sinking ship. It is far better to focus on companies with lower dividends that have the ability to raise them. Dividend growth stocks have been proven over time to be much better performers than high-yielding stocks.”

At the Morningstar site, we learn that diversification — often touted as a way to avoid downturns — isn’t always a safe harbour.

“2022 is an example of a year where more assets in the portfolio would not have offered more diversification. The only asset classes that have delivered positive returns are the energy sector, the U.S. dollar and some ‘niche’ markets such as Brazilian equities,” states Morningstar’s Nicolò Bragazza.

In plainer terms, moving eggs into different baskets in 2022 would have led to quite a few broken eggs.

He also adds these ideas — the false belief that “history always repeats itself” when thinking about past market performance, and “trying to predict the future” of the markets. No one knows what’s going to happen next, he explains.

The Motley Fool blog offers up a couple more.

Don’t, the blog advises, “have a short-term focus” when investing.

“Having a longer-term focus can help you wait out a crash until the market recovers, which it often does within only a few months. Indeed, the average stock market drop takes about six months before changing direction — and most take less than four months,” the article tells us.

Similarly, if things are going south with the market, don’t sell off your holdings in a panic.

“One mistake many make when the market crashes is selling out of it. They’re doing the opposite of the old investment chestnut to `buy low, sell high.’ If your portfolio plunges by, say, 30 per cent, you haven’t technically lost any money until you sell your shares and lock in that decline. Hang on and you’ll often be able to sell later, at a significantly higher price.”

We have done most of these mistakes over the years, as well as a few other ones, like plunking down money on “can’t miss” hot tips from friends that turned out to be big losers. Buying shares in a company teetering on bankruptcy because of the belief that it will make a comeback probably has paid off for some folks — not us!

It’s a place where expertise is necessary. Most professional money advisers we know advise that ordinary people get help with their investments. Fortunately, that professional investing advice is included when you become a member of the Saskatchewan Pension Plan. SPP will invest your retirement savings in a low-cost, pooled fund that is managed by experts. You can leave the heavy lifting of reading the tea leaves on ever-changing markets to them.

News just in — contributing to SPP is now limitless. There is no longer an SPP limit (you can contribute any amount up to your full registered retirement savings plan room) on how much you can contribute to the plan each year, or transfer in from a registered retirement savings plan. Check out SPP today!

Join the Wealthcare Revolution – follow SPP on Facebook!

Higher interest rates spell trouble in ’23 for borrowers

A wise colleague once told us that debt was “the slayer of retirement dreams.”

And, according to an article by Pamela Heaven in the Financial Post today’s rising interest rates are giving that slayer even more teeth.

The article notes that at least one more rate hike is expected from the Bank of Canada early this year, which will bring the policy rate to 4.5 per cent. That compares to a rate of 0.25 per cent at the beginning of 2022, the Post reports.

The article quotes a TD Economics report that suggests that the impact of a rising policy rate for Canadian borrowers has “only just begun.” That’s because there is usually a lag between the start of higher rates and the end of a mortgage period or car loan, the article explains.

“Debt service costs rise with a lag as mortgages and loan payments are renewed at current market rates,” state the authors of the TD Economics report in the article.

While household debt levels actually dipped during the lockdown years of the pandemic, they are experiencing a sharp rise today, the article notes.

“Canadians who piled on debt when it was cheap now have to contend with interest payments on debt that is more expensive, and could get even more so,” the article adds.

“Up to 18 per cent of fixed-rate mortgages come up for renewal (this) year and borrowers looking to renew will be facing the highest interest rates in 20 years,” the article says, again quoting the TD Economics report.

“In the third quarter of (2022), a borrower who took out a $500,000 mortgage in 2017 was paying $700 more a month on renewal,” notes the TD report.

Well, one might think, it’s good that we all saved so much money during the pandemic’s lock-downiest days, right?

“One bright spot is the personal savings that Canadians accumulated during the pandemic, which could provide a cushion to rising debt costs. However, with interest rates expected to remain at higher levels over 2023, TD expects much of these savings will go to paying debt costs,” states the article.

If there is any positive news about higher interest rates, it’s the fact that Guaranteed Investment Certificates (GICs) are suddenly looking more attractive.

Writing in The Globe and Mail, noted columnist Rob Carrick asks why people are risking investment dollars in the volatile stock market when GICs and other fixed-income investments are offering interest rates close to five per cent.

“In the low-interest decades of the past, stocks were essential to reach your investing goals. But with 5-per-cent returns available from both bonds and GICs, how much do investors need stocks?” he asks.

It will be interesting to see, as we move along in 2023, whether more investors do begin to shift some of their investments towards less volatile fixed-income. Save with SPP can remember that crazy days of the late 1970s and early 1980s when interest rates were in the teens, and you could expect 18 per cent interest on a car loan. It doesn’t seem (today) like we are anywhere near those bad old days — thank heavens!

A balanced approach is usually a wise one when it comes for investing, and members of the Saskatchewan Pension Plan are aware of the “eggs in different baskets” nature of the SPP Balanced Fund. Looking at the asset mix of this fund, it appears that 40 per cent of investments are in Canadian, American and global equities, and the rest is in bonds, mortgages, private debt, short-term investments, real estate and infrastructure. Keep your retirement savings in balance, and check out SPP today!

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You’re enjoying your retirement party, your last paycheque is about to be deposited, and soon you’ll be cracking into your retirement savings.

All smooth sailing? Well, it can be if retirees are aware — in advance — of some of the bumps in the road ahead. Save with SPP took a look at the most common risks faced by those of us who are retired.

If your retirement savings are invested and you plan to live off the proceeds, investment risk and inflation should be near the top of your list, reports the Financial Post.

“Turbulent markets, soaring inflation and a higher cost of living are all impacting older workers that are transitioning to full or part-time retirement,” Mercer Canada’s F. Hubert Tremblay tells the Post.

The Kiplinger website adds a few more. Will you outlive your savings, the article asks? That’s known as “portfolio failure risk,” and can happen even if you have a set withdrawal rate, such as taking out no more than four per cent of your savings each year.

“Another withdrawal method is guessing how long you’ll live and dividing your savings by 20 to 30 years—but what happens if you live 31 years,” the article asks.

They also cite “unexpected financial responsibility risk” as being a possible challenge — this would involve having to help out adult children or ageing parents — or both.

The Wealth of Geeks blog offers up a few more risks, including a surprising one — frustration.

“Retirees are frustrated with their retirement,” the article notes. “On average, retirees rate their satisfaction in retirement as 7.0 out of 10 in 2022, compared to 7.4 in 2020. Similarly, retirees ranked their alignment of life in retirement with their prior expectations at an average of 6.4 in 2022, down from 6.8 in 2020,” the article continues.

A lot of the frustration is linked to inflation — the fact that everything costs more than it did even a year ago, the article continues. Having less to spend than expected while on a fixed income becomes a source of frustration, the article explains.

Forbes magazine sees three chief risks for retirees. The first two, inflation and investment risk, we’ve covered — but the third is possibly even more important — longevity risk.

“While there are a lot of benefits to living a long time, longevity increases financial risk. You need to pay the living expenses for all those extra years. Also, your annual expenses might increase, because people generally need more medical and long-term care as they age,” the Forbes article explains.

Save with SPP has been embedded in the camp of retirement for more than eight years now, and we can add another risk to the list — carrying debt into retirement.

According to the Canadian Press, via CP24, Canadians have $1.83 in debt for every dollar they earn.

While that’s bad, having debt when retired (and living on less income) is worse. Trying to reduce debt prior to retirement is, in many people’s opinion, almost as important as retirement savings.

It’s a daunting list of potential pitfalls. The best way to arm yourself against future risks is to have retirement savings and thus, future retirement income.

If you have a pension or retirement system through work, you are ahead of the curve. If you don’t, consider the Saskatchewan Pension Plan. SPP is a pension plan any Canadian with registered retirement savings plan (RRSP) room can join. SPP will take your contributions, as well as transfers from other RRSPs, and will grow them efficiently in a pooled fund offering low investment costs. When it’s time to turn savings into retirement income, SPP has several options for you, including lifetime annuities which guarantee you’ll never run out of income. Check out SPP today!

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