GIC

Jan 30: BEST FROM THE BLOGOSPHERE

January 30, 2023

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!

Join the Wealthcare Revolution – follow SPP on Facebook!

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.


Nov 14: BEST FROM THE BLOGOSPHERE

November 14, 2022

Avoiding the top 10 mistakes in retirement

Writing in the Times-Colonist, wealth advisor/portfolio manager Kevin Greenard highlights 10 things that can go wrong for retirees – and steps you can take to avoid those problems.

It’s critical, his column begins, to “not underestimate” the impact of inflation on retiree purchasing power. With inflation recently running as high as 8.1 per cent, he recommends “determining an appropriate asset mix, an optimal number of holdings and position size, ensuring appropriate diversification to manage concentration risk, taking a disciplined approach to rebalancing, and managing your time horizon for investing.” In other words, account for inflation in the design of your investment portfolio.

Next, he talks about longevity – you need, he writes, to factor in the possibility that you may live as long as, or longer, than your parents. “If you have one, or both, parents who lived well into their 90s, or are alive and in their 90s, then it’s prudent to plan that you too will live into, or past, your 90s,” he writes.

Greenard says his firm always assumes a conservative future return rate of four per cent. If you withdraw funds assuming a rate of return that is too high, you can deplete your money too quickly and have little to no money left 25 years into retirement.

He also talks about the risk of being “too conservative” with investments. Those of us who “store cash under the mattress” or invest only in safe, interest-bearing investments like Guaranteed Investment Certificates can actually lose money over time compared with those who take a little more risk with their asset mix. “The key is to find a happy medium that you are comfortable with, and invest only in good quality, non-speculative investments,” Greenard writes.

It’s a fine line, he adds – those who take on too much risk can also have problems. “We have seen many scenarios where significant sums of money have been lost as a result of investing in speculative, high-risk holdings, or having not managed concentration risk by holding excessive position sizes,” he explains.

Other problems that can be addressed include a lack of communications about retirement goals, failure to map out cashflow needs, and not starting a retirement savings plan early enough.

“If you have put off saving for retirement, we encourage you to start today. To benefit from compounding growth, the sooner you can start, the better off you’ll be for it in the long run,” he advises.

His final points are the importance of having an estate plan and a “total wealth plan,” as understanding your overall wealth goals will make planning the retirement component much easier.

Greenard makes some very good points in this column. We have neighbours and friends who over-decumulated from their retirement savings in the early years of retirement and had to either go back to work or adjust (downward) their lifestyle costs.

The best advice we ever received about retirement income was to do a “net to net” comparison, work income versus retirement income, which ties in to what Greenard writes about knowing your cash flows.

When you factor in the lower taxes you pay when retired (generally), and the fact that you are no longer paying into the Canada Pension Plan, Employment Insurance, a workplace pension or other retirement arrangements, you may find like we did that the income “gap” between working and retiring isn’t as huge as a “gross to gross” comparison might suggest.

If you haven’t started saving for retirement, the Saskatchewan Pension Plan is a resource you need to be aware of. SPP is an open defined contribution pension plan that any Canadian with registered retirement savings plan room can join. Once you are an SPP member, you can contribute any amount annually up to $7,000, and SPP will prudently invest your savings at a low cost. At retirement time, SPP have several income options, including an in-house line of lifetime annuity payments. Check out SPP today!

Join the Wealthcare Revolution – follow SPP on Facebook!

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 18: BEST FROM THE BLOGOSPHERE

July 18, 2022

Rising interest rates herald the return of annuities, guaranteed investment certificates (GICs)

The prolonged period of low interest rates we have been experiencing up until recently sort of took the bloom off the rose for interest-related investing, such as via GICs and their income-producing cousin, the annuity.

But, writes Rob Carrick in the Globe & Mail, the current rising interest-rate environment may give these old investment friends a new lease on life.

“Annuities are insurance contracts where you turn a lump sum of money over to an insurance company in exchange for a guaranteed stream of monthly income for as long as you live. In a world where a majority of workers do not have pensions, annuities address the fear of running out of money,” he writes.

Higher interest rates are great news for annuity buyers, because the higher rate means your annuity will provide a higher monthly payment.

“The improvements in monthly income from annuities over the past 12 months can be seen in the following examples of $100,000 annuities in a registered account, with payments guaranteed to last 10 years even if you die sooner (the money would go to your estate or beneficiaries),” the article notes. Data, the article tells us, was supplied by “ Rino Racanelli, an insurance adviser who specializes in annuities.”

Improvements for annuity income on $100,000 over just the pay year are quite impressive, the article notes. A 65-year-old woman would now get “$550.88 a month, up 15 per cent from $478.90 12 months ago,” Carrick writes. For men aged 65, it’s a jump to $589.75 a month, “up 15.6 per cent from $510.10 12 months ago.”

Carrick writes that some folks shy away from annuities because you have to give up a large lump sum to get the monthly payment. “Solution,” he writes, is to “use an annuity for just part of your retirement income.”

Racanelli tells the Globe that “interest in annuities has increased lately, but some people are waiting for higher rates to lock money in.”

The GIC was a “go-to” investment for boomer parents back in the 1970s and 1980s, when interest rates were in the teens.

“As of the end of June, GIC rates were as high as 4.15 per cent for a one-year term and five per cent for five years,” he writes.

With a GIC, your money is locked up for the term of the contract, typically, one, two, three, four or five years. You receive regular interest payments which compound, typically monthly, so your GIC can really only go up in value. Few people looked at the GIC when they only offered one or two per cent interest rates, but they are now becoming more popular, the article suggests.

Did you know that the Saskatchewan Pension Plan offers a variety of annuity options for retiring members? According to the Retirement Guide, you can choose either a life only annuity (pays you for life, no survivor or death benefits), a refund life annuity (life income for you, but there can be a payout to survivors if you die before receiving your total annuity purchase amount) and a joint and last survivor annuity – lifetime income for you, and lifetime survivor pension to your surviving spouse upon your death.

Annuities may make sense for some of your money at retirement – you’ll get a lifetime income stream and can choose options to look after your survivors. It’s just another way the SPP provides its members with retirement security.

Join the Wealthcare Revolution – follow SPP on Facebook!

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.


Understanding the basics of RRIFs with BMO’s James McCreath

May 12, 2022

Most Canadians understand what registered retirement savings plans (RRSPs) are.

What’s perhaps a little less well known is the registered retirement income fund (RRIF), which is where your RRSP funds generally end up once you move from saving for retirement to spending your retirement income.

Save with SPP reached out to James McCreath, a portfolio manager at BMO Wealth’s Calgary office, to get a better understanding of the basics of RRIFs.

We first learned that McCreath has strong connections to Saskatchewan – both his parents are from here, his mom, Grit McCreath, is Chancellor of the University of Saskatchewan, and the family enjoys time at their cottage north of Prince Albert at Waskesiu Lake.

RRIFs are the vehicle used to turn former RRSP savings into retirement income, he explains.

“You have to convert from an RRSP to a RRIF by the end of the year you turn 71, and must start withdrawing from the RRIF by the end of the year you turn 72,” says McCreath. That potential deferral period, he points out, gives you a 24-month window from the point your RRSP is converted to when you take the first dollar out.

While it is possible to convert to a RRIF earlier than age 71, not many people do, McCreath explains. Such a decision, he says, would be based on an individual’s unique circumstances – perhaps they want “certainty for budgeting,” or other reasons. It’s possible, but rare he says.

While there’s no tax on the interest, dividends or growth within a RRIF, the money you take out of it is taxable. McCreath says the tax on RRIF withdrawals is the deferred tax you didn’t pay when you put money into an RRSP in the past.

Asked if there is a correct or best investment strategy for a RRIF, McCreath says that this again depends on “the circumstances of the individual.”

Generally, a RRIF investment strategy should consider the cash flow needs of the individual, and their tolerance for risk, explains McCreath.

Someone who needs the RRIF income for day-to-day expenses might, for instance, be less interested in risky investments, and would focus on fixed income investments, he says. “These days we are starting to see five-year GICs (guaranteed income certificates) that pay four per cent interest; we haven’t seen them at that rate for years, so that might be a consideration” for risk-averse RRIF investors.

Others with less cash flow needs for the RRIF – perhaps those who retired with workplace pensions – might be able to handle a riskier investment strategy. “They might want to hold equities under the hope that their RRIF grows, for legacy purposes,” he explains.

“I strongly advise people to find an investment professional, or an accountant, who can help develop the optimal plan for their own circumstances,” McCreath says.

On the issue of RRIF taxation, McCreath points out that taking money out of the RRIF is different than taking it out of an RRSP.

There is a minimum amount that you must withdraw from your RRIF each year, a percentage that gradually increases as you get older, he explains.

When you take money out of an RRSP, an amount of tax is withheld at source for taxes (beginning at 10% for withdrawals up to $5,000). No such taxes are automatically withheld when you withdraw the minimum prescribed amount of money from a RRIF.

If you are concerned about having to pay taxes at income tax time because of RRIF income, McCreath says you can often arrange to have the RRIF provider deduct a set amount of tax above the mandated minimum tax withholdings from each withdrawal. In this way, you will help avoid having to make a large payment at tax time, assuming the appropriate amount of tax gets withheld, he explains.

Another good idea, he says, is to use any RRIF income (net of tax) that you don’t need as a contribution to your Tax Free Savings Account (TFSA). “If you don’t need the capital for day-to-day living, you can continue to invest it in the TFSA,” he explains.

An alternative to a RRIF at the end of your RRSP eligibility is the purchase of annuity. Annuities, like a pension, provide a set income each month for life, and many annuity providers offer a variety of options for them around survivor benefits.

The current sharp rise in interest rates may increase interest in annuities, McCreath suggests.

“As interest rates rise, the functionality and usefulness of annuities go up,” McCreath notes. Generally speaking, the higher the interest rate at the time of purchase is, the greater the annuity payment will be.

McCreath concluded by offering two key pieces of advice. First, he notes, a lot of retirement decisions, such as moving to a RRIF or buying an annuity, are important and “irrevocable” ones. It’s important to get professional advice to help you make the decision that’s best for you, he says.

As well, he says, pre-retirees should have a very clear understanding of their cash flow, and “the matching of inflows to outflows,” before they begin drawing down their savings.

We thank James McCreath for taking the time to talk with us.

Saskatchewan Pension Plan members have several options when they want to collect their retirement income. They can choose among SPP’s annuity options, SPP’s variable benefit (available for Saskatchewan residents), or transfer their money to a Prescribed RRIF. Check out SPP’s Time to Collect Guide for more details!


Mar 28: BEST FROM THE BLOGOSPHERE

March 28, 2022

What the return of inflation will look like for wages, debt and savings

Writing in the Financial Post, noted financial writer Jason Heath takes a look at what the return of inflation will mean for us.

He reports that in February, the consumer price index (CPI) jumped by 5.7 per cent, which “is the biggest increase since August 1991, when inflation was six per cent.”

Since that long-ago peak, he writes, inflation has fallen to much lower levels. Over the last 30 years, it has averaged 1.9 per cent, Heath explains. And, he adds, the Bank of Canada over the intervening years has put policies in place, as required, to keep the brakes on inflation.

Managing inflation through central bank policy is a lot like turning around an ocean liner – you have to make small adjustments over a long time frame. For interest rates, corrective action takes place “typically within a horizon of six to eight quarters,” or a year and a half to two years, he writes.

Despite that effort, our old friend is back, and not just here in Canada. Inflation rates are at 7.9 per cent in the U.S., 6.1 per cent in India, and at 5.9 per cent in the “Eurozone,” he writes.

He then takes a look at its likely impacts.

Higher wages: First, he writes, employers need to look at wage increases. Hourly wages have increased by just 1.8 per cent since 2020. “If inflation remains persistently high, workers whose earnings cannot keep up with the rate of inflation are effectively getting a pay cut,” he notes. They’ll need more wages to pay for the higher price of goods and services, he explains.

Higher interest on debt: If you are carrying a lot of debt, higher interest rates will cut into your cash flow, he writes.

“That cash flow decrease may not be immediate but many mortgage borrowers will see their amortization period increase as more of their monthly payments go to interest and their debt-free date is delayed. This is an important consideration for young homebuyers if they are going to balance their home ownership goals with other priorities like retirement,” he writes.

Even an increase of two per cent in borrowing rates, Heath explains, could add 13 years to your mortgage if you don’t change your monthly payment amount.

Inflation protection for retirees: Heath points out that government pensions – the Canada Pension Plan and Old Age Security – are indexed, and are increased annually based on the rate of inflation. This, he says, is a “powerful” hedge against inflation.

Interest rates are a consideration for those living on savings. If interest rates on your investments don’t keep up with inflation, it will take less time for your portfolio to decline to zero. But if interest rates are higher than inflation, you may still have tens of thousands of dollars in savings 25 or 30 years after you start drawing down your savings.

“In the short run, higher inflation is concerning and can lead to uncertainty. The Bank of Canada is likely to continue to increase interest rates to counter the higher cost of living. There is a risk the rate increases have taken too long to start or may now happen more quickly than expected, and that may have implications for savers, retirees, the economy, and the stock market,” he concludes.

Save with SPP was a youngish reporter in 1991, and remembers that the guaranteed investment certificate (GIC) was still a big tool in one’s investment portfolio in those days, as was the Canada Savings Bond. While interest on such products had been double digit a decade earlier, it was still nice to get five or six per cent interest each year without having to invest in riskier stocks or equity mutual funds.

And while it is exciting to imagine our wages going up by five per cent or more, it is rendered less exciting when the cost of everything is also going up. It was strange, on our recent trip to Whitby to see our new grandbaby, to be “excited” to find gas at the pump for under $1.70 per litre.

What’s a retirement saver to do? If you are following a balanced approach, with exposure to multiple asset classes, you should fare pretty well in a challenging investment environment. An example of that is the Saskatchewan Pension Plan’s Balanced Fund. It has eight distinct and different investment categories in which to place your savings “eggs,” including Canadian, U.S. and Non-North American Equity, Bonds, Mortgages, Real Estate, Short-Term Investments and Infrastructure. If one category is having challenges, it is quite likely that others are performing well – that’s the advantage of a balanced approach. Check out SPP today!

Join the Wealthcare Revolution – follow SPP on Facebook!

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.


Rich Girl, Broke Girl shows the steps women need to take to gain control of their finances

December 30, 2021

Financial author Kelley Keehn thinks women need to be in charge – not unwilling passengers – when it comes to steering their financial ships of state.

Her well-written (and entertaining) book, Rich Girl, Broke Girl provides step-by-step directions to help women gain control over debt, day to day expenses, investing and of course, retirement savings.

As the book opens, Keehn notes that while most women are told they can “financially achieve anything, dream as big as any man, accomplish anything,” they often get blamed if they fail, and are told to leave finances to “someone else in (their life),” or to “marry rich.”

The stats, she writes, show that many women don’t like others being in charge of their money. A full two-thirds of women “whose partners are the primary breadwinners feel trapped,” Keehn writes. “Seven in ten women wish they had more power in their financial futures,” she continues. “Sixty-four per cent of women wish they had their own money set aside just in case.”

She then tells the story of “Mack,” a young woman who tried to strike out on her own, but lacked financial knowledge, didn’t know the cost of things, tried to live an impossibly unaffordable life, blew her credit on a single trip, then got behind and didn’t ask for help, ultimately forcing her to move back home.

An “anti-budget,” Keehn writes, is the solution here. Track every dollar, categorize spending, multiply expenses by 12 to create an annual budget, and then “trim the excess… (and) reallocate.” Fictional Mack could save $3,255 a year, writes Keehn, by saving just 50 per cent on her discretionary expenses.

The book looks at the ins and outs of credit, and then, cohabitation.

“Have the money talk with your partner early,” Keehn advises. If your partner is a saver, and you are a “live for today” spender, that collision of views could harm the relationship, she notes.

There’s a great, detailed overview of investing, which looks at cash, fixed income and equities, as well as other investment vehicles. Keehn recommends a diverse approach to investing. Don’t invest in just one stock, but a diversified portfolio, she explains. Understand the risks of equity investing, but don’t fear them and put all your money in fixed-income, Keehn adds.

She explains the difference between buying stocks and bonds yourself versus buying units in mutual funds – the latter can have high fees, she warns.

Keehn points out how even the modest inflation we’ve experienced in the past five years can “erode your wealth.”

In the section on tax shelters, Keehn says it is best to think of registered retirement savings plans (RRSPs) and Tax Free Savings Accounts (TFSAs) “as an empty garage. You have to put “cars” (investments) into them, and depending on the rules of the tax shelter, there are different perks and penalties.”

With both, you can invest in a “plethora” of different vehicles, from “guaranteed investment certificates (GICs) and savings accounts to stocks, bonds, exchange-traded funds (ETFs), mutual funds and more.” Only the tax treatment of the “cars” is different – you get a tax deduction for funds placed in an RRSP, and they grow tax free, but are taxed when you take money out. There’s no tax deduction for putting funds in a TFSA, but no taxes on growth, and no taxes due on any income taken out of the TFSA.

She talks about the need to maximize your contribution to any company-sponsored retirement savings plan, because otherwise, “you are leaving money on the table.”

Keehn offers some thoughts on the idea of paying off mortgages quickly as a strategy – perhaps, she writes, it’s less of a good idea given the current low mortgage rates – if you have debts at a higher interest rate, perhaps they should be targeted first.

She’s a believer in getting financial advice when you run into problems.

“It’s natural to feel ashamed of our money mistakes. However, our problems compound when we can’t manage on our own and don’t seek help. Think of it this way: Would you formulate a health-improvement plan before going to your doctor to see what’s actually wrong with you? Probably not.”

This is a great, clear, easy-to-follow walk through about a topic that many people don’t like to deal with. If you’re living paycheque to paycheque, with no emergency savings, this book offers you a blueprint for getting out of trouble and building financial independence. It’s a great addition to your financial library.

Kelley Keehn spoke to Save with SPP last year and had great additional insights about the stress Canadians feel over money matters.

Did you know that in-year contributions you make to the Saskatchewan Pension Plan are tax-deductible? In 2022, you can contribute up to $7,000 per calendar year, subject to available RRSP room. As the book suggests, funds within a registered plan like SPP grow tax-free, and are taxed only when you convert your SPP savings to future retirement income. Check out SPP today.

Join the Wealthcare Revolution – follow SPP on Facebook!

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 13: BEST FROM THE BLOGOSPHERE

December 13, 2021

Inflation: a pain for many, but a plus for savers?

Writing for CBC, Don Pittis notes that the return of higher inflation will be both good and bad news for Canadians.

Observing that inflation in the U.S. is running at 6.2 per cent, and that the Bank of Canada’s Governor Tiff Macklem is predicting five per cent inflation here, Pittis writes that “if history is any guide, inflation can lead to turmoil.”

“Those effects include the pain of shrinking spending power, the prospect of labour conflict as employees struggle to get their spending power back, a potential disruption of Canada’s soaring housing market and a reconsideration for older people about how to make their money last through a long retirement,” writes Pittis.

But there can be an upside to inflation for some of us, he continues. He quotes The Intercept columnist Jon Schwarz as stating “inflation is bad for the one per cent but is good for almost everyone else.”

As an example, those saving for retirement will be pleased by higher interest rates, Pittis contends.

“It is clear that those saving for retirement may take a different view, especially as the boomer bulge exits the labour market. Even before the latest round of pandemic monetary stimulus, people contemplating a long retirement complained about a paltry return on savings. With inflation higher than the rate of interest, cautious savers are now watching with horror as their future spending power shrinks,” writes Pittis.

He notes that even as inflation ticks up, “lenders have been handing out mortgages at rates considerably less than the rate of inflation.”

Inflation, the article concludes, may lead to higher prices but also higher wages for workers; Pittis adds that any rise in the Bank of Canada rate won’t be an instant fix for inflation, but the beginning of a process that might take years.

Save with SPP can attest to some of the things Pittis points out by thinking back to the high-interest days of the ‘70s and ‘80s. He’s right to predict higher rates are a plus for savers – we recall getting Canada Savings Bonds that paid double-digit interest with zero risk. The same was true of Guaranteed Investment Certificates (GICs).

There was a positive effect on wages as well. There was federal legislation on wage and price controls that, among other things, limited wage increases to six per cent the first year, and five per cent the second. Six and Five. In the many decades that have come and gone since the old Six and Five days, it is hard to think of a time when people got routine pay raises that were that large.

So while we gripe about higher gas prices and grocery costs, and the jump in the costs of most things due to supply chain issues, this would be a good time to start stashing away a few bucks every payday for your future retirement.

A great destination for those loonies is the Saskatchewan Pension Plan. The SPP, now celebrating its 35th year of operations, offers a balanced approach to investing. The SPP’s Balanced Fund invests 26 per cent of its assets in bonds, 7.5 per cent in mortgages and 1.5 per cent in short term investments. You can bet the plan’s investment managers are keeping an eye out for growing opportunities in the fixed income sector – and that’s good news for all of us who have chosen SPP to be a part of our long-term retirement savings plan.

Join the Wealthcare Revolution – follow SPP on Facebook!

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.


As interest rates rise, is it time to look anew at fixed income investments?

November 25, 2021

Interest rates have been so low for so long it is hard to remember the long-ago days when everyone had Canada Savings Bonds and/or guaranteed investment certificates (GICs) in their portfolios.

Save with SPP decided to look around to see what the expected rise in interest rates (and inflation) may do with Canadians’ saving plans.

Writing in the Globe and Mail, columnist Rita Trachur explains that one fear that’s out there right now is that Canadians may risk “aggravating inflation by blowing through their savings” as the pandemic (apparently) winds to a close.

She proposes that Ottawa consider bringing back – temporarily – the old Canada Savings Bond program.

“Many of us who are on the wrong side of 40 fondly remember a time when we could make juicy returns by investing in Canada Savings Bonds. Not only were they easy to purchase and risk-free, those paper certificates were oh so cool. Most importantly, though, they taught generations of Canadians how to save,” she writes.

Back in the 1970s and 1980s, when interest rates reached double-digits, Canadians held $55 billion in savings bonds. But they began to wane in popularity, Trachur writes, due to competing products like “GICs, mutual funds, and low-fee trading accounts.”

But with rising interest rates on the horizon, maybe a modern version of the Canada Savings Bond could be relaunched, writes Trachur.

“The bonds should be tax-free and have short investment terms – perhaps one year and 18 months, as examples – to give consumers real incentives to keep stashing their cash over the near term. That kind of flexibility would also give people the ability to reassess their options once interest rates start to rise,” she writes. This type of product would be a safe investment for regular people, she concludes.

Another reason to look at interest-paying investments may be the link between higher rates and lower stock prices, reports US News & World Report.

“When interest rates are low, companies and consumers can borrower cheaply and tend to spend more money, which can boost corporate profits. When interest rates rise, consumers and companies typically curb their spending, which can result in lower stock prices,” the newspaper explains.

A rise in interest rates is also bad for bond prices, the article adds. “Bonds and interest rates have an inverse relationship, meaning that bond prices fall when interest rates rise,” the article explains. “But don’t liquidate your bond positions yet. Experts say bonds still hold value in an investment portfolio.”

It’s a complicated topic, to be sure. The old rule of thumb used to be that your age was the percentage of your savings that should be in fixed-income (bonds, GICs, etc.), with the rest in equity. So if you are 60, the rule suggests, 60 per cent should be in fixed income – the argument being that this would “safen” your overall holdings from some of the ups and downs the equity markets can provide.

Balance is a good thing in investing. The Saskatchewan Pension Plan’s Balanced Fund currently has this asset mix – 50 per cent Canadian, U.S. and non-North American equity, 26 per cent bonds, 7.5 per cent mortgages, 10 per cent real estate, five per cent infrastructure and 1.5 per cent in short term investments. SPP’s managers can switch up this mix to align with changing market conditions, so that all your eggs are never in just one basket. SPP has been helping Canadians save for retirement for 35 years; check them out today!

Join the Wealthcare Revolution – follow SPP on Facebook!

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 18: BEST FROM THE BLOGOSPHERE

October 18, 2021

Retirees and savers take note – inflation appears to be on the rise

An article in Castanet from Kelowna, B.C., warns us all that inflation appears to be making a comeback.

The article begins by noting that inflation is at its “highest level in 18 years,” and that continued high levels of spending by government could drive it even higher.

Inflation, the article explains, “is the general increase in prices and the fall of the purchasing power of a dollar. Put another way, it refers to the cost of putting gas in your car or buying groceries increasing.”

While no one can exactly predict how and when inflation will increase, your retirement plan should be prepared for action, Castanet reports.

Even modest-sounding inflation of three per cent “can cut the purchasing power of your money in half over a 20-year period,” the article notes. This is especially concerning if your income sources are not “indexed,” which means inflation-protected, or if your income sources are not growing, the article adds.

One good thing to be aware of, the article states, is that your government retirement income is inflation protected. So sources of income like the Canada Pension Plan and Old Age Security will be adjusted upwards if inflation is running higher.

If you have a pension plan at work, it may offer inflation protection – find out, and select this option if such a selection is required, Castanet advises.

If you are investing for retirement, the article advises a balanced approach. A portfolio that is completely risk-free – invested in Guaranteed Income Certificates (GICs) – can actually decrease in value in the inflation rate outpaces the GIC interest rate.

“Often, those that want no risk would be far better served by investing in a conservative portfolio that still holds some equity or other alternative investments that will offer a certain amount of inflation protection. These riskier assets can of course lose money as well, so it is imperative that the investor fully understands the plan they are putting in place,” the article explains.

“You may also want to consider investments in sectors that benefit from inflation like real estate and commodities,” Castanet adds.

The article also mentions real-return bonds as a sort of “hedge” against inflation.

Be prepared for inflation, the article concludes, or face “disastrous consequences.” Consider reviewing your plans with an advisor, the article suggests.

Did you know that the Saskatchewan Pension Plan’s Balanced Fund provides an easy way to ensure all your retirement eggs aren’t in one potentially inflation-sensitive basket? The fund is invested in Canadian, U.S. and Non-North American equity, but also bonds, mortgages, real-estate, short-term investments and infrastructure. That diversification has led to an average rate of return of eight per cent throughout the 35-year history of SPP. And while past results don’t guarantee future returns, it’s a pretty nice track record of helping build retirement futures! Check out SPP today!

Join the Wealthcare Revolution – follow SPP on Facebook!

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.


How you can set up a “Pay Yourself First” plan

September 9, 2021

By now, practically all of us have heard about “pay yourself first” as a savings strategy.

The general idea is to put away some percentage of your earnings, and then live on the rest. It sounds simple in theory, but in practice, less so. To that end, Save with SPP took a look around the Interweb to get some ideas about how to actually get going on a “pay yourself first” plan.

The folks at MoneySense see several simple steps you need to take to put your plan into action.

First, they suggest, “zero in on your savings goals.” What are you paying yourself first for – to build an emergency fund, or save up for a down payment, or a wedding or (our favourite) retirement, the article asks.

There has to be a reason why you are directing money away from your normal, bill-paying chequing account, MoneySense tells us.

Next, they recommend, take pen to paper and figure out how much you actually can pay yourself first. Make a list of your monthly “must spends,” like “shelter, food, electricity/heat, phone, transportation, etc.,” the article says. What’s left over is “discretionary” money, which can be spent or saved, the article adds.

If you are saving for more than one thing, you need to figure out how much each month to put away for each category. Then comes the actual “doing” part – automating your savings plan.

MoneySense recommends setting up an automatic transfer each month that moves money from chequing into savings. This amount can be increased when you get a raise, the article notes. Savings should be directed to either a tax-free savings account (TFSA), a registered retirement savings plan (RRSP), or a combination of both, the article concludes.

The Oaken Financial blog notes that guaranteed investment certificates (GICs) can be a good place to stash savings. GICs are locked in for a time, but pay a set amount of interest for a fixed term, the blog notes. High-interest savings accounts pay good interest but allow you to make withdrawals at any time, the blog notes.

The Golden Girl Finance blog says there are apps that take the difficult thinking part out of the saving equation. Wealthsimple, the blog notes, allows you to round up your credit card purchases, so you are actually paying a little extra, with that money being directed to your savings account. So you save a little as you spend, the blog notes.

Save with SPP notes that similar arrangements – where you pay a little extra on debit card purchases, or where a money-back credit card deposits the cashback directly to your savings account – exist at other Canadian banks.

Other ideas that have flashed across the screen of late:

  • Banking your raise. You were paying off the bills OK before you got the raise, so why not stick the difference between your former pay and your new pay into savings, and live off the rest? You were the day before the raise!
  • Banking your cost of living adjustment. Same concept, but for us lucky pensioners who get cost of living increases, why not direct the increase to savings and continue to live on what you were getting prior to the increase?
  • Starting small. You may not stick with a pay yourself first plan if it is overly ambitious. Uncle Joe always said bank 10 per cent and live on the 90 per cent; he did, and he did well, but Joe was a very disciplined spender. Better to start smaller, maybe two or three per cent, and phase it up.

So to recap – you either need to know how much you spend each month to figure out how much you save, or you need to just pick an affordable percentage of your earnings and set it aside. Once you have automated the process, you won’t miss the saved amount, which will grow happily in a savings account, a retirement account, or perhaps the Saskatchewan Pension Plan.

Celebrating 35 years of operations, the SPP permits automatic contributions. They can set it up for you, or you can set up SPP as a bill on your bank website and set up the automation yourself. Either way, the money you direct to SPP will be put away for your future, invested professionally, and – grown – will await you after you get home from the retirement party!

Join the Wealthcare Revolution – follow SPP on Facebook!

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.