GIC

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

April 22, 2021

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Written by Martin Biefer

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


Remembering the good old saving days of 1981

April 8, 2021

Before the pandemic, we read countless stories about how the savings rate among Canadians had fallen to its lowest level in decades.  Now, possibly due to the fact that the pandemic has limited our ability to spend money, the opposite is now true. We are reaching the highest personal savings rate we’ve experienced in 35 years.

According to a report in the Toronto Star, Canadians in 2020 “saved a greater chunk of their income than they had in three and a half decades.”  Canucks put away 14.8 per cent of their income last year, representing about $5,000 per person in savings.

“People weren’t able to spend on a lot of things they normally can, because of the lockdowns. And in some cases, they chose not to spend,” Pedro Antunes, chief economist at the Conference Board of Canada, tells the Star.

Save with SPP can still remember 1981, but at that time, working as a cub reporter, one’s focus was not on the long term, or savings. So, we had to check back to see what it was like the last time we had a high national savings rate.

At RatesDotCa, there’s a nice article that recaps what it was like 40 years ago for Canadian savers.

For starters, the article notes, interest rates were the opposite of what they are today – at all-time highs.

“If you’re not old enough to remember the recession of the early 1980s, your parents certainly will. In 1981, mortgage rates peaked at more than 20 per cent,” RatesDotCa reports.

“Many people whose mortgages were up for renewal during that period found themselves signing up for mortgage rates that were twice as high as they were just five years prior. Some resorted to paying hefty upfront fees to get private lenders to offer them rates in the mid-teens,” the article continues.

Other things – most goods and services – kept going up. The Inflation.eu website shows that throughout 1981, the consumer price index went up by more than 12 per cent. While your pay tended to go up to address higher costs of living, it usually didn’t go up as fast as prices did.

Save with SPP recalls getting a car loan at 16 per cent interest from CIBC. The effect of the high cost of borrowing was that we got a little used Plymouth Horizon – a little car for a big interest rate. Today, it’s the opposite – people are getting big houses and cars because it’s a low interest rate.

But we also recall the benefit of high interest rates on our savings back in the early 1980s. You could get a Canada Savings Bond that paid double-digit interest. It was the same story with GICs. Your parents and grandparents were probably chiefly buying interest-paying investments in those heady days. It was a thing, and payroll Canada Savings Bonds were commonplace.

Recently, we have begun to hear that our historically low interest rates may be on the rise once again.

The Globe and Mail reports that inflation went up 1.1 per cent in February, and one per cent in January. Rising gas prices are part of the upward push, the article notes. The Bank of Canada, the article notes, is expecting a 1.7% rate of inflation this year.

Will inflation hikes bring with them interest rate hikes – a return to the 1980s? It’s unlikely, says RatesDotCa.

“Although it’s unlikely that rates will hit the likes of 15-20 per cent again, we may very well see 5-7 per cent in the long run. That type of a jump may still be two to three times higher than your current mortgage rate.  Do you think you could afford paying nearly three times as much as you do today for your mortgage, and still afford those other essentials like heat and groceries,” the article warns.

The takeaway here is that things change. We have had low interest rates for so long, only us greybeards remember when we didn’t. Will savers start to pile into interest-bearing investments once again if rates begin to tick upwards? We’ll need to wait and see.

A balanced approach makes sense when you are saving for the long term. When interest rates are low, other investment categories – Canadian and international equities, real estate, and so on – tend to do better. But when you’re in a balanced investment fund, the experts are the ones who figure out when to rebalance, not you.

The Saskatchewan Pension Plan has a Balanced Fund that invests your contributions in Canadian and international equities, infrastructure, bonds, mortgages, real estate and short-term investments. All this diversity at a management fee of just 0.83 per cent in 2020. Put your retirement savings into balance; 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.


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.


Looking back, 2020 was a real roller coaster for investors and savers

December 10, 2020

If there’s one thing almost everyone can agree on, it was great to celebrate – in a limited, socially distanced way – the end of the brutal year 2020, when the pandemic slammed the world.

It’s been a particularly frightening year for those of us struggling to save a few bucks for our retirement.

Back in February, when the COVID-19 crisis was beginning to take effect, stock markets dropped sharply, erasing “four years of gains,” reports Maclean’s . The market’s crash was based on fear – “not knowing how severe COVID was going to be in terms of morbidity,” the magazine explains.

In addition to the shocking numbers of deaths and sickness COVID-19 delivered, it also walloped our economy. According to Wealth Professional, quoting Bank of Canada Governor Tiff Macklem, Canada’s economy “is expected to shrink by 5.5 per cent for the whole of 2020, with the initial rebound following the First Wave of the pandemic having eased.”

We all know what he’s talking about here – the First Wave led to lockdowns and business closures, and high unemployment. There was a break in the summer as much of the shuttered economy reopened, but now the Second Wave is causing lockdowns and job losses once again.

The usual safe harbour for savers when the economy (and stock markets) are volatile is in fixed income, investments that pay us interest. However, in order to reboot the economy, the Bank of Canada is planning to keep interest rates low “until 2023,” Macklem states in the Wealth Professional article.

Those “low for long” interest rates mean it is not the best time to buy bonds or guaranteed investment certificates (GICs). Some savers looked to the real estate investment trust (REIT) market to replace the income their fixed income was providing, notes The Motley Fool. While some REITs, notably industrial ones, and those involved with warehousing and data centres did well, “retail and hospitality REITs… had lost 80 per cent of their value at the market’s bottom.” The Motley Fool article wonders how investments in commercial office and retail space will fare in a world where most people are working from home.

Now that 2020 is behind us, there are signs of better days ahead.

The markets in Canada and around the world are now recovering due to late-year news that effective vaccines are nearly ready for distribution.

Dave Randall of Reuters, writing in the Chronicle-Herald, notes that November was “a record-breaking month as the prospect of a vaccine-driven economic recovery next year and further central bank stimulus measures eclipsed immediate concerns about the spiking coronavirus pandemic.”

Let’s review all this. The pandemic hit us hard, sending markets down, throwing people out of work, shrinking the economy. Central banks had to cut interest rates to reduce borrowing costs. That’s great for borrowing but less great for saving. Those looking to replace the interest they weren’t getting had to navigate a market that dropped by 40-50 per cent in the late winter and is recovering, and they had to face the reality that some sectors were doing far better than others.

2021, however, looks like a better year. Market optimism is returning, and once the vaccines start to get distributed around the country, we will (hopefully) start to see a return to more normal times, with no lockdowns and business restrictions.

The point of retirement saving is putting money away for the future, which may be quite soon or decades away. If you’re worried about saving on your own for retirement during these volatile days, you might consider teaming up with the Saskatchewan Pension Plan. With SPP, experts run the money at an extremely low cost. We all have enough to worry about these days – let SPP take the worry of pandemic-era retirement saving off of your plate!

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 26: BEST FROM THE BLOGOSPHERE

October 26, 2020

Bonds have lost their lustre, says pension expert Keith Ambachtsheer

Bonds have long been considered a key component of our retirement savings strategies. After all, equities are more volatile, right?

Pension expert Keith Ambachtsheer, commenting in the Globe and Mail, says bonds are losing their lustre, and are being crushed by today’s low-interest rate environment.

“Twenty years ago, inflation-indexed bonds offered a real yield of 4 per cent,” Ambachtsheer states in the Globe article. “Today their yield is not just zero, but actually negative.”

He calls them “dead weight investments” that “currently have no role” for institutional investors, such as pension plans.

The article presents a graph showing the yields on 10-year Canadian government bonds since 1960. They ranged from just under six per cent yields in the early ‘60s to an eye-popping 17 per cent in the early 1980s, and have slowly dropped ever since. Yields fell below four per cent in 2004 and are approaching zero today, the article’s graph shows.

So if bonds aren’t getting it done in your investment portfolio, what’s a solution for the average guy or gal?

Ambachtsheer tells the Globe that “solid dividend-paying stocks” provide the answer. A heavier percentage of dividend-paying equities is better than the traditional 60-40 stock/bond mix, he suggests.

The Globe article comments on that idea, saying “there are, to be sure, some objections to this viewpoint. One is whether pension funds and individuals are prepared to deal with the occasional but devastating paper losses that go along with holding an all-equity portfolio.”

It seems that many Canadians who normally would invest are sitting on the fence about it.

As we reported in an earlier blog post, Canadians – again according to the Globe and Mail – are sitting on $127 billion, now lying in chequing, savings and Guaranteed Investment Certificates (GIC) accounts and not being invested in either the stock or bond markets.

Rather than picking a day and putting all the money in, portfolio manager Mary Hagerman tells the Globe that a better approach is to invest some of your money at multiple different times.

She recommends “investing excess cash either in regular intervals, such as a set amount each month (known as dollar-cost averaging), or when there are major stock market drops or corrections,” the article states.

“I’m not suggesting people try to time the market, but sometimes the market talks to you and you have to listen,” Hagerman tells the Globe.

So we’re living through a period when the safe harbour of bonds is a dubious choice due to very low interest rates, and when stock markets are very volatile.

For members of the Saskatchewan Pension Plan, it’s good to know that professional investment managers are on the case – they are the ones guiding your savings through these choppy waters. And if you’re interested in a dollar-cost averaging approach, the SPP can help you set up a regular monthly direct deposit, so that you aren’t having to time the market. 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.


JUL 13: BEST FROM THE BLOGOSPHERE

July 13, 2020

Pandemic a bigger challenge to retirement saving than Great Recession: report

Unless all your retirement savings are invested in low-risk securities like GICs or government bonds, you’ve probably spent a lot of time watching the pendulum swings in the market since March.

A new report from Fidelity Investments Canada says it’s clear that today’s pandemic-influenced markets are worse for savers than the shaky markets of the “2008-2009 Great Financial Crisis.”

“Data shows Canadians near and in retirement are more negatively impacted by COVID-19 than the Great Financial Crisis,” states Peter Bowen, Vice-President, Tax and Retirement Research in a media release from Fidelity. “However, we are in this together and there is help. By seeking financial advice and writing down an action plan, Canadians can feel better and navigate the uncertainty,” he states in the release.

The data was gathered for Fidelity Canada’s annual Retirement 20/20 survey, which gathered data from Canadians “already in and approaching retirement.”

Here are some of the key findings mentioned in the media release:

  • 40 per cent of retirees reported “a negative outlook on their life in retirement,” the worst score in this category since 2014.
  • 40 per cent said their earnings had decreased owing to the pandemic, and 50 per cent said that fact, in turn, means they are “reducing the amount of money they are able to save.”
  • Those (80 per cent of pre-retirees and 92 per cent of retirees) with a written financial plan felt “positive about their (future) life in retirement.”
  • Eighty-five per cent of those with a plan said they worked with an advisor.

What’s different about this market rollback from the 2008-09 crisis?

According to Nicolas Samaan of Manulife, interviewed by Wealth Professional, this crisis has a different element to it.

“You’ve seen on LinkedIn people posting about losing their job and people helping each other,” Samaan tells Wealth Professional. “You see that human interaction, not just financially but in general, people making sure others are okay.

“It’s more about wellness – that is so much more important. I’ve always said to people, if you don’t have the health to do your (personal projects), it’s not going to work. In that sense, this crash was very different than what we’ve seen in the past,” he states in the article.

Samaan is right. The last crisis was scary but on a strictly economic basis – will banks fail, will the economy tank? This one has the overlay of a worldwide health crisis – will we find a way to cope with, or become immune from, this virus, and will the economy be able to hold on until that happens?

Picking stocks when markets are uncertain is not something for the faint of heart. Having professionals handle the investing is especially valuable at times like these. It’s nice to realize that the Saskatchewan Pension Plan has averaged an eight per cent rate of return since its inception in the 1980s, a period of time that included the Tech Wreck in 2000-2001 and the Great Financial Crisis a decade or so ago. The pros can make adjustments when markets take an unexpected turn, and can look at alternative ways to grow your money. Check out the 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.


Guaranteed income even more valuable in times of market chaos: Alexandra Macqueen

June 11, 2020

Save with SPP recently had a chance to ask retirement expert Alexandra Macqueen, co-author of Pensionize Your Nest Egg  and a frequent financial blogger, for her thoughts on the state of retirement in Canada.

Q: Can you expand a bit about why annuities may start looking more appealing to retirees and and those who are soon to be retired? Is it because the markets are so volatile and negative due to the pandemic? And the idea that you have a steady lifetime income (with an annuity)?

I have two reasons for thinking annuities might start looking more appealing to today’s and tomorrow’s retirees ­– one practical and one more theoretical.

The first, practical reason is just that when markets decline precipitously – like we’re seeing now with the COVID-19 pandemic – then the value of a secure, guaranteed income that is protected from market risk is more appealing.

My own feeling is that over time, the economic effects from the COVID-19 pandemic will be viewed differently than the last big market event, the global financial crisis.

The 2008-09 financial crisis was much more constrained to a single (albeit big) sector: “finance.” The pandemic, in contrast, stands to upend so much more than the financial world and I think that, over the long term, it could reorient how we think about income and risk in retirement. Of course, it’s easy to make predictions; only time will tell!

The second, more theoretical reason is that the COVID-19 pandemic has changed what you might call the “volatility of longevity” – and somewhat counterintuitively, if longevity is MORE uncertain, people should be willing to pay MORE to hedge that risk.

If your house was at increased risk of burning down, for example, you would pay more for fire insurance – but you would also value that insurance more, because you know you were at increased chance of actually needing it!

So even though the COVID-19 pandemic might actually “decrease” life expectancy “on average,” it also increases the range of possible outcomes (I might live fewer years than before the pandemic, and the uncertainty about how long I may live has increased).

In theory (but maybe not in practice), this means people “should” be more willing to “insure” against the uncertainty, and annuities are the most efficient way to do so.

Q. Do you think people may stay away from equities and look more at bonds, GICs, and that sort of thing for the same reasons – fear of market volatility?

Yes, but with rates near zero – and potentially going even below zero – it’s hard to make bonds and GICs work for retirement income. You get security, but very, very low yields.

For people who are risk-averse (many of us!), the solution isn’t to load up on more equities. What are the alternatives? If you’re looking at products with similar guarantees to GICs, then annuities again should be on your radar screen – and annuity yields, especially at more advanced ages, compare very favourably to GICs.

Q. The ideas in your recent MoneySense article about people working later, and being less likely to retire early, were great. Do you feel work will be harder to find, jobs harder to keep, so it’s less likely that folks will leave at 55 because they may have nothing to go back to in this market? Could you expand a bit on why you think folks won’t retire the way they have been?

Here, what I’m thinking about is that for years I’ve heard people say, “if my retirement doesn’t work out, I’ll go back to work in some capacity.” But what if you’re not able to “go back to work,” because there’s no work to go back to?

It will take a long time for the effects of the pandemic to be felt in all areas of society, including work – but my thinking is that the “easy” fallback of “I’ll find work” will no longer be available. And if that’s the case, people may think longer and harder about leaving the work situations they’ve got. More uncertainty – about work, about income, about home values, about longevity – equals fewer changes and less risk-taking.

Q. We love the idea of more focus on debt, and less assumption on “harvesting” the value of the house. Hopefully this won’t lead to more reverse mortgages, but do you think we are seeing the end of the tendency for boomers to fund their lives with home equity lines of credit (HELOCs)? 

It feels like all eyes are on “what will happen with home values” right now!

There are two ways that “funding our lives with HELOCs” might end: home values might drop, so that the value isn’t there to “harvest,” and lending standards might tighten, so that HELOCs aren’t available even if the value theoretically is.

I’ve been hearing about tightening lending standards for HELOCs in recent weeks – meaning lenders may be “calling” the loan, or “tightening” the lending terms (often this looks like reducing the amount of available credit).

There doesn’t seem to be any consensus about the future direction of home prices. I feel as though for every article I read suggesting values will drop, I read another saying values will hold steady. And keep in mind that in Canada’s large markets, even a reasonably large “drop” in value will just take prices back a few years.

The rise in home values that we’ve seen in the last decade or so – particularly in the GTA and the GVA – have no historical precedent. I don’t think we, as a society, have collectively grappled with how to integrate what economists might call this “shock” into our personal financial plans. The growth in home equity is a positive shock, but a shock nonetheless! In this area, like in so many others, I think we will need to wait and see what trends emerge. It may be that lenders make the decision for homeowners to put an end to using your house “like an ATM.”

Q. Do you have any other thoughts?

My main thought is that it’s really important to recognize the diversity of situations that people entering retirement are in.

It’s very tempting to provide generalized advice based on preconceptions about what retirement is and what “retirees” are like. But retirees and soon-to-be retirees are an incredibly diverse group, with varying views on what they need and want in life, and retirees enter the retirement stage of life with highly varied situations, from their health status to their expectations about how long they’ll live and what they’ll do in retirement.

“Retirement” as we know it is a fairly young concept, and so much has changed since the idea of retirement was first introduced. We’ve collectively never been here before, with so many people transitioning into the retirement phase – which is itself changing under our feet. Thinking about and digging into what “retirement” means is what gets me up in the morning! I’ll never get tired of wondering what life has to offer.

We thank Alexandra Macqueen very much for taking the time to answer Save with SPP’s questions!

If you haven’t thought about including annuities in your retirement plans, a fact to be aware of is that if you are a member of the Saskatchewan Pension Plan, you will be able to choose from a number of life annuity options when it’s time to turn your savings into income. 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. He and his wife live with their Shelties, Duncan and Phoebe, and cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

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

May 4: Best from the blogosphere

May 4, 2020

Pandemic crisis challenges some of our long-held financial beliefs

There’s no question about it, the COVID-19 pandemic and its disastrous impact on employment, the economy, and world markets is something we’ve not seen before.

And, writes Globe and Mail columnist Rob Carrick, the crisis is challenging some long-held notions about personal finance.

People used to think that, since the interest rates paid are so low, there was “no point in keeping money in a savings account,” Carrick writes. Instead, he notes, conventional pre-pandemic wisdom was to “access money when you’re in need from your home equity line of credit.”

However, now – given the sharply rising unemployment numbers – “piling on more debt to weather a layoff is a last resort, not a go-to strategy,” Carrick writes.

His next point is that up until now, most long-term saving by Canadians was for retirement, not for building an emergency fund. But retirement savings can’t be accessed – at least not without a big tax hit – for emergencies, so Carrick’s new rule of thumb suggests 75 per cent of savings go to retirement and the rest to an emergency fund.

Echoing his earlier point on the low rates paid via savings accounts and GICs, Carrick notes that those who invested their TFSA savings in fixed-income products can no longer be “mocked for their timidity and unworldliness.” They still have all their savings, while those in riskier TFSA investments have losses to deal with.

Given the high cost of housing, Carrick writes that most of us are used to “pushing (our) finances to the max to buy a house,” and dealing with “crushing” and huge mortgage payments. “But taking as much money as the bank will let you have means you have almost no ability to cope with a loss of income, particularly if you have kids and car payments,” he notes.

The other beliefs he shatters include carrying high debt – easy to do when you are working, less so otherwise – and “spending big” on your vehicles, particularly if you are getting your new truck or car through a car loan.

The takeaway points here are quite clear: paying for everything with debt is easy when jobs are plentiful, but it’s a recipe for disaster when times suddenly – and without any prior warning – get hard. Save with SPP knows more than a few people who have always “poo-poohed” savings because the interest rates are so low. Even if the interest rate was zero, having savings is a lot better than having debt when times get tough.

So perhaps Rob Carrick is right when he suggests going 75/25 on your retirement savings, with some money going to an emergency fund. Now that we’re in an emergency, some of us have that extra bit of security, while the rest must scramble. Now may not be the best time for much saving, but when better times return, let’s all remember this solid advice.

If you are looking for a good place to put away 75 cents of your savings dollar, be sure to check out the Saskatchewan Pension Plan. The SPP’s two major funds, the Balanced Fund and the Diversified Income Fund, are professionally managed, and when the markets are choppy, it’s good to know that there are experienced hands on deck, folks who know how to protect and preserve your savings for the long haul.

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

Slim, fact-packed book puts you in the know about stock trading

January 2, 2020

Since the days where you could sock away money in a guaranteed investment certificate (GIC) and get interest rates in the teens are long, long gone, a lot of savers are looking at other ways to make their money grow.

And often, based on what people talk about on the putting green, in the curling rink, or at the gym, investing in stocks seems to be working out for some folks. Problem is it’s one of those things that we hear a lot about, but tend not to know a lot about.

Enter The Canadian’s Guide to Stock Investing by Andrew Dagys and Paul Mladjenvoic. This slim but fact-packed volume teaches you all the information you need to know to get started in stock investing.

The book explains that there is a difference between investing, saving, and speculating. Investing, the authors write, “is the act of putting your current funds into securities or tangible assets to gain future appreciation, income, or both.” That’s different from saving, “the safe accumulation of funds for a future use,” or speculating, “the financial world’s equivalent of gambling.”

The authors then explain the difference between “growth investing” and “income investing.” When you are investing for growth, they note, “you want your money to grow… if you bought a stock for $8 per share and now its value is $30 per share, your investment has grown by $22 per share – that’s appreciation.” Growth, they write, is probably the number one reason people invest in stock.

Income investors are looking more at ways “to invest in the stock market as a means of providing a steady income and preserving risks.” They aren’t, the book notes, looking for stock values to go through the ceiling; instead “they need stocks that perform well consistently,” and that pay dividends.

Dividends, the authors explain, are usually paid quarterly and aren’t the same as interest. Dividends are paid to owners (interest is paid to creditors), and when you own a stock you are a shareholder, or partial owner, of the company that issued the stock. “When you buy stock, you buy a piece of that company,” the authors point out.

So how do you pick a good stock, either for growth or income? First, the authors say, you need to think about supply and demand, “the relationship between what’s available (the supply) and what people want and are willing to pay for (the demand).” Is the company making or selling something that people want, the authors explain, or is it a company “that makes elephant-foot umbrella stands… that has an oversupply, and nobody wants to buy them anyway.”

Next, there’s cause and effect, or, as the authors explain, logic. If you read a news report that says sales of tables are plummeting, “do you rush out and invest in companies that sell chairs or manufacture tablecloths?” On the other hand, good news about sales may be a reason to consider buying shares, the authors explain.

Another factor to think about is “economic effects from government actions.” A government “can willfully (or even accidentally) cause a company to go bankrupt, disrupt an entire industry, or even cause a depression.” Pay attention to what the government is saying if it has an effect on something you are thinking of buying into as a shareholder, the authors note.

The book explains how to look at a company’s balance sheet to figure out its net worth, profitability, and performance.

Other general tips from the book include having “a cushion of money” for emergencies, cutting back on your debt, get as much job security as you can and be correctly insured.

On the investment side, the authors urge diversification – don’t put all your money in one stock, one industry, or one type of investment.

Final chapters explain some of the tax impacts of investing, whether it is within a registered retirement account or a tax-free savings account.

There is a lot covered here, and this book is a great help for any investor.

The Saskatchewan Pension Plan follows many of these principles. During the accumulation period you can choose a growth fund for your savings, and when you go to collect your SPP annuity, it is paid from a fund that is focused on capital retention and fixed-income investments. Be sure to 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. He and his wife live with their Shelties, Duncan and Phoebe, and cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22