Globe and Mail

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

April 29, 2021

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

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

Decumulation

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

So is there a correct withdrawal rate?

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

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

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

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

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

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

Spending in retirement

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

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

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

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

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

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

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

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

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

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

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

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

Frugality 

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

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

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

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

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

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

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

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

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

Saving for retirement

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

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

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

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

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

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

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

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

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

Annuities

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

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

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

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

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

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

Written by Martin Biefer

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


APR 26: BEST FROM THE BLOGOSPHERE

April 26, 2021

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Written by Martin Biefer

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


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.


Should we still be savers after we retire?

March 11, 2021

The mental image most of us have of the retirement process is quite clear – you save while you work, and then you live on the savings while retired.

But is this a correct view of things? Should people be adding to their savings once they’ve stepped away from a long life of endless meetings, emails, Zoom or conference calls, and annoying performance reviews? Or not?

Save with SPP decided to scout this out on the good old Interweb.

What we notice is that when you query about “saving after retirement,” you’ll find lots of advice about how to save by spending less. For example, U.S. News & World Report suggests things like asking for senior discounts, shopping “for cheap staples online,” downsizing your home or hobbies, etc.

You’ll also find general advice on saving that can apply to folks of any age – Yahoo! Finance points out that you need to “spend less than you earn,” and “grow and invest your money.”

The type of advice we’re looking for is more along the “pay yourself first” rule that our late Uncle Joe lived by until almost age 90; and Yahoo! Finance does have a bit of that.

“When people say `pay yourself first,’ they mean you should take your savings out of your paycheque as soon as it hits your chequing account to make sure you save something before you spend it all on bills and other expenses. The key to saving successfully is to save first, save a lot — 10 per cent to 20 per cent is often recommended — and save often,” the article states. Uncle Joe would endorse this thinking.

But it’s not clear this article is aimed at retirees – so is putting money systematically away when retired even a thing?

Maybe, but perhaps not quite in the way Uncle Joe might have envisioned.

MoneySense notes that Tax Free Savings Accounts (TFSAs) are a great savings tool for older, retired Canadians.

The article suggests that if you are retired, and don’t need to spend all the income from your Registered Retirement Income Fund (RRIF) or other sources, like a pension, a great home for those dollars is the TFSA.

“Unlike Registered Retirement Savings Plans (RRSPs) and RRIFs you can keep contributing new money into TFSAs after age 71. Even if you live to celebrate your 101st birthday – as my friend Meta recently did – you can continue to pump (the TFSA annual maximum) to your TFSA, as Meta has been doing,” the article explains.

“In contrast, you can no longer contribute to RRSPs after the year you turn 71 (or after the year the youngest spouse turns 71), and even then this depends on either carrying forward RRSP room or earning new income,” MoneySense tells us. So the TFSA is a logical savings account, and is still open to older folks.

Our late father-in-law gleefully directed money from his RRIF (after paying taxes) to his TFSA, so that he could continue to invest and save.

The TFSA has many other benefits, including the fact in can be transferred tax-free to a surviving spouse. An article in the Globe and Mail points out a few other interesting TFSA facts – investments must be Canadian, you can re-contribute any amounts you cash out, and your contribution room carries forward, the article notes.

It would appear then, that “saving” after retirement means two things – it means budgeting and bargain hunting to make your income last longer, and it means using savings vehicles like TFSAs to manage taxation. That’s probably the answer – when you’re working, taxes are simple to manage. You get a T4, your employer is usually deducting the correct amount of taxes, so filing income tax is simple. It’s more complicated for retirees with multiple income streams and chunks of withdrawn RRIF money.

You will have a greater opportunity to save when you are retired if you put away some cash now, before they give you the gold watch. The less retirement income you have, the tighter your future budget will be. If you haven’t got too far yet on the retirement savings trail, why not have a look at the Saskatchewan Pension Plan? You can set up a “pay yourself first” plan with SPP, which allows contributions via direct deposit. Money can be popped into your retirement nest egg before you have a chance to spend it – always a good thing. Be sure to check out SPP, celebrating 35 years of delivering retirement security in 2021!

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.


Jan 4: BEST FROM THE BLOGOSPHERE

January 4, 2021

Seniors – many lacking pensions and facing depleted savings – struggle to find work

Many of us of a certain vintage – say boomers in their late 50s and early 60s – plan to work as long as we can before entering retirement.

But a report by the Globe and Mail suggests that these days, as we recover from the pandemic, jobs for older workers aren’t as easy to come by as they may once have been.

“As we survey the damage from the COVID-wrecked economy, we may find that the employment prospects for older workers are getting thin just as the supply of mature job-seekers starts to climb,” writes the Globe’s Linda Nazareth.

First, she explains, things have changed for older workers.

“The old model of work, with the notion of leaving with a gold watch and a pension for life, is over. According to Statistics Canada, 52 per cent of the employed population was covered by a pension plan in 1977, a figure that had fallen to 37 per cent by 2018. Making up the difference with private savings does not always work out, and 2020 has offered a stark reminder that volatile markets, recessions, job losses and illness can wreak havoc on the best-laid plans,” she writes.

So, she notes, without pension income or savings, the other option is to keep working.

“No surprise, then, that the labour force participation rate (the percentage of the population either working or looking for work) of those aged from 55 to 64 has been trending higher for years, climbing from 63.6 per cent in November, 2010, to 66.6 per cent in November of this year,” Nazareth writes.

The rub, unfortunately, is that the kinds of jobs older workers are now holding down may not be there once the “K-shaped recovery” is fully underway, Nazareth explains.

“Many will be caught in the sectors and occupations that find themselves in the downslide of the K, including occupations in the struggling hospitality sector, but also those in a wide swath of manufacturing and services. Automation and a competitive global economy were already taking things in that direction but picking up the pieces after the pandemic will only make things worse and increase the potential for a spate of very-much involuntary unemployment,” she warns.

She concludes the article by hoping that a full economic recovery will lead to new types of jobs to aid the older workers in their job search.

In the U.S., reports Forbes magazine, it’s a similar situation.

The unemployment rate among workers 65 and older was an alarming 10.8 per cent, the article reports. Worse, it’s lower-income workers who are most affected, the article explains.

Writer Christian Weller concludes that there are basically two camps in the U.S. “Some could glide towards a comfortable retirement after working at good wages and saving enough during the preceding years. Others were left to fend for themselves as jobs became scarce and health risks became widespread since they had too little in wealth to weather the multitude of emergencies and start retiring earlier than planned. The pandemic starkly illustrates the massive retirement gulf that epitomizes the U.S.’s aging society.”

So let’s sift through this. Basically both authors are saying that older citizens with a pension or retirement savings to fall back on are doing better than those without, and that finding and keeping a job when you’re older may not be a slam dunk.

What can we do about it if we aren’t older? Saving for retirement seems a good way to cushion your future self against shifts in the job market. If you are fortunate enough to have a pension at work, be sure you are maximizing your contributions to it. If not, you’ll need to be self-reliant, and build your own retirement nest egg. A good place to start the savings journey could be the Saskatchewan Pension Plan, celebrating its 35th year in 2021. 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.


Dec 7: BEST FROM THE BLOGOSPHERE

December 7, 2020

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

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

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

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

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

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

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

What’s a retirement saver to do?

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

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

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

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

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

Written by Martin Biefer

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


What activities are folks planning for a pandemic winter?

November 12, 2020

Many of us have long had problems dealing with the cold and darkness of a Canadian winter. But this year, we will be adding in the problems of the COVID-19 pandemic.

Save with SPP took a look around to see how folks are planning to spend their first full winter of the pandemic.

Since one strategy to surviving the pandemic is to be outdoors, sporting goods businesses are reporting very brisk business in winter recreation equipment, reports CTV News.

“It’s been quite a marked change from the normal August and early September sales,” Paul Zirk, general manager of The Destination Slope and Surf Outfitters in North Vancouver, tells CTV. “It’s been really up and it’s been really focused on winter sports. This year, our track as far back as mid-July was ski-focused and winter-focused and at some weeks triple what we expected.”

Hot sellers include skis and snowboards, snowshoes, and heavier winter clothing, the article notes.

The Real Simple blog rhymes off 49 different winter activities that you can try this year.

Sledding, hiking, skating, snowball fights, and stargazing are on the list, as well as things like enjoying a family night in front of “a roaring fire,” enjoying winter favourites like hot cocoa and mulled wine, and cozying up with a bowl of homemade soup. The article also lists crafty ideas, like making a birdfeeder or knitting a scarf.

Global News reports that it is important, during the upcoming colder months, to avoid isolation. Psychologist Dr. Ganz Ferrence tells the broadcaster that people “should be planning now for what they’ll do to stay busy and safe once the temperature dips below zero.”

Ideas include skiing – downhill or cross-country — snowshoeing, skating and tobogganing. If you’re too old or not well enough for outdoor activities, at least get outside, urges Dr. Ferrence.

“Just to get that fresh air, that sunshine, whatever it is, seeing that the rest of the world still exists is much better than just giving in to being shut-in,” the doctor says.

Be sure to stay in touch with friends and family during the winter, when visiting is limited by poor travel conditions. Using online tools like Zoom to meet loved ones is a great idea, Dr. Ferrence says. “The best is face to face — being able to touch and feel and everything — the next level though, is this. Being able to see somebody and look in their eyes, see their facial expressions, their tone of voice,” he tells Global News. “Underneath that is phone.”

One group of Canadians that has long chosen against toughing out our winters – Snowbirds – may find this to be a tough season, reports the Globe and Mail.

With border restrictions in place, and COVID-19 outbreaks at high levels in popular winter vacation states like Florida, many Snowbirds may have to give up their travel plans this year, the article reports.

Renee Huart-Field and her husband live in P.E.I. and normally vacation in Florida’s Gulf Coast. Because their dogs usually come to Florida too, they aren’t keen on flying, and the border crossings by vehicle are severely limited, the article notes. So they must decide whether to winter on the Island, or travel elsewhere in Canada.

“People sort of think well, gee, must be nice to have that dilemma. But it’s not,” Huart-Field tells the Globe and Mail. “As you get older, the winters become harder… It’s a health thing.’”

If you’re a retiree and hope to do a little travelling, and have some fun in the winter sun, a little retirement income goes a long way to helping you reach those goals. If you’re still a long way from retirement, there’s plenty of time to start saving – and a wonderful option could be the Saskatchewan Pension Plan. The SPP is quite unique, in that it not only offers you a savings program for your working years, it helps you convert those dollars – grown through SPP’s professional investing team – into an income stream once you’re done with the workforce and ready for the leisureforce. Why not 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.


NOV 9: BEST FROM THE BLOGOSPHERE

November 9, 2020

Survey suggests we’ll work longer and have less retirement income

Writing in the Globe and Mail, Ian McGugan takes a look at a new survey from Mercer Canada that he says suggests “the recession created by the novel coronavirus (has) delivered a stinging blow to many retirement systems, including Canada’s.”

According to the article, David Knox, an author of the 2020 Mercer CFA Institute Global Pension Index, says the current economic downturn “will impact future pensions, meaning some people will work longer while others will have to settle for a lower standard of living in retirement.”

Worse, the article reports – women will suffer more than men from this situation.

“Many of the hardest hit will be women. They have suffered disproportionately large job losses in this downturn because many work in sectors, such as restaurants and retailing, that have been hardest hit by lockdown restrictions,” writes McGugan.

As well, Mercer’s Scott Clausen tells the Globe, the traditional “caregiver role” of women means they have tended “to work part-time or take breaks from their career, which reduces their ability to make pension contributions and accumulate time in a pension plan.” The pandemic, Clausen suggests in the article, has made this retirement savings disparity even worse.

Despite these apparent systemic problems, the Globe notes that Canada recently was ranked 9th out of 39 industrialized nations in meeting the retirement challenge, with a “B” rating.

There’s a second side to the story, the article continues. Not only are people facing challenges in earning money and paying into pension plans, but the pension plans themselves are having a tough time of things, the Globe reports.

Again citing the report, McGugan notes that “a major challenge for retirement planners everywhere is the falling returns from most pension assets. Declining bond yields, reduced company dividends and lower rentals from property investments have shrunk prospective returns.”

In an interesting sort of paradox, the country whose pension system is rated number one in the industrialized world (in the same Mercer survey) is having problems meeting its funding targets. Two large pension plans there may have to cut pension payments next year, reports Dutch News.

“The two biggest Dutch funds, the giant civil service fund APB and the health service fund PFZW had failed to meet official targets in the third quarter of this year. Both funds’ coverage ratios – the assets needed to meet their obligations – had fallen below 90 per cent in the July to September period. If this is the case in the final quarter of the year, they will have to make cuts to pension payouts in 2021. The two big engineering funds are also in the danger zone. Together the four funds cover some eight million pensioners and participants,” the news agency reports.

The key messages here are quite simple – due to the health crisis, many of us are working less, and others not at all. It’s difficult to save for retirement, either in a workplace plan or on your own, if you are earning less overall. At the same time, it’s tough sledding on the investment side for the world’s pension plans. Payouts, as in the Dutch example, could be less.

Members of the Saskatchewan Pension Plan (SPP) have the ability to set their own contribution levels – there’s no set percentage of income that automatically comes off your pay. If you’re making less, or nothing at all, you can reduce or pause contributions without affecting your membership – and when better times return, you can ramp them back up again. Take a minute to check out the SPP today!


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.


Pandemic has dethroned cash as the monarch of personal finance

May 14, 2020

Your parents say it, the experts say it, people who are wealthy say it – if you’re buying something, pay with cash, not credit. And even debit cards can come with hidden fees, they say.

But this crazy pandemic situation has us all tap, tap, tapping away for groceries, for gas, for a box of beer, and any of the other services we can actually spend money on. Could this represent a sea change for the use of cash, or is it just a blip? Save with SPP had a look around the Interweb for a little fact-finding.

Proponents of cash include Gail Vaz Oxlade, author and TV presenter who has long advocated for using cash for expenses, rather than adding to your debt.

“I’m a huge fan of hers and have read every book and watched every episode of Til Debt Do Us Part, Money Moron and Princess… the premise of the system is to use cash only (no plastic), storing it in envelopes or jars, sticking to a budget, tracking your spending, and once the money is gone, there’s no more until next month’s budget,” reports The Classy Simple Life blog.

It’s true – we have read her books and if you follow her advice your debts will decrease.

Other cash advocates include billionaire Mark Cuban. He tells CNBC that while only 14 per cent of Americans use cash for purchases (pre-pandemic), he sees cash as his number one negotiation tool. “If you want to take a yoga class, and they say it costs $30, say `I’ve only got $20,’” he says in a recent Vanity Fair article. More than likely, he notes, they’ll take the cash.

Cash is great because it is (usually) accepted everywhere, there’s no fees or interest associated with using it, and it has a pre-set spending limit – when your wallet is empty, you stop spending. But these days, cash is no longer sitting on the throne of personal finance.

Globe and Mail columnist Rob Carrick notes that more than six weeks into the pandemic he still had the same $50 in his wallet that he had when it started.

“Paying with cash is seen as presenting a risk of transmitting the virus from one person to another – that’s why some retailers that remain open prefer not to accept it. Note: The World Health Organization says there’s no evidence that cash transmits the virus,” he writes. In fact, he adds, the Bank of Canada recently asked retailers to continue to accept cash during the crisis.

A CBC News report suggests that our plastic money may indeed present a risk, and that the COVID-19 virus may survive for hours or days on money. The piece suggests it is a “kindness” to retailers to pay with credit or debit, rather than cash.

“Public officials and health experts have said that the risk of transferring the virus person-to-person through the use of banknotes is small,” reports Fox News. “But that has not stopped businesses from refusing to accept currency and some countries from urging their citizens to stop using banknotes altogether,” the broadcaster adds. The article goes on to point out that many businesses are doing “contactless” transactions, where payment occurs over the phone or Internet and there is not even a need to tap.

Putting it all together, we’re living in very unusual times, and this odd new reality may be with us for a while. If you are still using cash, it might be wise to wear gloves when you are paying and getting change. Even if you aren’t a fan of using tap or paying online, perhaps now is a time to get your grandchildren to show you how to do it. The important thing is for all of us to stay safe – cash may be dethroned for the short term, but things will eventually return to normal, and it will be “bad” to overuse credit cards again.

And if that cash has been piling up during a period of time when there’s precious little to spend it on, don’t neglect your retirement savings plan. The Saskatchewan Pension Plan offers a very safe haven for any unneeded dollars. Any amounts you can contribute today will grow into a future retirement income, so consider adding to your savings 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