group registered retirement savings plan
Sep 13: BEST FROM THE BLOGOSPHERESeptember 13, 2021
Where should you be – retirement savings-wise – at different ages?
Saving for retirement tends to be a solitary process. While we are encouraged to put away what we can for that future post-work life, there’s little information out there on how much is enough, or what targets we should shoot for at various ages.
Writing in Yahoo! News, author Jami Farkas provides a little bit of clarity on those savings benchmarks.
First, Farkas writes, “the best time to start saving for retirement is when you start earning.” So even in your 20s you should be thinking about putting some of your paycheque towards retirement, Farkas continues.
As you age, those savings targets become more concrete, Farkas notes.
“By age 30, you should have saved an amount equal to your annual salary for retirement,” the article advises. “If your salary is $75,000, you should have $75,000 put away.”
The article suggests this goal can be met by putting away 20 per cent of what you earn, and to “live and give on the remaining 80 per cent.” The article, intended for an American audience, says signing up for any workplace retirement program, like a pension plan or here in Canada, a group registered retirement savings plan (RRSP) is another positive step towards your savings goal.
Saving for retirement in your 30s can “even trump paying down debt,” the article notes.
In your 40s, you should have three times your salary stashed away, the article urges.
“If you don’t have a retirement savings strategy as part of your overall financial plan by this point, don’t delay,” Farkas writes.
A common mistake at this point is growing your lifestyle at the expense of your savings, the article explains – moving into a bigger house or apartment, or upgrading your car. Dr. Robert Johnson of Creighton University states in the piece that “what happens is they are unable to improve their financial condition because they spend everything they make. People are wise to effectively invest any money from a raise as if you didn’t receive the raise. That is, continue to live the same lifestyle you led before receiving a raise and invest the difference.”
If, instead, you were to invest some or all of a raise in your future, it would add up, the article notes. A $5,000 raise invested annually at 10 per cent will yield an eye-popping $822,000 in savings after 30 years, the article explains.
By age 50, the article notes, you need five times your salary in savings. With kids usually gone from your home and their education paid for, this is a good age for catch up if you have fallen behind, Farkas writes. And be sure you are investing in a low-fee savings vehicle, the article adds.
At 60, the article concludes, you should have seven to eight times your salary in retirement savings because you are now five years away from retirement. As well, the article warns, you should consider reducing your exposure to riskier investments, such as equities.
The article notes that those approaching retirement in 2007/8 would have seen their equity investments fall by 37 per cent in one year.
Let’s sum all this thinking up. Start saving for retirement as soon as you start making money. Make it automatic. Don’t forget your savings program in the excitement of getting a big raise and making more money. Don’t put all your savings eggs in one basket, particularly if that basket is full of stocks and no bonds or alternative investments.
The article suggests that a great way to get to the finish line in retirement saving is to join up with any retirement plan your employer offers – often, they will match what you contribute. That’s great advice. But if you don’t have access to an employer retirement program, fear not – the Saskatchewan Pension Plan is available for do-it-yourselfers. Through SPP you can save in a low-fee program that has delivered strong investment returns for over 35 years. 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.
Taxable, non-taxable employee benefitsMarch 29, 2018
When you are interviewing for a new a new job, perks like company-paid gym memberships, tuition reimbursement or a free cellphone may seem really attractive and influence you to accept the position. However, it is important to keep in mind that come tax time, all or part of the value of these employee benefits may be included in taxable income on your T4 slip.
Here are 10 things that may form part of your compensation and how they are viewed by CRA.
- Group benefits: Amounts your employer pays for your life, accident and critical illness insurance coverage are taxable benefits. But when the company pays all or part of the cost of your extended health care, dental plan, short-term disability (STD) or long-term disability (LTD) insurance you do generally not pay tax on the premiums. If you collect on your STD or LTD insurance you will pay taxes if any part of the premiums were employer-paid.
- Pensions/Group RRSPs: Your company’s contributions to your pension plan are not taxable. However, your employer’s contributions to your Group RRSP account are viewed as additional taxable income by CRA. But you can deduct RRSP contributions (up to $26,010 for 2017) so you will not actually have to pay taxes on Group RRSP contributions made by your employer on your behalf.
- Service and recognition awards: Cash, gift certificates and things like gifts of stock certificates and gold coins are always taxable benefits. However, you can receive tangible tax-free gifts or awards worth up to $500 annually in some specified circumstances, such as a wedding or outstanding service award. In addition, once every five years you can receive a tax-free, non-cash long-service or anniversary award worth $500 or less
- Clubs and Recreational Facilities – If your employer pays or subsidizes the cost of membership or attendance at a recreational facility such as a gym, pool, golf course, etc. it is considered a taxable benefit. But if the company provides a free or subsidized onsite facility available to all employees, it is not a taxable benefit.
- Tuition reimbursement: If you get a scholarship or bursary from your employer it will be a taxable benefit unless you took the program to maintain or upgrade your employment skills. For example, if you need an executive MBA to be promoted, no tax is payable on the value of company-paid tuition. Where the company gives your child a scholarship or bursary, generally neither you nor your son or daughter who gets the scholarship has to pay taxes on the amount.
- Transit Passes: Transit passes are a taxable benefit unless the employee works in a transit-related business (such as a bus, train, or ferry service business).
- Child Care Expenses are a taxable benefit unless child care is provided to all employees in the business at little or no cost.
- Mobile phone or internet: Charges paid by the company for the business use of your cellphone and internet are not taxable. If your phone or internet is used in part for personal reasons, that portion of the bill should be reported on your T4 as a taxable benefit. However, if the cost of the basic plan has a reasonable fixed cost and your use does not result in charges over the cost of basic service, CRA will not consider any part of the use taxable.
- Subsidized meals: If the company cafeteria sells subsidized meals to employees, this will not be considered a taxable benefit as long as employees pay a reasonable amount that covers the cost of food preparation and service.
- Discounts on merchandise: Generally, if your employer sells merchandise to you at a discount, the benefit you get is not considered taxable. A document posted on the CRA website in late 2017 suggested that CRA’s interpretation changed, but National Revenue Minister Diane Lebouthillier subsequently announced there have been no changes to the laws governing taxable benefits to retail employees.
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|Written by Sheryl Smolkin|
|Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.|
10 things you need to know about RRSPsFebruary 16, 2017
By Sheryl Smolkin
It seems like registered retirement savings plans have been around forever. They were initially introduced in 1957 to promote savings for retirement by employees and self-employed people.
Over the years since there have been changes to the program, primarily in the form of increased contribution limits both as a percent of earned income and as an increase in the maximum allowable deduction.
If you have an RRSP or are considering opening one, you may think you are well-informed about the program. However, here are 10 things about RRSPs you may find interesting.
- Contributions to RRSPs are deductible from total income, reducing income tax payable for the year in which contributions are made. Most withdrawals are taxed as income when they are withdrawn. This is the same tax treatment provided to Registered Pension Plans established by employers.
- No income earned in the account is taxed (including interest, dividends, capital gains, foreign exchange gains, mortality credits, etc.).
- You can set up an individual RRSP for yourself; a spousal RRSP using your RRSP room that will trigger income in your spouse’s name when funds are withdrawn; or, become a member of a group RRSP established by your employer or an affinity group.
- Contributing more than $2,000 over your deduction limit is subject to a significant penalty tax (1% per month on the overage amount).
- You can withdraw dollars or assets from an RRSP at any age. Withholding tax is deducted by the institution managing the account. Amounts withdrawn must be included in your taxable income for that year. The tax withheld reduces the taxes owing at year end. There are two exceptions to this process – the Home Buyer’s Plan and the Lifelong Learning Plan.
- Contributing to an RRSP is not enough. In order to meet your retirement savings goals you need to decide which of the myriad of investment instruments in which you will invest the money in your account and monitor results over time. Both independent financial advisors and advisors employed by financial institutions can help you come up with a plan.
- Almost all financial institutions and brokerage houses will be happy to set up a monthly automatic withdrawal program so you don’t have to come up with a big lump sum at the end of the year. They can also reduce your tax withholdings on an ongoing basis so the impact of monthly reductions to your salary is much less.
- If you have a defined benefit or defined contribution pension plan, your RRSP room will be reduced. However, if the expected pension you will receive from your company is lower than the income replacement you will require to live in retirement, you should still be saving additional amounts in an RRSP.
- Unused RRSP room is a great way to tax-shelter unexpected lump sums like an inheritance, an award for wrongful dismissal or a bonus.
- You may wish to borrow money to make RRSP contributions. However, if the interest rate on the loan is greater on the expected return in your RRSP and you can’t afford to pay the loan back on time this would likely not be a wise financial decision. See other possible strategies for borrowing to invest in an RRSP.
What is a prescribed RRIF?March 12, 2015
By Sheryl Smolkin
If you are a member of the Saskatchewan Pension Plan you can elect to retire any time between the age of 55 and 71. You can purchase an annuity from the plan which will pay you an income for the rest of your life.
You can also transfer your SPP account into a locked-in retirement account (LIRA) or a prescribed registered retirement investment account (prescribed RRIF). Both options are subject to a transfer fee.
The LIRA is a locked-in RRSP. It acts as a holding account so there is no immediate income paid from the account. You direct the investments and funds in this option and funds remain tax sheltered until converted to a life annuity or transferred to a prescribed RRIF. You choose where the funds are invested.
The LIRA is only available until the end of the year in which you turn 71. One advantage of a LIRA is that it allows you to defer purchase of an annuity with all or part of your account balance until rates are more favourable.
You must be eligible to commence your pension (55 for SPP) to transfer locked-in pension money to a prescribed RRIF. If you are transferring money directly from a pension plan, the earliest age at which your pension can commence is established by the rules of the plan.
You may transfer money from a LIRA at the earlier of age 55 (SPP) or the early retirement age established by the plan where the money originated. Funds in your SPP account or your LIRA at age 71 that have not been used to purchase an annuity must be transferred into a prescribed RRIF.
Unlike an annuity, a prescribed RRIF does not pay you a regular amount every month. However, the Canada Revenue Agency requires you to start withdrawing a minimum amount, beginning in the year after the plan is set up.
The Income Tax Act permits you to use your age or the age of your spouse in determining the minimum withdrawal. This is a one-time decision made with the prescribed RRIF is established. Using the age of the younger person will reduce the minimum required withdrawal.
To determine the minimum annual withdrawal required, multiply the value of your prescribed RRIF as at January 1 by the rate that corresponds to your age:
Table 1: Prescribed RRIF + RRIF minimum Withdrawals
|Age at January 1||Rate (%)||Age at January 1||Rate (%)|
|71||7.38||94 and beyond||20.00|
|For revised RRIF withdrawal schedule based on 2015 Federal Budget, see Minimum Withdrawal Factors for Registered Retirement Income Funds.|
There is no maximum annual withdrawal and you can withdraw all the funds in one lump sum. This is in contrast to other pension benefits jurisdictions such as Ontario and British Columbia where locked-in funds not used to purchase an annuity must be transferred to a Life Income Fund at age 71 that has both minimum (federal) and maximum (provincial) withdrawal rules.
The same LIRA and prescribed RRIF transfer options apply to Saskatchewan residents who are members of any other registered pension plan (DC or defined benefit) where funds are locked in.
If you have saved in a personal or group registered retirement savings plan (RRSP) your account balance can be transferred into a RRIF (as opposed to a prescribed RRIF) at any time and must be transferred into a RRIF no later than the end of the year you turn 71 if you do not take the balance in cash or purchase an annuity.
The minimum withdrawal rules are the same as those of a prescribed RRIF (see Table 1). However, even in provinces like Ontario and British Columbia where provincial pension standards legislation establishes a maximum amount that can be withdrawn from RRIF-like transfer vehicles for locked in pension funds (LIFs), there is no cap on the annual amount that can be taken out of a RRIF.
Also read: RRIF Rules Need Updating: C.D. Howe