Tag Archives: MoneySense

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

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

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

10 Simple Ways to Save Big

With credit card bills coming in after the holidays, many Canadians are looking to save money. Saving money is a popular New Year’s Resolution, but unless you figure out how you’re going to save money, your goals like buying a home and saving towards retirement aren’t as likely to happen.

Saving money doesn’t have to painful. Here are 10 simple ways to save big in 2020.

  1. Disposable Products

Not only do disposable products cost money, they hurt the environment. Instead of using plastic cutlery, use metal cutlery. Skip the paper napkins and go with reusable cloth napkins. Cloth dishrags are a good alternative to pricey paper towels.

  1. Lottery Tickets

You have a better chance of being struck by lightning than winning the lottery (no, I’m not making this up). Instead of spending $5 a week on a lottery ticket, consider putting that money toward your savings.

  1. Smartphone In-App Purchases

Most apps these days are free, but that doesn’t mean you don’t have to watch your spending here. The new trend is in-app purchases. If you’re having trouble solving a crossword puzzle, the app may offer you a hint that you pay for. To avoid the temptation, turn off in-app purchases or add a passcode so you think twice before paying.

  1. Fuel

Although the price at the pumps isn’t as high as it once was, it still makes sense to plan out your driving trips ahead of time. GPS makes doing this a lot easier. Plan out your errands so you’re not driving too far out of the way because you forgot to pick up milk and bread. Research driving techniques for fuel efficiency.

  1. Books, Blu-rays, Digital Movies and TV

When’s the last time you read a book or watched a movie more than once? Save yourself some money and use the public library. Most libraries in big cities have an excellent selection of books, e-books, movies and TV shows. If you don’t have cable, nothing beats Netflix.

  1. Deal Websites

Deal websites like Groupon are a great way to save money, as long as you don’t become addicted. Avoid buying stuff you don’t need by only visiting them when you plan to buy something. A further caution: only visit reputable websites. Avoid those with cheap copies of branded goods, expensive shipping costs to return items and short deadlines for refunds.

  1. Gym memberships

I’m all for people going to the gym and getting in shape, as long as they show up. But two-thirds of people with gym memberships never step foot inside a gym. If you’re joining a gym for the first time, consider hiring a personal trainer for the first couple of weeks to show you the ropes. Once you get the hang of things, why not exercise with a buddy to keep each other motivated? If your condo has a decent gym, you can skip the gym membership fees altogether.

  1. Premium Cable Packages

Do you really need 500-plus channels? Consider downgrading to basic cable or cut the cord altogether. Netflix and antennas are great cable alternatives.

  1. Utilities

Do you sometimes forget to turn down the heat when you’re leaving your home? In a typical home, about 60% of energy costs are from heating and cooling. Install a programmable thermostat, and in the wintertime set it so the temperature automatically goes up before you wake up, goes down when you leave home and then goes up again for when you arrive back home. Reduce the temperature by four to five degrees at night and when you’re away to save 15% on your heating bill.

  1. Ready Meals and Prepared Food

If you’re a foodie, it might be hard to imagine giving up your favourite dishes. You don’t have to—you just have to be willing to find thrifty alternatives. Instead of picking up ready-made dishes like pasta, lasagna and side dishes at the supermarket and paying top dollar, consider taking cooking classes and learn to prepare them yourself, if you don’t already know how. Weekdays can be hectic, so prepare your culinary masterpieces on weekends when you have more time.

 About the Author
Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians. He bought his first house when he was only 27 in Toronto and paid off his mortgage in just 3 years by age 30. An in-demand Personal Finance Journalist, Money Coach and Speaker, his articles and blogs have been featured in publications such as the Toronto Star, Globe and Mail, Financial Post and MoneySense. Connect with Sean on LinkedInTwitterFacebook and Instagram.

Are those of us who save for retirement investing wisely?

A recent Angus Reid survey, reported on in The Financial Post, suggests that a surprisingly large number of us – 38 per cent – have no retirement savings at all.

That begs the question: are the 62 per cent of Canucks who are saving investing wisely? Save with SPP took a look around to find some answers.

A MoneySense article from a few years back reached the conclusion that Canadians aren’t good investors.

“A whopping 60% of the typical portfolio is being held in cash – far too much to meet most retirement needs when you factor in record-low interest rates and inflation. What’s more, nearly half of survey respondents (45 per cent) said they plan to increase their cash holdings next year. The average Canadian portfolio holds just 19 per cent in equities, seven per cent in bonds, four per cent in in property, three per cent in alternatives and the rest in other asset classes,” the article reports.

Let’s compare those numbers to the Saskatchewan Pension Plan’s current asset mix. With SPP, equities (Canadian, US, and non-North American) weigh in at 36 per cent of the portfolio. Bonds are the next largest category, at 29 per cent, and “alternatives” follow – mortgages, three per cent; real estate, 11 per cent; short-term investments, two per cent and infrastructure, one per cent. (Once you retire and collect your SPP pension, it is paid out of the Annuity Fund – a non-trading bond portfolio.)

So the self-investor is 60 per cent in cash in their retirement savings account, while the SPP’s balanced fund (typically the one chosen for the savings portion of retirement) has, perhaps, two per cent in cash/money market or other short-term investments.

Why the disparity?

“When asked why they’re sitting on so much cash, the majority cited accessibility and/or convenience while 25 per cent admitted to a fear of losing money and 10 per cent said it was because they didn’t understand their options,” the article notes. As well, the MoneySense report adds, “less than half of Canadians (44 per cent) agree with the statement `Investing is for people like me,’ and a full 51 per cent believe investing is like gambling.”

In plainer terms, those saving on their own – the majority of which MoneySense notes have never consulted a financial adviser – aren’t sure how to invest and are afraid to lose money. So they park their savings in cash.

A little personal note here. This writer, having worked in the pension industry (but not on the investment side), has decent general knowledge about investing and invests the family RRSPs on his own. Generally, we try to have an asset mix that’s 50 per cent stocks and 50 per cent bonds and balanced funds, more like a pension fund. It was a search for a good balanced fund that first connected us with SPP. What we notice is that over the decade or so that we have belonged to SPP, the SPP has always outperformed our own investment rate of return. That’s why we are gradually moving our RRSP savings over to SPP – they know more about investing and are doing a better job of it. Period, full stop.

There’s no question that it is exciting, and fun, to run your own investments. However if the money you’re in charge of is being invested for your retirement future, it might be a smart idea to get some help managing the ups and downs of the markets. A financial adviser is a good idea, and another good idea is to put some or all of your hard-earned savings in the professionally-invested, low-fee Saskatchewan Pension Plan. 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

A look at the things we stop doing once retired

It’s very difficult for those of us who are retired to explain what it’s like to those still working. And it’s equally difficult for those still at the desk to visualize their time after work.  Save with SPP took a look around the Interweb to see what sort of things we don’t do once we are retired, hoping this listing might help demystify the intrigue that is retirement.

According to The Terrace blog, a thing you’ll stop doing and saying is that you’re too busy or have no time to do things. “The new retiree finally has the time to do the things that have been put off for years. This includes projects, such as cleaning out closets and other chores around the home, travel to visit family and friends, starting new leisure activities, hobbies and taking classes,” the blog notes.

The Disabled World blog lists a variety of things that most seniors will be no longer able to do, such as getting to the phone on time, reading small print, “watching bad news,” and significantly, opening packages “containing things we really want to get our hands on.” Things that were easy to do before, warns the blog, will eventually become more difficult, a factor to be aware of.

One great thing is that you can stop planning for retirement once it has happened, notes US News and World Report. You will have done all the things the article lists, such as reviewing your finances and sources of income, health and benefit coverage, and using up your last days of vacation. You won’t have to “take vacation” once retirement has begun.

The MoneySense blog notes, among other things, that you will stop not being able to see your spouse. “Sure, you love your spouse, but let’s do a little math here. Chances are, for most of your married life at least one of you has worked outside the home. Subtract sleep, travel time and other away time and you’ve seen your beloved for— at most — six hours a day,” the blog notes.

You’ll see your spouse twice as much once you retire, the blog adds, and that can cause “some couples to bicker.”

Other things Save with SPP has noted include not having to buy a commuter pass or pay for a workplace parking spot, not having to have `clothes for work,’ including a vast array of ties, dressy shoes, and suits, and not having to attend one or two meetings every day of the workweek. You’ll find you lose track of what day it is, don’t really experience a difference when it is the weekend or a holiday, and put off doing things until it is NOT the weekend so there’s better parking and less crowds.

And strangely you’ll probably find you are just as busy as you were before you retired, but it will be with different tasks and activities.

The transition to retirement is a tricky thing. Putting away a little more money for those golden years is always a good idea, because once you don’t get a paycheque you’ll be dependant on workplace pensions, government retirement benefits and your own savings. Why not perk up your personal savings through a Saskatchewan Pension Plan account? You can save at your own pace, watch your money get professionally invested at a very low fee, and then enjoy additional lifetime retirement income once you’ve left the punchclock behind. It’s win-win.

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

May 13: Best from the blogosphere

A look at the best of the Internet, from an SPP point of view

Making ends meet with a “work optional” retirement

Writing in MoneySense, Jonathan Chevreau has a new take on how we should approach retirement. Rather than planning to put down the tool box forever and live off pensions and savings, he writes about a “work optional” retirement.

Chevreau says he learned of the phrase “when it was uttered by financial planner Doug Dahmer, founder of Burlington, ON-based Retirement Navigator.” He asked Dahmer to define it, and his reply was “it’s working because you want to, not because you have to… It relates to those who purposely choose to continue to work, despite already having achieved a financially feasible retirement.”

This optional work, Dahmer states in the MoneySense article, should be doing something you love on your own time schedule for someone you want to do it for. The money, the article notes, should be money “that at the end of the day, is not needed: it’s simply an added bonus.”

“In practice, then, achieving the status of ‘work optional’ is almost exclusively limited to those who are self-employed,” notes Chevreau. “The self-employed are not accountable to the bidding of bosses or shareholders, can choose to limit their customers only to those with whom they love to work, and they can choose to either outsource or delegate to others the aspects of the job they don’t enjoy. They can pick and choose their own schedules.”

This is very good thinking. Save with SPP knows a number of people who retired from their 9 to 5 jobs, and are now doing things like teaching line dancing, consulting (one friend is a consulting agronomist), starting home businesses embroidering things, and so on. They are either continuing to do things they loved to do, or learning new things.

Chevreau’s article goes on to note that for those saving on their own, without a workplace pension, it’s pretty expensive to save enough money so that you never need to work again.

Quoting U.S. author Tanja Hester’s published work on the subject, Chevreau notes that “full early retirement – ‘in which you never need to work again [for money]’—means if you are an investor that you will need to save between 25 and 35 times your annual expenses by the time you leave active employment.”

And Hester, notes Chevreau, has a “magic number” for full early retirement – “annual spending times 30 + 10 per cent contingency. Then there is the safe annual withdrawal rate, which ranges between three and four per cent per annum.”

When you are on a fixed income in retirement, unexpected repairs are a bane of your existence. A “work optional” retirement might allow you to have that contingency fund set aside to help you out when something out-of-the-ordinary occurs.

If you don’t have a workplace pension plan, or you want to augment the plan you have, take a hard look at the Saskatchewan Pension Plan. It’s unique, in that it not only offers low-cost professional investing and the benefits of pooling, but there’s a full array of lifetime annuity options available to turn your savings into lifetime income.

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

Why some Canadians choose to retire to other countries

Let’s face it – it’s hard to find good things to say about winter in Canada when it’s 40 below with the windchill and the snow is piling up in your laneway.

Save with SPP knows a number of people who head south for the winter every year. And there are others who leave Canada for good and live out their golden years abroad. We took a look around to find out some of the reasons why some of us take this step.

Well, one reason might be finding not only warmer weather, but a lower cost of living, reports MoneySenseRetiring in North America, the site advises, means you’ll need an average of about $625,000 in the bank at age 65 (or an equivalent pension), or “annual retirement income of $55,000.”

But this amount, the site notes, is enough to let you “live in luxury” in a variety of other countries, including Colombia, Ecuador, Mexico and Malaysia, all modern countries with much lower living costs. You can, the article says, get a three-course meal at a restaurant for about $10 in some of these countries, and rents are in the low hundreds, rather than the low thousands.

The Roam New Roads site also cites lower living costs and a better climate in France, Panama, Thailand or Belize. Some offer low-cost national healthcare, the article notes, as well as lively culture, history, and wonderful culinary expertise.

However, there are other factors to bear in mind if you are moving away from your home country, notes the Escape From America blog. You can be homesick, which “leads to many expatriates returning home every single year,” often a costly process. Retirement abroad means little or no time with family and friends, a “forced loneliness,” the blog reports. Culture, language, accessibility (driving a car) are all other potential downsides in a faraway land, the article says.

The government of Canada’s website notes that living outside Canada will have an impact on your taxes, and may change how you are able to receive your Canada Pension Plan and Old Age Security benefits. If you are living outside the country for part of the year, there may be provincial or territorial requirements for your healthcare – a set amount of time you must reside in your homeland in order to keep your benefits. Or, you may have to try and arrange health coverage for the foreign country. It’s certainly a cost to be aware of.

So putting it all together, you can live on less money by moving to another country, where your retirement savings will allow you to trade middle-of-the-road living here for luxury and new adventures there. You’ll be free of snow shovelling and dark winter afternoons. But, if you get homesick, the cost of travelling back will put a dent in your now-lowered cost of living. You may find yourself isolated by language and culture. And you’ll have to figure out how to keep your healthcare or find an alternative.

It’s a big commitment, and not for everyone, but on a cold winter day, it’s nice to imagine heading down to the beach.  Any sort of retirement, be it here in the good old northland or off in some exotic sunny country, will require income. If you’re dreaming about retirement, take some time to put away a few dollars now for that eventual future. You’ll be happy you did. And a great destination for retirement savings is a Saskatchewan Pension Plan account.

Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer, hopeful darts player and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Sheltie, Duncan, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

The “baffling unpopularity” of annuities

What if there was a way to convert some or all of the money you’ve saved up for retirement into cash for life – monthly payments for as long as you live?

And once you made this conversion, you’d no longer have to make any investment decisions for this money; you’d just have to trot over to the Super Mailbox each month to collect a cheque.

There is just such a product, the annuity, but for some reason, it’s not something people choose very often. Writing in MoneySense, David Aston calls annuities “the best retirement product that hardly anyone buys,” adding that they amount to a sort of do-it-yourself defined benefit (DB) plan.

“Like DB pensions, (annuities) provide guaranteed income for as long as you live. But while employer pensions are considered the gold standard of retirement income plans, few Canadians ever think about annuities,” writes Aston, calling their unpopularity “baffling.”

Aston says that for some people, such as those with wealth or who have DB pensions from work, an annuity is probably not necessary. And others don’t like the idea of “their finality – once you give your cash to the insurance company, you’re locked in for life.” There’s no more “growth potential” for this investment and you can’t tap into it for lump sum amounts, he explains.

But, says Aston, they are ideal for cash flow. Many people buy an annuity which, along with government pensions, “meets all your non-discretionary needs,” such as keeping the lights on, the furnace going, and the rent paid via the steady, predictable and guaranteed income. And if you convert part of your retirement savings to an annuity, you can “afford to take more risks with the rest of your portfolio.”

One would imagine that those who took out annuities prior to the market downturn in 2008 are happy with their choice, because while you may miss out on investment gains, you also miss out on investment losses with an annuity.

In a video posted to Save with SPP, Moshe Milevsky, Professor of Finance at York University’s Schulich School of Business, calls annuities “insurance against something that is really a blessing, longevity.” Because the annuity pays you for life, you can never run out of money, he notes.

Writing in the Globe and Mail financial columnist Rob Carrick notes that unlike withdrawing money from a RRIF or other vehicle, the withholding tax on an annuity is not automatically deducted but is taxed the same as regular income, he explains.

He reports that a good time to consider buying an annuity is when you are older. “The later you buy, the shorter the period of time the insurer selling an annuity expects to have to pay you. As a result, payments are higher than they would be if you bought at a younger age,” he explains.

The cost of an annuity depends on current interest rates, which have been quite low for a while but are rising, which is good news for annuity buyers.

The Saskatchewan Pension Plan (SPP) is somewhat unique in that it can convert your savings into an annuity. They offer four different kinds of guaranteed annuities, and your money continues to be invested by SPP while you sit back and wait for the monthly cheque. For full details, check out the Retirement Options chapter in the SPP Retirement Guide.

Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer, hopeful darts player and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Sheltie, Duncan, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

Home is where the hat is – unless it’s cheaper somewhere else

At the office, where we were involved in pension plan communications, we used to joke (as 30-somethings) about what our future retirement would look like.

One theory at the time was that where you would be in retirement would depend on your future income. If you had a big income, you’d be in the Big Smoke. If you didn’t, you’d be shopping for a double-wide trailer in rural New Brunswick.

While that’s an extreme example, our predictions from the ‘90s are coming true. Sometimes your retirement income will impact where you’ll live.

“If retirees could take their pick,” notes an article in Pay Day, posted on Yahoo! Finance, “most would probably want to spend their golden years somewhere warm, beautiful and affordable.” However, if a retiree is relying only on CPP and OAS, the article says, the list gets a little shorter.

The article suggests Moncton, NB; Lacombe, AB; Stratford, ON; Brandon, MB and Halifax, NS as places where limited dollars go the longest. These cities are selected because real estate is affordable, they have great services and healthcare, and the quality of life is high. Taxation rates and value for the dollar are also factors.

A similar list can be found in MoneySense.ca. The top seven retirement destinations are Moncton; Joliette, QC; Ottawa, ON; Winnipeg, MB; Canmore, AB and Victoria BC.

The MoneySense list looked for places that had “a thriving arts scene… a strong sense of community… easy access to airports… and pleasant weather.” Good transit is also important, the article notes.

We see many of our friends selling their big houses in Toronto and moving to smaller, more affordable communities elsewhere in the province. The idea here is that the proceeds from the sale of the house in the city are more than enough to buy a house in a smaller town, and you can bank the difference.

An important step you can take today to deal with tomorrow’s retirement living decisions is to bank a bit of your salary for life after work. The Saskatchewan Pension Plan provides you with an end-to-end system that turns your savings into investments, and those investments into future income.

Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer, hopeful darts player and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Sheltie, Duncan, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

Oct 1: Best from the blogosphere

A look at the best of the Internet, from an SPP point of view

Canada rises to ninth place in world retirement rankings
Pat yourself on the back, Canada – we’re the ninth-best country in the world to retire in.

Canada has moved up from 11th place to 9th place in the Natixis Investment Managers’ Global Retirement Index, reports MoneySense. Canada moved up a couple of places, the magazine reports, because of “improving economic conditions and environmental factors.”

The index takes into account 18 factors, such as “Finances in Retirement, Material Wellbeing, Quality of Life, and Health,” reports MoneySense. Canada has the “second-highest air quality and seventh-highest personal happiness scores in the entire index,” the article notes. A stronger job market last year pushed our unemployment rate lower, the article adds.

The top five countries were Switzerland, Iceland, Norway, Sweden and New Zealand. The next five were Australia, Ireland, Denmark, Canada, and the Netherlands.

Save with SPP notes that most of the Top 10 countries were hockey-playing country. Coincidence?

The USA, while good at hockey, came in at 16th overall, the magazine notes.

“Precarious” workers have less access to retirement savings: report
A report by the Canadian Centre for Policy Alternatives has found that only 40 per cent of workers in “precarious” jobs have access to retirement savings plans at work. That compares unfavourably, notes an article in Benefits Canada, to the 85 per cent of “secure professionals” who do have access to such plans at work.

The secure professional group, the article says, “was classified as having a full-time, permanent job for at least 30 hours per week, working for one employer that provides benefits and that they expect to be working for in one year’s time.” The “precarious” group, the article states, are either full time without these factors or working part time or contract.

The takeaway is that the so-called “gig” economy often leaves workers without workplace pension plans or retirement savings benefits. They must shoulder their own retirement savings program – easier said than done.

A nice “do-it-yourself” retirement program is the Saskatchewan Pension Plan. You decide how much you’ll contribute, and you can vary your contributions as you see fit over your working life. Check them out at www.saskpension.com.

Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer, hopeful darts player and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Sheltie, Duncan, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22