MoneySense

Jan 4 – The age old question – should we pay in cash or with credit?

January 4, 2024

For the first time in 70 years, there’s a new monarch on the back of our nickels, dimes, quarters, loonies and toonies.

And that change recalls an age-old question – is it better to use cash or credit, generally? Save with SPP took a look around for some answers.

According to figures from the Bank of Canada, this country has seen a gradual move away from cash spending. Cash accounted for 54 per cent of transactions as recently as 2009, the bank reports, but by 2013 that figure had dropped to 44 per cent. It slid to just 33 per cent in 2017.

Interestingly, the value of cash transactions also declined in the same period – in 2009, the bank notes, 23 per “of the total value of goods and services purchased” was in cash. By 2017, this number had fallen to 15 per cent. And we’ll recall cash use fell even more during the pandemic.

Is cash dead?

“So, does this mean that Canadians are giving up on cash? The short answer is no. Canadians still rate cash as easy to use, low in cost, secure and nearly universally accepted, and it’s the preferred payment option for small-value purchases like a cup of coffee or a muffin,” the bank notes.

“In fact, the lower the value, the more likely it is the buyer will choose cash,” the article adds.

An article in MoneySense from a while back highlights how using cash may make us more conscious of our spending than using credit or debit cards.

“Is it harder to part with cash than to slide your credit card through the machine? Would a $200 pair of shoes give you pause to think if you paid for them in cash more so than if charged your credit card? You betcha,” the article notes.

The article cites two U.S. studies on the topic. A Journal of Experimental Psychology article reports on a study, MoneySense notes, that concluded “shopping with cash discourages spending, while using credit or gift cards actually encourages it.” Why?

The authors of the study, reports MoneySense, found that “using a less transparent form of payment such as a credit card or a gift card lowers the vividness with which one feels that one is parting with real money, thereby encouraging spending.”

Interesting – spending with physical cash is seen as more “conscious” spending, then.

A Forbes article also weighs in on the topic.

The article makes the point that your own financial habits should dictate when you use cash, or not.

“If you are carrying a large credit balance or struggling to stay on top of payments, sticking to cash whenever possible may help you pay down debt,” the article notes.

“Many people use credit cards regularly and rarely carry a balance. If you stay on top of your payments and pay your card in full, a credit card is probably a great option for you,” Forbes reports.

Credit cards, the article notes, “provide a unique level of security against fraud and loss. In Canada, if your card is issued by a bank and unauthorized purchases are made on your card, the maximum amount you can be responsible for is $50 (unless you demonstrated gross negligence in safeguarding your card, its information and other info like your PIN or password).”

Similar protections apply to debt cards, the article reports.

Cards feature things like purchase protection and insurance, anti-fraud detection, a grace period and “rewards, cash back and bonuses” that you just don’t get with cash, the article adds.

“While creditors are hoping you will carry a balance, rewards points can be an excellent way to earn while you shop, especially if you don’t carry a balance. Some credit cards offer three to six per cent back on selected categories. Other cards may offer one per cent or more back on all purchases,” the article adds.

However, reports Forbes, cash has its advantages as well, particularly if you have balances on credit cards or lines of credit. “Debt is a major problem for Canadians. As of December 2022, the average debt in Canada was $21,183 (excluding mortgage debt), according to a report from Equifax,” the article notes.

“By paying for purchases with cash, you avoid interest charges on those new purchases,” as well as even higher interest on a higher balance, the magazine adds.

The Motley Fool lists off a few more advantages of cash. Cash is “universally accepted,” and by using cash you can avoid transaction fees common with credit and debit cards.

It is easier to budget using cash, the article continues. “Paying only in cash means that once the cash is gone, that’s it – you’re done spending,” The Motley Fool tells us. “This strict limitation can help you curb overspending, aligning your purchases more closely with your budget.”

A disadvantage of cash is that if it gets lost or stolen, you are out of luck – there is no theft protection or insurance built into it.

The Motley Fool article also makes the point that while you can earn cash back, rewards points and other perks with credit cards, it is easy to abuse them, and “spend more than you can reasonably afford.” And if you don’t pay the full credit card balance each month, you are looking at interest rates of 20 to 30 per cent, the article concludes.

Noted financier Mark Cuban once observed that when you pay with cash, you can often negotiate a better price. If something costs $200, and you say you only have $175 cash, maybe you will get a deal, he has said.

It sounds, from reading all this, like there is no single answer on which is best, cash or credit. The experts seem to be saying it depends on your personal relationship with money. If you pay all your bills on time, especially credit cards and lines of credit, then maybe credit use is OK for you. If not, cash is a way to keep your debt from getting even bigger.

We already know that the Saskatchewan Pension Plan is a great do-it-yourself retirement savings program for Canadians. Any Canuck with available registered retirement savings plan room can open an account, and can let SPP’s experts invest their savings in a professionally managed, low-cost fund. But what’s new is that now, any Canadian SPP member has the choice, at retirement, between a lifetime annuity or the flexible Variable Benefit option.

Check out SPP today!

Join the Wealthcare Revolution – follow SPP on Facebook!

Written by Martin Biefer

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


Dec 21: Senior investors want to avoid risk, and running out of money

December 21, 2023

You’ll hear about it on the golf course, at the Legion, on the dance floor at line dancing, or over coffee – seniors like talking about their investments, and worry about how they are doing.

Save with SPP decided to look into what sorts of things seniors should be thinking about when it comes to investing.

Over at the Retire Happy blog, Grant Hicks notes that older seniors, say 75 plus, want their investments to be “safe, short term, and no risk.” He says folks tend to get more cautious as they get older, even when we are talking from age 65 to age 75.

He cites the example of “Mr. and Mrs. Jones” of Qualicum, B.C. (real names are not used) who were debt-free, mortgage-free, and had about $200,000 to invest.

“They were looking for tax efficient income. They were not looking to keep it short term in case of something happened to one of them because the other person would still require the income,” he writes.

“Here’s what they decided on. First, we put aside 20 per cent short term for emergencies. This was invested into a cashable term deposit at the highest interest we could find. Then we built an income portfolio that consisted of bonds and guaranteed investment certificates (GICs) (20 per cent) preferred shares (20 per cent), common dividend paying shares (20 per cent) and income trusts and income securities (20 per cent). The portfolio focus was to pay out approximately four to five per cent monthly on a tax efficient basis, meaning the income was not all interest, but dividends, business income and capital gains.”

In an article in MoneySense magazine, investment counsellor and author Patrick McKeough “pounds the table for a conservative portfolio of quality dividend-paying stocks spread among the five major economic sectors.” Those sectors, the article advises, include manufacturing and industry, resources, finance, utilities and consumer.

In the article, McKeough discusses “pre-retirement financial stress syndrome,” which occurs when older investors begin to realize they may not have saved enough to fund “the stream of income they had been counting on.” He warns older investors of the urge they may have to make “one last desperate `Hail Mary’ gamble” on a breakout stock to try and play catch up. Instead, they should do the opposite, and look for safer investments, the article notes.

An older, but still wise article in Canadian Living also says older investors should focus on bonds (chiefly government bonds, with a smattering of corporate bonds that pay higher interest), GICs and dividend stocks, but adds the idea of annuities.

“Insurance companies offer annuities, which are investments that, in retirement, pay set monthly payments for life. It’s a great option for people who are worried about their cash flow, but it can be an expensive one. Fees are typically higher than what you’d pay on a mutual fund, and your money won’t get as great of a return as it would if you invested in the market yourself. But your cash is protected and you do get a regular cheque in retirement, which, to many people, is worth the extra costs,” the article notes.

At the time this article was written, interest rates were at record lows – today, higher rates mean the cost of an annuity has gone down – you get more income than you would have got with lower rates.

The Canadian Living article takes a different look at riskier common stocks.

“While you’re supposed to become a more conservative investor in retirement, you should also own some plain old stocks. Your portfolio still has to grow or you could run out of cash as you get older. That’s not to say you should invest in risky start-ups, but some solid brand-name growth stocks should help increase your savings,” the article notes.

There used to be an industry “rule of thumb” we heard around the pension plan office, specifically, that your present age should be the percentage of your holdings that are in fixed income. So if you were, say, 64, then 64 per cent should be in fixed income, with the rest in equities and other investments. This rule sort of got set aside during the decades-long low interest period, but may live on in some people’s financial plans.

Did you know that members of the Saskatchewan Pension Plan have a couple of great retirement income options? They could choose to convert their SPP savings into a lifetime annuity – a monthly payment arriving on the first of every month for the rest of their lives. Or, they could choose SPP’s Variable Benefit, which allows you to decide how much money you want to withdraw when you retire – more if you need, less if you don’t – with the option to annuitize at some future date.

Check out SPP today!

Join the Wealthcare Revolution – follow SPP on Facebook!

Written by Martin Biefer

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


In retirement, is it better to own or rent?

October 12, 2023

We run into lots of fellow seniors as we line dance our way around town, and we’re always running into discussions about whether — as retirees — we should ditch the family home and rent, or hang on.

Save with SPP decided to see what others have to say on this topic, which seems to become more and more important with each passing birthday.

The folks at MoneySense took a look at this topic a few years ago, and had some interesting thoughts.

“Those who criticize renting over home ownership often ignore some costs of owning a home. Beyond a mortgage payment and property tax, home insurance is higher when owning versus renting. Condo fees may also apply. There are maintenance costs, repairs and renovations. If mortgage rates rise to more normal levels, you can expect your mortgage payment to be higher in the future. Home ownership has costs as well as benefits,” the article tells us.

An article in The Globe and Mail looks at the issue a little differently.

Noting that two-thirds of Canadians own their own homes, the article asks if home ownership still makes financial sense for the older folks among us.

“With many older Canadians approaching retirement with little savings – and some even carrying significant debt – selling the family home and renting may mean the difference between just getting by and living a life free from financial worry,” the article suggests.

The article quotes Scott Plaskett of Ironshield Financial Planning as saying those of us with homes “can be equity-rich and cash-poor: you are worth $5 million on paper, but you can’t pay for dinner because you have no liquidity.”

Selling the house and then renting fixes the liquidity problem, the article contends.

There are pros and cons to renting, writes Jean-François Venne for Sun Life.

He quotes real estate broker Marie-Hélène Ouellette as saying “you first have to consider the pros and cons of being an owner versus a renter. The biggest difference between the options is in the level of responsibility and freedom.”

“You obviously have more freedom when renting since you can leave when your lease is up. And you have fewer responsibilities because the owner takes care of the maintenance. But renters can also have less control than owners over things like decorating, repairs and even pets. And if you’ve been a homeowner for a long time, losing control and choice isn’t always easy to handle,” she states in the article.

The article makes the point that while owning a home usually means its value increases over time, “values do sometimes drop. And as a retiree, you won’t have a lot of time to make up for a decline in value.”

As well, your money can be tied up for a while when you sell or purchase a property, the article adds.

In the article, financial planner Josée Jeffrey says that it can be an unpleasant surprise, for those who have paid off their mortgage, to have to pay rent again. And, she adds, while you no longer are paying property taxes, they may be built into your rent, which usually goes up every year.

There’s a lot to unpack here. Owning means a long commitment to paying a mortgage, as well as property taxes, maintenance, but also your heat, light, and water bill. If there’s a driveway or a lawn it’s on you to clear away the snow and weed-whack the lawn. “Maintenance” involves fixing things that break, like toilets or garage doors or ovens and fridges.

Renting liberates you from many of these responsibilities. But rent can go up — and go up quite a bit if, for instance, the place you’re renting changes ownership. Not all landlords are quick to fix things that break (some are, and bless them), and it’s true — if you are used to owning prior to renting, you’ll have an inescapable urge to bang a few nails into the wall and hang up some artwork, which is typically frowned upon.

So this is a decision you will have to think long and carefully about, concludes an article in Yahoo! Finance.

“Don’t discount emotional issues when making this important decision,” the article advises. “Do you love the idea of owning your own place and fixing it up the way you want? Or will it be a big relief after years of ownership not to worry about the lawn or a broken sump pump?”

The article concludes by stating “while your decision needs to be financially sound, make the decision that makes the most sense for you. Not being a homeowner can be freeing, scary or both. Your home, its location and amenities should fit the life you lead now.”

If you are renting or paying for a mortgage, be sure to still put something away for retirement. A little extra money when you’re older will help with things like future property tax or rental increases. A wonderful retirement savings program open to all Canadians with registered retirement savings plan room is the Saskatchewan Pension Plan. A not-for-profit, open, voluntary defined contribution plan, SPP has investment experts who will invest your retirement savings in a low-cost, pooled fund. When you’re over the walls and away from work, SPP can help you convert those savings into income — including the possibility of a lifetime monthly annuity payment. Check out SPP today!

Join the Wealthcare Revolution – follow SPP on Facebook!

Written by Martin Biefer

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


Retirement investors need to think about balancing growth and income

February 16, 2023
Photo by Firmbee.com on Unsplash

Saving for retirement sounds like building wealth, but there’s a twist. After the saving is done, you’ll be wanting to convert that piggy bank into income for your golden years.

Do you bet it all on black, or is there a more sensible approach to investing for retirement? Save with SPP scouted the Interweb for some thoughts on the principles behind retirement investing.

Forbes magazine suggests retirement investors should take advantage of “tax advantaged accounts” available to them. In Canada, this would be things like a registered retirement savings plan (RRSP) or tax free savings account (TFSA).

The article suggests an “asset allocation” approach makes sense for retirement investing, with a portion of your investments targeting growth, through exposure to equities (stocks), and the rest to income, via fixed income investments, such as bonds.

You can either buy stocks and bonds directly, or via exchange-traded funds (ETFs) or mutual funds, the article adds.

Forbes believes that your age should help dictate the portion of your holdings that is in equities versus that in fixed income. In your 20s, the article notes, you should invest “90 to 100 per cent” in equities. By your 50s, you should be around 65 per cent equities and 35 per cent bonds, and once over 70, “30 to 50 per cent in stocks, 40 to 60 per cent bonds,” with the rest in cash.

At The Motley Fool Canada, dividend stocks are seen as one of the best investments in a retirement portfolio.

“You pay lower income taxes on dividend income from dividend stocks than your job’s income, interest income, and foreign income. Therefore, it is one of the best incomes to build up and grow as soon as you can. This low-taxed income will benefit you through retirement,” writes The Motley Fool’s Kay Ng.

She also notes that even if you have paid off your mortgage when you retire, you are still going to need income “to pay for home insurance, property taxes, and potentially utilities, condo, or home repair fees during retirement.”

Her article suggests real estate income trusts (REITs) are an investment well suited for your retirement portfolio. Owning REITs, she explains, is like owning shares in a property that is being rented out — you’ll get regular monthly income (like rent) and the value of the properties held by the REIT tend to go up over the long term.

The folks at MoneySense note the RRSP, now more than six decades old, is still a “go-to” for Canadian retirement investors.

The article begins by noting that the RRSP allows investments to grow on a “tax deferred basis,” meaning no taxes are owed until you take the money out in retirement. The Saskatchewan Pension Plan (SPP) operates very similarly, for tax purposes.

MoneySense agrees with the idea that Canadian dividend stocks make sense in your retirement investment portfolio, as they are taxed at a lower rate than foreign stocks in a non-registered account and aren’t taxed in a registered account.

Since the end game of retirement investing is converting savings to income, MoneySense notes the annuity — “which pays a fixed income for life” — is a good idea for some or all of your savings once you have retired.

So, let’s recap. You want to build your retirement portfolio with a mixture of dividend-producing stocks, and interest-producing (and lower risk) fixed-income investments. Real estate income is seen as beneficial both before and after retirement. When retirement begins, these sources will provide regular income, and if you want to guarantee the level of income, you can convert some or all of your holdings to an annuity.

If you’re hesitant about wading into this somewhat complex topic, another way to go is to join the SPP. SPP’s Balanced Fund is invested in Canadian, U.S. and international equities, but also bonds, mortgages, real estate, infrastructure and money market funds. The savings of SPP members are invested, at a very low cost, in a large pooled fund. And when it’s time to collect your SPP benefit, you can choose from a variety of annuity options for some or all of your account. Check out SPP today!

Join the Wealthcare Revolution – follow SPP on Facebook!

Written by Martin Biefer

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


Ways to tame the beast of personal debt

April 7, 2022

While higher interest rates can be good news for traditional savers, they are more likely to bring even more bad news to those of us who deal with household debt. And, according to Global News, that level of consumer debt rose to an alarming $2.2 trillion as of the fourth quarter last year.  

With inflation hitting levels not seen since the 1990s, a trend that will almost certainly lead to higher costs for borrowing and using credit, Save with SPP decided to find out what the experts say about speedy ways to get debt under control.

Writing for MoneySense, noted financial author Gail Vaz-Oxlade says getting “a sense of control over your money and your life” is not easy, but is well worth the effort.  She recommends we all do “a spending analysis to see where your money is going, so you can put it where it does the most good.” Next, she writes, “create a debt repayment plan that gets you out of consumer debt in three years or less, even if you have to get a second job.”

The third step, she adds, is “creating a balanced budget,” so that you know exactly how much you can afford to spend on things before you actually start spending. “Make yourself accountable by telling friends and family ‘sorry, it’s not in my budget this month,’” she adds.

Following these steps, she advises, will lead you to a future where you have “no debt, a balanced budget, and a big fat emergency fund.”

The Zilchworks.com site outlines a number of different strategies for eliminating debt.

Under the “annual percentage rate” strategy, you target the debt source (credit card or line of credit) that charges you the highest rate of interest first. “Once you’ve crushed the worst offender, you move on to the creditor with the next highest rate,” the site advises.

Other strategies outlined on the site are similar – put extra on one, pay it off, and repeat. This can be done, the site explains, in a number of ways – lowest balance first, highest balance first, lowest payment first, etc. In all strategies, the concept is a sort of snowball/avalanche effect – as each debt falls, you are paying more per month on the next targeted debt, and so on.

At Credit.com, a few additional strategies are outlined. “The first and most important step in getting out of debt is to stop borrowing money. No more swiping credit cards, no more loans, and no more new debt,” we are advised. “Resolve to live on a cash basis while you make your changes.”

Other advice is to “always pay more than the minimum amount” on your debts. “Make this an iron-clad habit,” the site advises. Another nice bit of advice is not to slip back into old habits once you have paid off your debt – make sure your post-debt budget focuses on you staying out of debt.

Save with SPP and debt are old friends who only recently have parted ways. Here are a few other ideas we picked up along the way.

  • The 95 per cent rule: If you don’t think you have an extra dollar to put on debt, this idea may help. Take five per cent of your take-home pay and put it immediately on debt. Then live on the balance. It is sort of like the Uncle Joe rule of saving 10 per cent of your income and living on 90 per cent, but tweaked so that it targets debt.
  • Get your credit cards out of your wallet: If you are maxed out most of the time, you probably pay the minimum owing, then spend with your card some more, and are maxed out again, with a higher minimum next month. Give the card to a spouse, or a relative, or trusted friend, and tell them not to give it back unless you have a real emergency. By not using the card, your minimum payments will gradually go down.
  • Stop making automatic payments for things on your credit card: If you are a super responsible person who pays off 100 per cent of your credit card each month, paying other bills, like utilities, or Internet, or streaming subscriptions via credit card is a good way to earn more cash back or points. But if you don’t pay off your balance each month, you are basically borrowing money to pay for living costs at maybe 25 per cent interest. It will catch up to you, and in the worst case scenario, you’ll bounce your bills due to having a maxed out card. Pay your bills a different way.
  • Save up for trips: If you are going on a trip, save up for it and pay it in advance, rather than paying as you go with a credit card. That way, you don’t come home to a huge bill, and avoid feeling financially punished for taking a holiday.

When you are in debt, talk to friends and family about how they dealt with it. Everyone, it seems, has had a brush with problem debt and have learned valuable lessons on how to turn credit problems around.

And, once you have defeated debt, you’ll have more money to put away for the greatest vacation of all – life in a post-work reality. An excellent companion on this journey is the Saskatchewan Pension Plan. They’ll invest the money you contribute, at a low cost and with a stellar track record, and when it’s time to retire, will present you with your retirement income options. Check them out today!

Join the Wealthcare Revolution – follow SPP on Facebook!

Written by Martin Biefer

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


The different between collateral and conventional mortgage

January 6, 2022

Are you in the market for a mortgage and you’re not sure which one to take out? In this article we’ll look at the difference between collateral and conventional mortgages, so you can decide which one is the right one for you.

Collateral Mortgages

A collateral mortgage lets you borrow more money than your property is worth. A mortgage lender is able to do that because a collateral mortgage re-advances. This allows you to borrow additional funds as needed without needing your break your existing mortgage contract.

This is accomplished by registering a lien against your property. Lenders will register a lien for up to 125% of your property’s value. For example, if your home is valued at $700,000, you could register a lien for a maximum of $875,000.

When the charge is registered, you can leverage the equity as needed. The simplest way to do that is by setting up a Home Equity Line of Credit (HELOC). HELOCs are a lot like mortgages. HELOCs offer a way to borrow money cheaply, but with even more flexible repayment terms. With a HELOC you’re able to make interest-only payments on your mortgage to minimize your cash flow.

You could also set up a readvanceable mortgage whereby the credit limit on the HELOC increases as you pay down your mortgage. You could use the extra equity to finance home renovations or to buy your next investment property.

Conventional Mortgages

A conventional mortgage is the mortgage you probably already know. When you put down at least 20% on a property, you’re eligible for a conventional mortgage. This is different than an insured mortgage when you put down less than 20% on a property.

Since you are putting down at least 20% on the property, you’re able to borrow at least 80% of its value with a conventional mortgage. The value of your property is based on how much it’s appraised for.

If it’s appraised for more than you paid, you can borrow based on the purchase price. However, if it’s appraised for less, you can only borrow based on the appraised value and you have to make up the rest from your own pockets if you want to still put at least 20% down.

If cash flow matters most to you, the 30 year amortization makes the most sense. Otherwise, if rate matters the most, the 25 year amortization is usually the way to go.

This post was written by Sean Cooper, bestselling author of the book, Burn Your Mortgage. Sean is also a mortgage broker at mortgagepal.ca.

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.


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

September 9, 2021

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

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

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

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

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

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

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

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

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

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

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

Other ideas that have flashed across the screen of late:

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

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

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

Join the Wealthcare Revolution – follow SPP on Facebook!

Written by Martin Biefer

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


May 24: BEST FROM THE BLOGOSPHERE

May 24, 2021

TFSAs are great, but may not be ideally suited for retirement savings: MoneySense

Writing in the Toronto Sun, MoneySense writer Joseph Czikk opines that the rise of the Tax Free Savings Account (TFSA) may spell trouble for the venerable Registered Retirement Savings Plan (RRSP).

He writes that the TFSA has been “a huge hit” since its inception in 2009, with more than two-thirds of Canadians now the proud owners of accounts.

“But,” he writes “there’s reason to suspect that the TFSA’s popularity is growing at the expense of the RRSP, and if that’s true, it should lead many Canadians to rethink how they plan to invest for retirement.”

Before 2009, he explains, the RRSP was the chief retirement savings tool for Canadians.

“RRSP contributions aren’t taxable, which incentivizes people to top up the accounts every year. The more money you put into your RRSP, the less tax you’ll pay,” the article notes.

When Canadians stop working, the article explains, they “generally convert their RRSP balance to a Registered Retirement Income Fund (RRIF), which they then draw from to cover expenses.” Money coming out of the RRIF is taxable, but “the idea… is that you’ll probably be in a lower tax bracket in retirement than you were in your career, meaning you’ll get to keep more of the money than you otherwise would have.”

Then, Czikk notes, “along came the TFSA,” which works opposite from an RRSP. No tax break for putting money into a TFSA, but no taxation when you take it out, the article adds.

There are tax penalties for robbing your RRSP savings before retirement, but with the TFSA, not so much.

“You can see how such an account — which could be drawn upon like any bank account and which sheltered capital gains — would become popular,” he writes.

“And so it went. Just eight years after TFSAs came on the scene, their aggregate value rocketed to match 20 per cent of RRSPs, RRIFs and Locked-In Retirement Accounts (LIRAs).”

But, the article says, there are unintended negative consequences with the TFSA.

Quoting The Canadian Tax Journal, the article notes that $4 of every $10 that would otherwise have gone to an RRSP are now going to TFSAs. The number of Canadians contributing to RRSPs is in decline. And, the article says, that’s a problem.

Research from BMO suggests that Canadians need about $1.5 million in retirement savings to retire comfortably, the article says. And while for some a TFSA could get you there, the fact that there are no withdrawal rules is posing problems, the article says.

Prof. Jonathan Farrar of Wilfrid Laurier University is quoted in the article as saying “we’re seeing that … a lot of people are not using it for retirement. People are using the TFSA as a bank account instead of an investment account, from which you make a very rare withdrawal.”

“Part of the genius of the RRSP is how it disincentivizes people from taking money out before retirement. The TFSA lacks that aspect,” the article adds.

If you rob your retirement nest egg before hitting the golden handshake, the article concludes, you’ll have to rely more on government income programs like the Canada Pension Plan and Old Age Security. The government is thinking about creating a TFSA that has withdrawal rules more like an RRSP to address this problem.

Save with SPP once spoke with some Australian colleagues. There, everyone gets put in a mandatory defined contribution pension plan where their employer makes all the contributions. But, as with a TFSA, there aren’t any strict rules on withdrawals – so you could take all the money out and buy a house, for instance. In a strange paradox, a country with one of the highest rates of pension plan coverage has experienced senior poverty and a heavy reliance on the means-test Age Pension – and the lack of withdrawal rules may be to blame.

TFSAs are awesome, for sure, but perhaps not ideally suited for retirement savings. The tried and true approach may be a better path. The Saskatchewan Pension Plan operates similarly to an RRSP, but has the added feature of being a locked-in plan. You can’t crack into your SPP early, meaning there will be more there for you when you don’t have a paycheque to rely on.  Be sure to check out SPP – delivering retirement security for 35 years – today.

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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!

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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.


Feb 1: BEST FROM THE BLOGOSPHERE

February 1, 2021

Canadians have socked away nearly $300 billion in Tax Free Savings Accounts

It’s often said that high levels of household debt, compounded by the financial strains of the pandemic, make it difficult for Canadians to save.

However, a report in Wealth Professional magazine suggests that Canadians – once again – are indeed a nation of savers. According to the article, which quotes noted financial commentator Jamie Golombek, as of the end of 2018, we Canucks had stashed more than $298 billion in our Tax Free Savings Accounts (TFSAs).

“[A]s of Dec. 31, 2018, there were 20,779,510 TFSAs in Canada, held by 14,691,280 unique TFSA holders with a total fair market value of $298 billion,” Golombek states in the article.

Again looking at 2018, the article says Canada Revenue Agency (CRA) data shows 8.5 million Canadians made TFSA contributions in ’18, with “1.4 million maxing out their contributions.” In fact, in 2018, the average contribution to a TFSA was about $7,811 – more than that year’s limit of $5,500 – because of the “room” provisions of a TFSA, the article explains.

The reason that people were contributing more than the maximum is because they were “making use of unused contribution room that was carried forward from previous years,” Wealth Professional tells us.

Another interesting stat that turns up in the article is the fact that TFSA owners tend to be younger. “Around one-third of TFSA holders were under the age of 40; two-fifths were between 40 and 65, and those over 65 made up about 25 per cent,” the article explains.

“This is not overly surprising since the TFSA, while often used for retirement savings, is truly an all-purpose investment account that can be used for anything,” Golombek states in the article.

However, there is a reason older Canadians should start thinking about TFSAs, writes Jonathan Chevreau in MoneySense.

“Unlike your Registered Retirement Savings Plan (RRSP), which must start winding down the end of the year you turn 71, you can keep contributing to your TFSA for as long as you live,” he writes – even if you live past 100.

He also notes that a TFSA is a logical place to put any money you withdraw from a Registered Retirement Income Fund (RRIF) that you don’t need to spend right away.

While tax and withdrawal rules for RRIFs must be followed, “there’s no rule that once having withdrawn the money and paid tax on it, you are obliged to spend it. If you can get by on pensions and other income sources, you are free to take the after-tax RRIF income and add it to your TFSA, ideally to the full extent of the annual $6,000 contribution limit,” Chevreau writes.

This is a strategy that our late father-in-law used – he took money out of his RRIF, paid taxes on it, and put what was left into his TFSA, where he could invest it and collect dividends and interest free of taxes. He always looked very pleased when he said the words “tax-free income.”

2021 marks the 35th year of operations for the Saskatchewan Pension Plan. The SPP is your one-stop shop for retirement security. Through SPP, you can set up a personal defined contribution pension plan, where the money you contribute is professionally invested, at a low fee, until the day you’re ready retire. At that point, SPP provides you with the option of a lifetime pension. Be sure to check out the SPP today.

Join the Wealthcare Revolution – follow SPP on Facebook!

Written by Martin Biefer

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