Tag Archives: MoneySense

Aug 31: BEST FROM THE BLOGOSPHERE

How much is the right amount to withdraw from retirement savings?

OK, so you’ve managed to squirrel away a nice chunk of money in your retirement fund. Now you’re ready to start taking the money out and you know, living off it.

But is there a sensible rule of thumb to employ so that you don’t run out of savings before you run out of life?

According to the Daily Mail in the U.K., there is a new idea making the rounds.

Investment company Vanguard says there’s a way to help make sure your money will last the 35 years or so that you may need it to last, the Daily Mail reports.

“The firm suggest savers determine their income by multiplying their portfolio by five per cent, then comparing it with the previous year and adjusting how much they remove accordingly,” the article says.

“If the fund is higher than the previous year, retirees should withdraw up to five per cent while if the portfolio has depreciated in value, income should be decreased by roughly two per cent.”

Simply put, don’t take out the same amount every year. Take out up to five per cent if your savings have gone up in value, and take out less, say three per cent, if it has not.

The conventional withdrawal rule that has been bandied about for years in the industry is that you can safely withdraw four per cent from your savings annually.

The new Vanguard formula flies in the face of that wisdom, and the four per cent rule was recently questioned by financial author Jason Heath in a MoneySense article.

“Over the half decade I’ve written this column and attempted to practice what it preaches, a central pillar has been the so-called 4 Per Cent Rule,” he writes.

“Problem is, with `lower for longer’ interest rates and the spectre of negative interest rates, is it still realistic for retirees to count on this guideline? Personally, I find it useful, even though I mentally take it down to three per cent to adjust for my own pessimism about rates and optimism that I will live a long, healthy life,” he writes.

He goes on to cite other experts who say four per cent “is a reasonable rule of thumb” for non-registered savings, but once RRSPs are converted into RRIFs, higher withdrawal amounts are mandated by the government anyway, making the withdrawal formula “moot.”

Let’s digest all this. You’ve got savings, you want to live on those savings. But up until now you have never had to live on a lump sum amount that gets smaller every year – you are used to getting a paycheque. Whether you take out two, three, or four percent (or some other mandatory percentage) of your savings every year, there will likely be less money in the piggy bank each year you get older, particularly at a time when interest rates are so low.

Do we want to be pre-occupied with withdrawal rates and decumulation strategies while we are trying to hit golf balls onto the fairway? Surely not.

But wait – if you’re a member of the Saskatchewan Pension Plan there’s a solution to this problem. SPP offers a variety of annuities for its members. When you come to retirement, you can convert any or all of your SPP savings into a monthly income payment – a lot like your old paycheque – that comes to you in the same amount for the rest of your life. You can never run out of money, no matter how long you live or what markets and interest rates do. Security is guaranteed. Check out SPP today.

Written by Martin Biefer

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

About one-third of Canadians lack an emergency fund – here are some tips to get you started

According to a recent article in MoneySense nearly two-thirds of Canadians have built an emergency fund. That’s great, but means that one-third of us have not.

For those of us is in that bottom third, an emergency fund is designed to cover “unexpected expenses, such as urgent major repairs (not renovations) to your home or car, unexpected medical expenses not covered by universal healthcare or insurance, or lack of income due to job loss,” MoneySense explains.

As many of us are finding out during this bizarre year 2020, without an emergency fund, these unexpected expenses are being covered “with a credit card… payday loans, or heavily using your unsecured line of credit,” the article continues. All of these are high-interest options, and the interest piles up if you can’t pay the money back in full.

Some folks also raid their retirement savings to pay the bills, a strategy that can backfire at tax time or in the distant future when you’re trying to leave the workforce – more about that later.

MoneySense recommends we all set aside enough money to cover “three to six months’ worth of fixed expenses.” OK, so we know the what and the why – let’s turn to the how.

An emergency fund, the article suggests, should not be set up like a retirement savings account. “Saving for an emergency isn’t about long-term goals, increasing your wealth, or planning for retirement, it’s about having immediate access to cash,” the site advises.

MoneySense recommends that you first create a budget to see how much you can set aside each month. That amount should be invested in either a TFSA or a high-interest savings account, the article notes. “Disconnect the account from your debit card so you won’t spend it,” the article advises. Automate payments so you don’t “forget” to make them, MoneySense says. “Pay yourself first.”

At Manulife’s website, the advice is similar. An additional idea on how to build the emergency fund is to cut back on costs – “think about how much you spend on coffee, lunches out, and other impulse purchases. Give up one or two things and week and stash that money into your savings,” the site suggests.

They also reiterate the idea of making savings automatic – treat your emergency fund “like a bill… the sooner it’s saved, the less time you will have to spend it.” Manulife also warns against the dangers of analysis paralysis – start small, say $10 a week or so, and ratchet things up as you go along.

Sun Life covers much of the same ground, but warns against using debt as an emergency fund or tapping into retirement savings.

“All withdrawals from RRSPs (except for education and home purchases, under the Lifelong Learning Plan and the Home Buyers’ Plan, respectively) are subject to income tax and will result in the permanent loss of contribution room – that is, once you’ve taken it out, you can’t put it back in. Any withdrawals from your RRSP are immediately subject to withholding tax,” Sun Life explains.

“If you withdraw up to $5,000, the withholding tax rate is 10 per cent. If you withdraw between $5,001 and $15,000, the withholding tax rate is 20 per cent, and more than $15,000, the rate is 30 per cent. These tax rates apply in all provinces except Quebec, where provincial tax rates apply on top of the federal withholding tax,” the Sun Life article warns.

So to recap – create a savings account that isn’t hooked up to any of your cards, and automatically transfer money into it regularly. Keep the money in some sort of high-interest savings account so that it remains liquid, and ready to spend when an emergency arrives. You don’t want to risk losses here.

Think of it as an obligation, like a bill, that you have to pay each month. Then set it and forget it, until the next emergency comes along.

And if you’re busily automating your emergency fund savings, think about doing the same thing for your Saskatchewan Pension Plan retirement account. Have a pre-set amount earmarked for retirement automatically withdrawn from your bank account every payday. That way, just as is the case for a well-designed emergency fund, you’re paying your future self first.

Written by Martin Biefer

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

JUL 27: BEST FROM THE BLOGOSPHERE

Life without savings “difficult, but not impossible,” experts say

Like many things in life, such as quitting smoking or losing weight, saving for retirement – even though it is good for us – is often difficult to do.

Jobs aren’t as plentiful these days, household debt is at record highs, and there just isn’t always a lot of cash for putting aside long term.

But what kind of retirement will people who can’t or didn’t save face when they’re older?

According to a recent article in MoneySense, life without retirement savings (or a workplace plan) is “difficult, but not impossible.”

Canadians who have worked and paid into the Canada Pension Plan (CPP) can, in 2020, expect a maximum annual pension of “$1,176 per month – that’s $14,112 per year,” the article notes. However, the writers warn, not all of us will have worked long enough (and made enough contributions) to get the maximum.

“The average CPP retirement pension recipient currently receives $697 per month, or $8,359 per year. That’s only about 59 per cent of the maximum,” reports MoneySense

You can start getting CPP as early as 60 or as late as 70, and the longer you wait, the more you get, the article notes.

All Canadian residents – even those who don’t qualify for CPP – can qualify for Old Age Security (OAS). If you don’t remember paying into OAS, don’t worry – you didn’t directly pay for it via contributions. Instead, the OAS is paid from general tax revenues.

“A lifetime or long-time Canadian resident may receive up to $614 per month at age 65 as of the third quarter of 2020, which is $7,362 annualized. OAS is adjusted quarterly based on inflation,” MoneySense reports. 

There’s another government program that’s beneficial for lower-income retirees, MoneySense notes. The Guaranteed Income Supplement (GIS) “is a tax-free monthly benefit payable to OAS pensioners with low incomes. Single retirees whose incomes are below $18,600 excluding OAS may receive up to $916 per month, or $10,997 per year, as of the third quarter of 2020.”

What’s the bottom line? Someone qualifying for any or all of these programs can receive up to $23,721 per year, with “little to no tax required” per the rules of your province or territory.

The article notes that those saving $10,000 before retirement could add $25 to $33 a month to that total. Those saving $50,000 could see an additional $125 to $167 a month, and those putting away $100,000 will have $250 to $330 more per month.

The takeaway from all of this is quite simple – if you are expecting a generous retirement from CPP, OAS, and GIS, you may be in for a surprise. It’s not going to be a huge amount of income, but it’s a reasonable base.

If you’re eligible for any sort of retirement benefit from work, sign up. You won’t miss the money deducted from your pay after a while and your savings will quietly grow.

If there is no retirement program at work, set up your own using the Saskatchewan Pension Plan. Start small, with contributions you can afford. Dial up your contributions every time you get a raise. With this “set it and forget it” approach, you’ll have your own retirement income to bolster that provided by government, which will give you a little more security in life after work.

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.

A little planning today will benefit your loved ones when you’re gone

We often focus most of our planning on things like building wealth, paying off debt, transitioning to retirement, and taking care of ourselves physically and mentally.

All these worthy projects should be joined by another – estate planning. It’s important to think about what your loved ones will need once you’re gone.

Save with SPP took a look around the Interweb to see what the experts advise about estate planning for Canadians.

At the Advice for Investors blog, the main tips are having an updated will, naming powers of attorney and jointly holding assets.  The blog cites a recent RBC study that found that only half of Canadians had a will and “one in three had done nothing at all to prepare for passing on wealth to the next generation.”

Without a will, the blog warns, “provincial bureacrats will determine how the estate is distributed,” rather than you. Having powers of attorney in place for legal/financial matters and health will be of critical importance should you suddenly lose the ability to manage your own affairs, the blog notes.

And when you make your assets joint with your spouse, “the interests of a deceased owner automatically gets transferred to the remaining surviving owners,” the blog notes.

The MoneySense blog adds in a few more ideas – life insurance, the idea of giving away money to family while you are still alive and setting up trusts for kids and grandkids.

Insurance, notes Lorne Marr of LSM Insurance in the MoneySense blog, “may be used as an estate planning tool – an opportunity to leave a legacy or pay taxes so your heirs don’t have to.” The article suggests insurance is best taken out at a young age, when your health is at its best. You should buy enough insurance to cover all your debts and replace what you earn, the article notes.

Giving gifts to adult children while you are still alive “may reduce the overall tax burden on your estate when you die,” notes Lawrence Pascoe, an Ottawa attorney, in the MoneySense article. “Gifting money is a good way to help out your kids while you’re still alive and can watch them enjoy it,” he states in the article.

For younger kids, the article notes, you can set up a trust account that provides them with income at a later age. “You can stipulate what the funds can be used for, such as educational expenses, a new home, retirement savings,” the article notes.

The Manulife Financial website devotes an entire web page to one thing – beneficiary designation for insurance and/or a retirement plan.

If you don’t name a beneficiary – or name minor children as one – your estate may get tied up in probate, the article warns. In some provinces your spouse is automatically your beneficiary – check before you sign, the article suggests. If there’s a way to name a contingent beneficiary – someone to pay out the assets to if your chosen beneficiary dies before the payout – do so. And be sure to review your beneficiary designations regularly, the article concludes.

If you’re a member of the Saskatchewan Pension Plan you can look after your survivors in several ways. Your SPP beneficiary will receive any assets in your account if you die before collecting a pension and a variety of different options are available for your spouse and beneficiary upon your death after retirement. Check out SPP today.

Written by Martin Biefer

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

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