There was a time when taking debt into retirement was considered an absolute no-no. But in these days of higher living costs, less helpful interest rates, and the many temptations of debt, is owing money when you retire now the norm?

Save with SPP took a look at this topic, which is one that we are well acquainted with on a personal basis!

Well-known personal finance writer Rob Carrick recently covered this topic in The Globe and Mail. He cites figures from insolvency expert Scott Terrio that show that, according to the most recent data, “42 per cent of senior households had debt…. compared to 27 per cent in 1999. Vehicle debt held by seniors nearly tripled between 2005 and 2019, while mortgage debt quadrupled.”

(Save with SPP talked with Scott Terrio a little while ago on the topic of retiring with debt. Here’s a link to that article: Debt can squeeze the spending power of seniors: Scott Terrio | Save with SPP)

Carrick suggests that younger people have a conversation with their parents about debt.

“Parents helping their adult children financially is the new normal in family life. It’s less common for those kids to help their parents, but high debt levels among seniors suggest this could change. Boomers and Gen Xers, do you know how well set up your parents are in their retirement or pre-retirement years,” he asks.

An article in Forbes agrees that “retiring with debt is often considered a cardinal financial sin: Every dollar you owe reduces your income in retirement, after all.”

However, the article warns, trying to get out of debt before you retire might also cost you. Huh? “Blindly prioritizing debt reduction before retirement savings, particularly for low-interest debt, could shortchange your nest egg,” the writers at Forbes warn.

On the other hand, not prioritizing debt has consequences as well, the article continues.

Currently, the article notes, credit card interest rates are well over 20 per cent. “Paying interest rates this high would hamstring your finances at any stage of life, let alone when you’re living on a fixed income in retirement. That means you need to prioritize paying down as much high-interest debt as possible before you stop working—and then keep from accruing any new credit card debt.”

The folks over at GoBankingRates say debt is manageable for retirees, but it’s no picnic.

“Yes, you can retire with debt, but it may impact the quality of your retirement. Having debt, especially high-interest debt, can strain your retirement savings and limit your financial freedom. It’s important to assess the type and amount of debt you have and create a plan to manage it effectively,” their article notes.

The article recommends trying to “minimize or clear your debts before retiring.” You might need to think harder about when you want to retire, boost your savings, or even downsize as strategies to cope with debt, the article continues.

“Focusing on high-interest debts, like credit card balances, should be a priority. Developing a comprehensive plan on how to get out of debt before retirement can significantly ease your financial burden during your later years,” the article notes.

MoneySense provides some good news on this topic, noting that some of your debt will eventually get paid off – and that when that happens, your retirement spending power gets a boost.

“If you only have a small mortgage and a few years of payments remaining, your income requirements may be on the verge of a big decrease. I’ve seen a lot of retirees with generous DB pensions work hard to pay off debt, retire, and suddenly find they’re flush with cash flow because their $500, $1,000, or $2,000 monthly mortgage payment disappears,” MoneySense reports.

There are several themes here to think about – retirement with debt is not seen as ideal. But neither is not saving for retirement in order to pay off debt. If you do bring debt with you on the retirement voyage, each time you pay something off you’ll have better cash flow.

All the articles suggested consulting a financial professional to help map your personal route – that’s always good advice.

If you don’t have a workplace pension plan, or want to augment your savings, have a look at the Saskatchewan Pension Plan. With SPP, you can consolidate little bits of savings in various RRSPs into one place, and also make regular contributions. SPP will grow your investments in a low-cost, professionally managed, pooled fund, and when it’s time to collect, your options include monthly annuity payments for life or the flexible Variable Benefit option.

Check out SPP today!

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Back in the day, when colour TV was a new thing and there was no Internet, a “charge card” was a way to pay for things instead of using cash or a cheque.

You didn’t get anything extra in those early days – just a bill in the mail.

But over the intervening decades, credit cards (as they have been rebranded) now offer a dizzying array of extras – points to help you pay for travel, coffee, and other perks, or cards that offer you cash back on purchases.

Save with SPP decided to take a harder look at cash back cards in particular.

They are very popular, reports The Motley Fool blog.

Over 56 per cent of Americans have cash back cards, the blog notes.

“Cash back cards offer a straightforward deal. Pay with your card and earn a percentage back on your purchase. It’s a valuable benefit, easy to understand, and consumers love it,” the blog reports.

Strategically speaking, The Motley Fool lays out two ways you can go with cash back cards.

“If you want to keep it simple, you could use one cash back card for all your regular spending. There’s nothing wrong with this method, but there’s also a way you could earn much more: carrying multiple cash back credit cards. Because when you don’t mind adding another card or two to the mix, you could potentially double your cash back,” the blog suggests.

Most cash back cards, the article continues, allow you to select two or three categories (say, gas, hotels, groceries) where you get extra cash back on top of the typical rate (between one and two per cent). So, The Motley Fool suggests getting a couple, so you can max out on more categories.

OK, either try to put everything on one cash back card, or have a couple and use them for the “bonus” categories.

It’s important to remember that like any credit card, the benefits of cash back only matter if you pay your card in full each month, reports The Points Guy blog.

“As long as you pay your bills on time and in full, you’ll likely avoid any sort of fee altogether and be able to focus on earning more cash back for the purchases that matter to you,” the blog advises.

The blog makes the point that getting cash back is easier to manage than having to figure out how and where to cash in points.

What cash back cards are available to us Canucks?

According to MoneySense all the major banks, Tangerine Bank, MBNA and American Express offer cash back cards.

The magazine reports that if you were to spend $2,200 a year on a cash back credit card in Canada, you would “earn” between $331 and $1,256 per year.

Those amounts are net of annual fees, which ranged from zero to $139 per year.

MoneySense urges Canadians to shop around before they decide which card to choose.

“Cash back credit cards are an extremely popular type of rewards card in Canada. Each cash back credit card has its own features and benefits, so you’ll want to compare the annual fee, earn rate and any additional benefits before you apply,” reports MoneySense.

The best cards, the article notes, have a two per cent earning rate on all categories, “so that you can get the most out of every dollar spent.” Some connect to other benefits offered by the credit card company, also a plus, MoneySense notes.

Some cards are not as widely accepted as others, the article notes, so that should factor into your research. Also, how the cash back is paid can vary from seeing a deposit in your chequing account each month, or to getting a monthly statement credit (not really cash back but credit back), or even only an annual credit.

Read the fine print before you sign up, advises MoneySense.

This type of credit card – in fact, any credit card – should get paid off in full every month, MoneySense notes.

“The payoff with a cash back credit card is the cash—a reward that is easily cancelled out by the penalties and interest accrued if you carry a balance. Like all rewards credit cards, cash back cards tend to carry annual interest rates at the higher end, usually around 19.99 per cent. At this rate, unpaid debt will rapidly accumulate interest charges that eat up any gains you’ve made. As long as you pay off your balance in full every month, you’ll avoid this pitfall, but if you find you regularly carry a balance, you might consider a low interest credit card instead,” the publication adds.

This is very sensible and important advice. If you aren’t planning to pay off your credit card balance each month, you are going to be paying more in interest than you are going to receive in “free” cash back. If you are disciplined, and pay off your entire credit card statement each month, then the cash back approach may actually work for you.

We used our cash back money to make Saskatchewan Pension Plan contributions! SPP members can fund their accounts in multiple ways – you can set SPP up as a bill and “pay” yourself online, or you can have amounts withdrawn automatically from your chequing account. You can even make a contribution with a credit card – so cash back on retirement savings is a possibility.

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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!

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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!

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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!

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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!

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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!

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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.

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!

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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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