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

When it comes to retirement saving, how much is “enough?”

There’s no question about it – saving for retirement is a moving target. We are frequently told to save more for retirement, but it’s not often anyone lets us in on the secret of how much “enough” is, retirement-wise.

A new poll by Ipsos, conducted for RBC and reported on in the Montreal Gazette, gives us some specific answers to this age-old question.

On average for Canada, the article says, the savings target is $787,000. The article says Ontarians feel they need $872,000. In BC, respondents think retirement savings should top $1.05 million, the highest total in the country. In Quebec, which has the lowest average, the target is $427,000 to “have a comfortable financial future,” the article reports.

Save with SPP reminds those reading these daunting numbers that all working Canadians will get Canada Pension Plan or Quebec Pension Plan benefits, plus other government benefits like Old Age Security and, if applicable, the Guaranteed Income Supplement. So those will account for a significant chunk of that total savings amount, even though you don’t get these benefits as a lump sum, but as a lifetime payment.

However, those without a pension plan at work will have to do some saving to get to these average totals. The survey asked people how confident they were about reaching the finish line on savings. On average, just 16 per cent said they were confident. An alarming 32 per cent of Ontarians (least confident) and 39 per cent of Quebecers said they “will never build up enough of a nest egg,” the article says. The article says the lack of a financial plan may be part of the problem here.

“The survey… found 53 per cent of respondents from Quebec had no financial plan. Only Atlantic Canada had a higher rate of respondents with no plan, at 54 per cent. Of the 47 per cent of respondents who have a financial plan, 34 per cent said that plan is in their head,” the article notes.

“Across the country, 54 per cent of respondents said they have a financial plan,” the Gazette reports.

If there’s a takeaway here, it is that if you can – despite the rising cost of household debt and other life costs that get in the way – you need to plan to put a little away for retirement. If you start small you can increase your commitment later when the bills calm down.

A little effort today will pay off handsomely in the future, when your savings will turn into retirement income, and you’ll theoretically have paid off debts, raised your kids, and downsized so that you can enjoy your extra time. Don’t be intimidated by the multi-hundred-thousand dollar-targets – a little bit here and there will get the job done. And if you’re looking for an excellent home for your hard-earned savings dollars, look no further than the Saskatchewan Pension Plan.

Written by Martin Biefer

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

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

Just six per cent of Canucks plan to save for retirement in 2019

A mere six per cent of Canadians intend to make retirement saving a top financial priority in 2019, according to research from CIBC published in Benefits Canada.

The reason? They’re swamped with debt, the magazine notes. Paying down debt was the top priority in the research, followed by “keeping up with bills and getting by, growing wealth, and saving for a vacation,” the magazine reports.

CIBC’s Jamie Golombek, who was interviewed by Save with SPP last year,  says debt can be a useful tool, but if you are using it for day-to-day expenses, “it may be time for cash-flow planning instead.”

Golombek, who is Managing Director of Financial Planning and Advice at CIBC, says despite the fact that paying down debt is a legitimate priority in any financial plan, retirement savings can’t be totally overlooked.

“It boils down to trade-offs, and balancing your priorities both now and down the road. The idea of being debt-free may help you sleep better at night, but it may cost you more in the long run when you consider the missed savings and tax sheltered growth,” he states in the article.

Obviously, paying off debts in the short-term does feel more like an imperative than saving for the future. After all, the telephone company and the credit card folks will certainly let you know if you’re late with a payment with helpful, blunt little emails and terse phone messages. No such calls come from your retirement savings team.

But even if retirement savings isn’t a squeaky wheel today, you’ll depend on it one day. A Globe and Mail article from a couple of years ago noted that half of Canadians, then aged 55 to 64, did not have a workplace pension plan, and of that group, “less than 20 per cent of middle-income families have saved enough to adequately supplement government benefits and the Canada/Quebec Pension Plan.” The Globe story cited research from the Broadbent Institute.

Government pensions won’t usually replace all of your workplace salary, so if you don’t have a pension at work, you really need to find a way to save. An excellent choice is the Saskatchewan Pension Plan, where you can start small and build your savings over time. You can set up automatic deposits, a “set it and forget it” approach. All money saved by the SPP is invested, and when it’s time for you to start drawing down your savings, they have an abundance of annuity options to produce a lifetime income stream for you.

Be a six per center, and make retirement savings a priority in 2019!

Written by Martin Biefer

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

Employed and self-employed Canadians must pay into the Canada Pension Plan or Quebec Pension Plan* throughout their working career. The standard age for beginning to receive your CPP retirement pension is the month after your 65th birthday. However, you can take a reduced pension as early as age 60 or begin receiving an increased pension after age 65.

But many people do not realize that if they are under age 65 and become disabled, they may be eligible for taxable monthly CPP disability benefits.

Eligibility
To qualify for a disability benefit under the Canada Pension Plan (CPP), a disability must be both “severe” and “prolonged”, and it must prevent you from being able to work at any job on a regular basis.

• Severe means that you have a mental or physical disability that regularly stops you from doing any type of substantially gainful work.
• Prolonged means that your disability is long-term and of indefinite duration or is likely to result in death.

Both the “severe” and “prolonged” criteria must be met simultaneously at the time of application. There is no common definition of “disability” in Canada. Even if you qualify for a disability benefit under other government programs or from private insurers, you may not necessarily qualify for a CPP disability benefit. Medical adjudicators will determine, based on your application and supporting documentation, whether your disability is both severe and prolonged.

Benefit levels
For 2017, the average monthly CPP disability benefit for new beneficiaries is $952.51 and the maximum monthly amount is $1,313.66. If you are receiving a CPP disability benefit, your dependent children may also be eligible for a children’s benefit. In 2017, the flat monthly rate your child can receive is $241.02.

If you are aged 60 to 64 and you think you might qualify for a CPP disability benefit, you may also want to apply for a CPP retirement pension. While you cannot receive both at the same time, you may qualify to begin receiving a retirement pension while you wait for your CPP disability benefit application to be assessed, which usually takes longer.

If you are already receiving a CPP retirement pension when your application for a disability benefit is approved, Service Canada will switch your retirement pension to a disability benefit if:

• You are still under the age of 65.
• You were deemed to be disabled, as defined by the CPP legislation, before the effective date of your retirement.
• You have been receiving your CPP retirement pension for less than 15 months at the time you applied for your disability benefit; and
• You meet the minimum contributory requirements.

Should your disability benefit be approved, you must pay back the retirement pension payments you received. According to Service Canada, the retirement pension payments are normally from your first disability payments.

Waiting period
It takes approximately four months for a decision to be made from the date your application and all the necessary documents is received. See how disability benefit applications are assessed. A Service Canada representative will call you to explain how your application will be processed, the type of information required and answer any questions.

Medical adjudicators may also ask for additional information or ask you to see another doctor who will evaluate your medical condition. How long it takes for them to receive the requested information will impact the time it takes for your application to be processed.

If you are eligible under the terms of the Canada Pension Plan (CPP) legislation, your disability benefits will start the fourth month after the month you are determined to be disabled. You may receive up to a maximum of 12 months of retroactive payments from the date your application was received.

While on CPP disability benefits
Without having any effect on your CPP disability benefit, you can:

• Do volunteer work
• Go back to school to upgrade or complete a degree, or
• Take a re-training program.

You can earn up to a certain amount without telling Service Canada and without losing your benefits. For 2017, this amount is $5,500 (before taxes). This amount may increase in future years. If you earn more than the amount allowed, you must contact Canada Pension Plan.

Your CPP disability benefit may stop if:

• You are capable of working on a regular basis.
• You are no longer disabled.
• You turn 65 (it will automatically be changed to a CPP retirement pension)
• You die (it is important that someone notify Service Canada about your death to avoid overpayment).

What if my claim is refused?
If your claim is refused there is a reconsideration and appeal process. (See Part 2 in this series).

*This article focuses only on CPP disability benefits and does not further explore similar disability benefits available under the QPP.

 

Written by Sheryl Smolkin
	Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.

Results from the 2016 census show that there are now 5.9 million Canadian seniors, compared to 5.8 million Canadians age 14 and under. This is due to the historic increase in the number of people over 65 — a jump of 20% since 2011 and a significantly greater increase than the five percent growth experienced by the population as a whole. This rapid pace of aging carries profound implications for everything from pension plans to health care, the labour market and social services.

“The reason is basically that the population has been aging in Canada for a number of years now and the fertility level is fairly low, below replacement levels,” Andre Lebel, a demographer with Statistics Canada told Global News. Lebel also projects that because over the next 16 years, the rest of the baby boom will become senior citizens, the proportion of seniors will rise to 23 per cent.

Therefore, it is not surprising that a new study from the C.D. Howe Institute proposes that the age of eligibility (AOE) for CPP/QPP, Old Age Security (OAS) and Guaranteed Income Supplement (GIS) benefits should be re-visited. The AOE is the earliest age at which an individual is permitted to receive a full (unreduced) pension from the government.

Other countries with aging populations are raising the AOE for social security benefits. These include Finland, Sweden, Norway, Poland and the United Kingdom. In 2012, then Prime Minister Steven Harper announced plans to increase the AOE for OAS and GIS from 65 to 67 between 2023 and 2029. However, Trudeau reversed this very unpopular legislation (leaving the AOE at 65) in the 2016 budget.

In their report Greener Pastures: Resetting the age of eligibility for Social Security based on actuarial science, authors Robert Brown and Shantel Aris say their goal is to introduce an “evidence-based” analysis that can be used impartially to adjust the AOE for Canada’s social security system based on actuarial logic, not political whims.

However, they do not argue that current systems and reform plans are unsustainable. In fact, increasing life expectancy and increasing aged-dependency ratios are consistent with the assumptions behind CPP/QPP actuarial valuations. However, they suggest that if there are relatively painless ways to manage increasing costs to the programs, then they are worthy of public debate.

Their calculations assume that Canadians will spend up to 34% of their life in retirement, resulting in recommendations for a new AOE of 66 (phased-in beginning in 2013 and achieved by 2025) that would then be constant until 2048 when the AOE would shift to age 67 over two years.

Brown and Avis believe these shifts would soften the rate of increase in the Old Age Dependency Ratio, bring lower OAS/GIS costs and lower required contribution rates for the CPP (both in tier 1 and the new tier 2). This, in turn, would result in equity in financing retirement across generations and a higher probability of sustainability of these systems.

However they do acknowledge that there are some important issues that would arise if the proposed AOE framework is adopted. One of these issues is the fact that raising the AOE is regressive. For example, if your life expectancy at retirement is five years, and the AOE is raised by one year, then that is a 20% loss in benefits. If your life expectancy at retirement is 20 years, then the one year shift in the AOE is only a five percent benefit reduction.

People with higher income and wealth tend to live longer, so the impact of raising the AOE will be greater on lower-income workers than on higher-income workers. Access to social assistance benefits would be needed to mitigate this loss. The study suggests that it would be easy to mitigate the small regressive element in the shift of AOS by reforming the OAS/GIS clawback as the AOE starts to rise.

The report concludes that having partial immunization of the OAS/GIS and CPP/QPP from increases in life expectancy is  and logical and would help Canada to achieve five attractive goals with respect to our social security system:

• Increase the probability of it’s sustainability.
• Increase the credibility of this sustainability with the Canadian public.
• Enhance inter-generational equity.
• Lower the overall costs of social security; and
• Create a nudge for workers to stay in the labour force for a little longer .

It remains to be seen if or when the C.D. Howe proposals regarding changes to the AOE for public pension plans will make it on to the “To Do” list of the current or future federal governments.

Written by Sheryl Smolkin
	Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.

By Sheryl Smolkin

Because you were not employed in 2016 or you earned less than the basic personal deduction ($15,843 in Saskatchewan) you may not be worried about meeting the May 1^st income tax deadline. But there are many good reasons to file a tax return even if you don’t have any income to report. For example:

1. Get a refund: If you worked for some period of time and your employer deducted income taxes you actually didn’t have to pay it is the only way to get a refund.
2. TFSA contribution room: It is the easiest way to establish contribution room for a Tax-Free Savings Account although contribution room is not affected by taxable income.
3. Earned income for RRSP purposes.  Even if you do not wish to contribute to an RRSP currently, “earned income” amounts can be carried forward indefinitely. For RRSP purposes, earned income includes net employment income, net rental income from real property, CPP/QPP disability benefits and taxable alimony received.
4. Refundable tax credits: There are some federal and provincial refundable tax credits that may be payable to you even if you have no earnings and paid no tax. For example, see the federal Working Income Tax Benefit.
5. GST/HST credit: Generally, Canadian residents age 19 or older are eligible to receive the federal GST/HST credit, which is paid quarterly to eligible recipients.  Those under 19 may be eligible, if they have (or previously had) a spouse or common-law partner, or if they are a parent and they reside with their child.
6. Canada child benefit payments: You or your spouse or common-law partner want to begin or continue receiving Canada child benefit payments, including related provincial or territorial benefit payments.
7. Non-capital loss: You have incurred a non-capital loss (see line 236) in 2016 that you want to be able to apply in other years.
8. Education credits: You want to carry forward or transfer the unused part of your tuition, education, and textbook amounts. See line 323.
9. GIS: You receive the guaranteed income supplement or allowance benefits under the old age security program. You can usually renew your benefit by filing your return by April 30.  However, if you choose not to file a return, you will have to complete a renewal form. This form is available from Service Canada,
10. Provincial benefits: You want to be eligible, or continue to be eligible, for provincial benefit programs.  See the Government Programs, Benefits and Services information for your province.

Also consider having your children file a tax return reporting income from various types of part-time work (paper route, baby-sitting, lawn mowing, etc.), even if they do not have to pay income tax, so they can create their own RRSP contribution room.

By Sheryl Smolkin

While most (94%) Canadians aged 55 to 75 ‘agree’ that they would ‘like to have guaranteed income for life’ when they retire, a new Ipsos poll* conducted on behalf of RBC Insurance finds that just two in ten (22%) Canadians agree that ‘Canadian public pension plans (such as CPP/QPP/OAS) will provide enough retirement income’ for them. In fact, most (78%) disagree that these pension plans will suffice.

It’s no surprise then that six in ten ‘agree’ that they’re ‘worried about outliving their retirement savings’, while four in ten ‘disagree’ that they’re worried. Women (66%) are considerably more likely than men (50%) to be worried about outliving their savings, as are those aged 55 to 64 (62%) compared to those aged 65 to 75 (52%).

Atlantic Canadians (67%) are most worried about outliving their retirement savings, followed by those in Ontario (63%), Alberta (60%), Quebec (59%), Saskatchewan and Manitoba (58%) and finally British Columbia (41%).

One way of supplementing retirement income is through the use of an annuity, but many Canadians aged 55 to 75 appear in the dark about what an annuity is and how it might help them. In fact, six in ten say ‘that they ‘don’t know much about annuities’, while four in ten disagree that they lack knowledge in this area.

Women (71%) are significantly more likely than men (51%) to say they don’t know much about annuities, as are those aged 55 to 64 (66%) compared to those aged 65 to 75 (55%). Albertans (75%) are most likely to admit they don’t know much about annuities, followed by those living in Saskatchewan and Manitoba (71%).

Responses to this quiz also confirm that many Canadians lack fundamental knowledge about annuities. Just 55% of Canadians were able to answer more than half of the questions correctly, and only 6% got all six questions right. British Columbians (62%) were most likely to pass the test, followed by those in Quebec (57%), Ontario (54%), Atlantic Canada (53%), Alberta (52%) and finally Saskatchewan and Manitoba (49%).

• Just four in ten believe that it is true that they need a licensed insurance advisor to buy an annuity. In contrast, six in ten believe this is false – when in fact, it is true.
• Seven in ten correctly believe it’s true that there are potential tax savings to investing in annuities, while 29% incorrectly believe this to be false.
• Half incorrectly believe it’s true that annuities last for a specific period of time, while the other half believes this is false, which is the correct answer.
• Seven in ten correctly believe it’s true that annuities can provide guaranteed income for life, while three in ten incorrectly believe this to be false.
• Half think it’s true that annuities are not a good investment during low interest rate environments, while the other half correctly believes this to be false.
• Three quarters correctly believe it’s true that they can invest in an annuity using their RRSP and/or RRIF savings, while 27% incorrectly think this is false.

Despite the majority being uneasy about their retirement savings, just one in three agrees that they are exploring or considering annuities as part of their retirement plan, while most (65%) are not. One quarter say they have an annuity.

Members of the Saskatchewan Pension Plan can opt at retirement to receive an annuity payable for life. Life only, refund and joint survivor annuities are available.

*These are some of the findings of an Ipsos poll conducted between August 7 to 14, 2015 on behalf of RBC Insurance. For this survey, a sample of 1,000 Canadians aged 55 to 75 from Ipsos’ Canadian online panel was interviewed online.

By Sheryl Smolkin

Are Canadians saving enough for retirement? It depends who you ask.

A BMO survey conducted in early 2014 revealed that only 43% of Canadians planned to make RRSP contributions by the March 1st deadline, down from 50% the previous year. An October 2014 study from the Conference Board of Canada reports that almost four in 10 Canadians are not saving and nearly 20% of respondents said they will never retire.

Yet a 2015 study of 12,000 Canadian households conducted by consulting firm McKinsey & Co. says that four out of every five of the nation’s households are on track to maintain their standard of living in retirement. The research reveals that most of the unprepared households belong to one of two groups of middle to high-income households:

• Those who do not contribute enough to their defined contribution (DC) pension plans or group, and
• Those who do not have access to an employer-sponsored plan and have below average personal savings.

The McKinsey study suggests that since the retirement savings challenge is quite narrow, the best way to address it should be an approach targeted to these groups that is balanced and maintains the fairness of the system for all Canadian households.

And now, Malcolm Hamilton, a Senior Fellow at the C.D. Howe Institute and a former Partner with Mercer has weighed in on the issue with his commentary Do Canadians Save Too Little?

Hamilton agrees with the McKinsey research that Canadians are reasonably well-prepared for retirement. Most save more than the five percent household savings rate. Most can retire comfortably on less than the traditional 70% retirement target. Furthermore, the size of the group that appears to be “at risk” cannot be accurately determined nor can the attributes of its members be usefully described.

He notes that a couple can live comfortably after retirement despite a reduction in income of more than 30% for several reasons:

• They no longer need to save for retirement.
• They no longer contribute to CPP and EI.
• One of their largest pre-retirement expenses – supporting children – ends.
• During their working lives the couple acquires non-financial assets like the family home, cars, furniture, art and jewelry. Some can be turned into a stream of income. Some cannot. But they do not need to budget to re-acquire these items during retirement.
• Finally, any tolerable reduction in post-retirement income is amplified by a disproportionate reduction in income tax due to the progressive nature of our tax system and special tax breaks reserved for seniors.

As studies of our retirement system become more sophisticated, Hamilton thinks we should focus more on solutions for individuals who are not saving enough as opposed to a blanket approach that will impact everyone

So how can we fill the “gaps” identified by these studies?

Hamilton is not a big fan of an enhanced Canada or Quebec Pension plan. He agrees that CPP/QPP are effective ways to increase the post-retirement incomes, and to reduce the pre-retirement incomes, of all working Canadians.

However, he says they are ineffective ways to increase the post-retirement incomes of hard-to-identify minorities who are thought to be saving too little. “Their strength is their reach – they can efficiently move everyone to a common goal,” Hamilton says. “But what if there is no common goal? What if there are only individual goals dictated by personal circumstances and priorities?”

The report concludes that because gross replacement targets are unreliable measures of retirement income adequacy due to the diversity of our population, programs like the CPP/QPP can go only so far in addressing our retirement needs. They can establish a lowest common denominator – a replacement target that all Canadians should strive to equal or exceed.

“Beyond that, we need better-targeted programs – programs that are better able to recognize and address our individual needs,” Hamilton says.

By Sheryl Smolkin

One of the perks of growing older is that there are some additional tax credits you can take advantage of when you file your income tax return. For example, the pension income tax credit is available to you if you are under age 65, but the amounts that qualify for this tax credit are different, depending on whether you are pre or post age 65.

The federal non-refundable tax credit applies to up to $2,000 of eligible pension income. That means you will get back a maximum of 15% or $300. Provincial tax savings are in addition and can bump up your total savings by an additional $350 to $700 depending on your province of residence.

Since you can transfer up to 50% of pension income to your spouse for tax purposes, a couple can each access this tax credit even if only one of the pair is receiving an eligible pension.

If you are younger than age 65, the only pension income that is eligible for the pension tax credit is either from a superannuation/pension plan, annuity payments from the Saskatchewan Pension Plan or annuity income you are receiving because of the death of your spouse or common-law partner. The income you receive in these circumstances might be in the form of Registered Retirement Income Fund (RRIF), Registered Retirement Plan (RRSP) or Deferred Profit Sharing Plan (DPSP) income, but only if you have been receiving this income since your spouse passed away. 

If you are 65 or older eligible income can be:

• Income from a superannuation or pension plan.
• RPP lifetime benefits.
• RRIF income.
•  DPSP income.
• RRSP annuity income.
• EBP benefits.
• Regular annuities.
• Elected split pension income.
• Variable pension benefits.
• Foreign pension income unless the foreign pension income is tax-free in Canada because of a tax treaty or income from a United States Individual Retirement Account.

For a more detailed list of pension and annuity income eligible for the pension tax credit, check out CRA’s Eligible Pension and Annuity Income (less than 65 years of age) and Eligible Pension and Annuity Income (65 years of age or older) charts.

The following income does not qualify as pension income for the pension income tax credit:

• Old Age Security or Canada Pension Plan benefits
• Quebec Pension Plan benefits
• Death benefits
• Retiring allowances
• RRSP withdrawals other than annuity payments
• Payments from salary deferral arrangements, retirement compensation arrangements, employee benefit plans, or employee trusts.

A recent decision of the Tax Court of Canada in Taylor v. The Queen clarified the meaning of “annuity income from an RRSP.” Sarah Taylor began withdrawing money from an RRSP when her husband died. According to the terms of the RRSP she had total discretion with respect to the timing and the amounts of the withdrawals.

To minimize withdrawal fees, she decided to take funds out only once a year. In 2011 she withdrew funds a second time to make an unusual tax payment. The two payments to her were $12,500 and $6,250. Her accountant argued that once she turned 65 in 2011 these amounts and other similar annual withdrawals should be treated as annuity payments as required by the definition of “pension income” for the purposes of the pension tax credit.

Madame Justice Judith Woods ruled that withdrawals made by Taylor from her RRSP were not annuity payments and did not qualify for the pension tax credit because her financial institution had no obligation to make payments on a recurring basis.

The lesson to be taken from this court case is to be certain you understand the rules with respect to RRIF withdrawals and the pension tax credit.  Some people who do not have eligible pension income at age 65 opt for an interim approach. If you move $12,000 into a RRIF and then withdraw $2,000 a year for six years, these withdrawals will allow you to qualify for the full pension tax credit.

By Sheryl Smolkin

See Part 1 .

Every family has multiple financial priorities. If you have small children and a big mortgage it is often daunting to think about saving for anything more than a family night out at a local fast food restaurant.

But one way to manage your money is to pay yourself first by allocating specific amounts to savings and having these amounts moved into different jars (or accounts) as soon as your paycheque is deposited into your account.

In Part 2 of the series “how to save for retirement” we will focus on several of the tax-assisted or tax–deferred savings plans available to you and some tips for using them effectively.

1. Government benefits: Every working Canadian must pay into the Canada Pension Plan or the Quebec Pension Plan until age 65. In addition, Old Age Security is payable to Canadians or legal residents living in Canada who lived in the country at least 10 years before age 65 and Canadians or legal residents living outside Canada who lived in the country at least 20 years before age 65. Lower income OAS recipients may also be eligible for the Guaranteed income Supplement (GIS). But changes to government benefit programs mean you can take benefits later or in some cases earlier (with a penalty). When developing a retirement savings plan you should understand how these programs work and the benefits you can expect to receive. You also need to decide when it makes the most financial sense for you to start collecting CPP and OAS.
2. Saskatchewan Pension Plan: The Saskatchewan Pension Plan is a defined contribution pension plan open to all Canadians with registered retirement savings plan (RRSP) room. You can contribute up to $2,500/year or transfer in up to $10,000/year from another unlocked RRSP. Low fees (one percent/year on average) and consistent returns (average of 8.13% over 28 years since inception) make SPP an excellent investment. The program is very flexible because how much you contribute and when is up to you. Funds are locked in until your selected retirement date, between ages 55 and 71.
3. Registered Retirement Savings Plan: In 2014 you can contribute 18% of your previous year’s income to a maximum of $24,270 to your RRSP minus specified amounts contributed to other registered savings accounts. Unused contribution room can be carried forward. You can find your RRSP limit on line (A) of the RRSP Deduction Limit Statement, on your latest notice of assessment or notice of reassessment from the Canada Revenue Agency.
4. RRSP withdrawals: One weakness of an RRSP as a retirement savings vehicle is that you can withdraw money at any time. If you do withdraw RRSP funds you will pay tax on withdrawals at your normal tax rate, the contribution room is lost and you lose the benefit of future tax-free compounding. However, the Home Buyers’ Plan and the Lifelong Learning Plan permit you to withdraw amounts from your RRSP in specific circumstances without triggering a tax bill and require you to repay the money, usually over 15 years. 
5. Tax deductible: Contributions to SPP, RRSPs and other registered pension plans are tax deductible. If you participate in one or more of these plans and have not already arranged to have less tax taken off at source, you may get a hefty income tax return. There are lots of ways to spend this windfall including taking a vacation or paying down debt. However, in his book The Smart Debt Coach, author Talbot Stevens says reinvesting your tax returns into an RRSP is the best way to get the full benefit of compounding in the plan. 
6. Deferring tax deduction: There is no minimum age for an RRSP. In order to make contributions to an RRSP account, a minor needs to have earned income the previous year and have filed an income tax return. If a thrifty young person or anyone with a low income makes RRSP contributions, deferring taking the tax deduction until they are in a higher tax bracket means they will get a bigger bank for their savings bucks. The last RRSP contribution a taxpayer can make is in the year they turn 71.
7. Tax Free Savings Account: A Tax Free Savings Account (TFSA) allows you to currently save $5,500 a year. Contributions are not tax deductible, but investment earnings accrue tax free in the account. If you withdraw money, you can re-contribute the amount to the account in the next or subsequent years without any penalty. You can only begin making contributions at age 18 but there is no upper age when you have to stop contributing. How do you decide if a TFSA or an RRSP is best for you? Gordon Pape says TFSAs are better for short-term savings goals and if you don’t want to undermine possible eligibility for government benefits like the GIS. But if your income will be lower in retirement he suggests saving in an RRSP.
8. Automatic withdrawal: Whether you participate in a company pension plan, SPP, RRSP, TFSA or a combination of all or some of the above, set up automatic withdrawal so a specified percentage of your income is moved into these accounts every payday. David Chilton made “pay yourself first” a popular mantra in The Wealthy Barber, first published in 1989. If savings are skimmed off the top, you will learn to live on less while you get on with the business of day-to- day living. And when you do retire, you will have a significant part of the nest egg you need to live on.
9. Automatic escalation: To find out how much you need to save for retirement, you need a financial plan. But in a recent column in the Globe and Mail, personal finance expert Preet Banerjee suggests that in the absence of a plan, the rule of thumb should be at least 10% or as much as you can save. In other words, you are not going to have enough if you keep saving a flat dollar amount each year. But if you select a percentage of income and ensure you increase your contributions every time you get a raise, it is more likely that you will reach your retirement savings goal.
10. Consider insurance: Nobody expects to become disabled or die young, but it happens more often than you think. Regardless of how much you are saving for retirement, an unexpected loss of income can derail all of your short and long term goals. You may have some life insurance, disability insurance and maybe even critical illness insurance at work. Review your coverage with a financial advisor to determine if you need more individual coverage or if you can afford to self-fund the risk. 

In Part 3 of this series we will focus on some basic investment principles that will help you grow your retirement savings. 

Also read:
Retirement savings alphabet soup
SPP or TFSA?

By Sheryl Smolkin

It’s only February 11^th and it feels like personal finance writers should have run out of things to say about RRSPs by now, but somehow they still find more to write about.

One of the more interesting things I came across this week was the results of a BMO survey that reported 69% of Canadians expect the Canada Pension Plan (or Quebec Pension Plan) to cover their retirement costs with nearly one-third, planning to “rely heavily” on it. This is despite the fact that CPP has an average monthly payout of less than $600 a month! And many people are also pegging their hopes on an inheritance or a lottery win to fund their golden years.

Well, someone once told me that lotteries are “a tax on the statistically challenged,” so you should probably take careful note of Brenda Spiering’s blog on brighterlife.ca discussing how much you can contribute to an RRSP.

The annual maximum contribution for 2013 is the lesser of $23,820 and 18% of your earned income for the previous year. But you may also have unused contribution room from previous years that has been carried forward and you can over-contribute up to $2,000 without a penalty.

But don’t forget to save some RRSP contribution room to make your $2,500 maximum Saskatchewan Pension Plan contribution.

Also, check out Gail Vaz-Oxlade’s interesting  2014 RRSP Update. Did you know that kids CAN have an RRSP although they can’t have a Tax-free Savings Account until they’re 18? If a child contributes when she doesn’t have to pay any tax, don’t claim the deduction. Hold it for later when her income and her tax rate go up so she gets a bigger bang for her buck.

On moneysmartsblog.com Mike Holman pokes a few holes in the RRSP Myth that an RRSP is only advantageous if your marginal tax rate in retirement is lower than your marginal tax rate when contributing.

He gives examples to show that when you make a contribution to an RRSP the tax deferred from RRSP contributions is calculated at your marginal tax rate (or close to it, if your RRSP contributions span more than one tax bracket). However, when you withdraw money from your RRSP or RRIF – the tax is calculated using your average tax rate (after other income sources such as pensions) which is typically lower.

Finally on retirehappy.ca, blogger Scott Wallace weighs in on the new Pooled Pension Plans to be offered by the federal government and some provinces such as Quebec and Saskatchewan. PRPPs are intended to provide a savings vehicle for small business or self- employed people who don’t have access to larger pension plans..

Scott says the industry already has low cost Group RRSPs and DC pension plans. And of course my readers already know that SPP allows employers to set up an easy, no-cost workplace plan. That’s why I agree with Scott that the real issue is not creating new kinds of retirement savings accounts but finding ways to make more people save!

Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere. Share the information with us on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.