Tag Archives: Registered Retirement Income Fund

Apr 8: Best from the blogosphere

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

Feds roll out concept of deferred annuity to age 85

An interesting retirement idea in the recent federal budget that hasn’t garnered a lot of attention is the advanced life deferred annuity, or ALDA, option.

While there’s still lots that needs to be done to take an idea from the budget and make it into an actual product people can choose, it’s an intriguing choice.

With an ALDA, reports Advisor’s Edge, a person would be able to move some of their retirement savings from a RRIF into a deferred annuity that would start at age 85.

Right now, the article notes, “the tax rules generally require an annuity purchased with registered funds to begin after the annuitant turns 71.” This option may be a hit with those folks who don’t like the current registered retirement income fund (RRIF) rules that require you, at age 71, to either cash out their RRSP, buy an immediate annuity, or withdraw a set amount of money each year from your RRIF (which is subject to taxation). Currently, the article notes, people can choose one or all (a combination) of these options.

In the article, Doug Carroll of Meridian Credit Union says the financial industry “has for years asked to push back the age at which RRIFs have to be drawn down.”

This proposed change, “addresses that to a large extent. It limits the amount that would be subject to the RRIF minimum, and it also pushes off the time period to just short of age 85,” he states in the article.

Will we see the ALDA option soon? Well, not this year, the article states. “The ALDAs, which will apply beginning in the 2020 tax year, will be qualifying annuity purchases under an RRSP, RRIF, deferred profit sharing plan, pooled registered pension plan and defined contribution pension plan,” the article notes.

The best things to do in retirement – more work?

There’s more to retirement than just money, of course.

According to US News and World Report, the so-called “golden years” should feature more time with friends and family, travel, home improvements, volunteering, new learning, exercise and experiencing other cultures.

There’s also the idea of work – huh? “Just over a third (34 per cent) of workers envision a retirement in which they continue to work in some capacity. And 12 per cent of working Americans would like to start a business in retirement. Perhaps you can scale back to part time, take on consulting or seasonal work, or otherwise find a work schedule that also offers plenty of time for leisure pursuits,” the article advises.

Rounding out the list of retirement “to-dos” are rewarding yourself with a big-ticket car or “other expensive item,” and writing a book. Time to dust off that old Underwood!

Whatever you choose to do with the buckets of free time you experience after retiring, savings from the time you were working will be a plus. The Saskatchewan Pension Plan is like the Swiss Army Knife of retirement savings products, because it has a feature for every aspect of the cycle. You have professional investment at a low cost, flexible ways to contribute, and many options at retirement including lifetime income via an annuity. Check out www.saskpension.com 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

Mar 4: Best from the blogosphere

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

RRSP to RRIF conversion “can be traumatic” for some; annuities help

A recent Canadian Press story by Dan Healing notes that for those of us who have carefully saved money in an RRSP for retirement, “converting it to a RRIF (registered retirement income fund) can seem a terrifying milestone.”

“Overnight, your nest egg that has steadily grown for decades becomes a declining asset, with a government-mandated, taxable annual minimum withdrawal to ensure its gradual depletion,” Healing writes.

But the RRIF conversion of an RRSP “is a small portion of the overall planning for retirement,” states David Popowich in the article. Popowich is a Calgary-based financial adviser, the article notes.

The RRIF, the article points out, is really just a different type of RRSP – one that you can’t add money to, and that is used for slowly drawing down your savings as retirement income. You can convert an RRSP to a RRIF at any time, but must convert your RRSP to a RRIF, an annuity, or a lump sum payout by the end of the calendar year in which you turn age 71, the article notes.

A simple way to deal with the issue of the age 71 limit for RRSPs is “to cash some or all of the investments and buy an annuity, usually from an insurance company,” the article suggests. “The annuity is then held inside the RRIF account and pays a guaranteed income for life or another set period of time to the investor, who pays taxes on the amounts received.”

It’s a big decision, and it depends on how your personal comfort level. Are you comfortable continuing to invest your money, getting (potentially) a variable level of retirement income based on market ups and downs, and hoping there’s some at the end for your heirs – and that you don’t run out of money while alive?

Or does the idea of a steady, lifetime income appeal to you more? You’ll get the exact same amount each month for the rest of your life, which makes it easier to plan, and you won’t have to spend your mornings worriedly watching the markets. Annuities come in many varieties and some include lifetime pensions for your surviving spouse.

Members of the Saskatchewan Pension Plan are lucky in that they have a variety of annuity options to choose from when they convert their savings into retirement income through the plan. Check the retirement guide for full details.

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 and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Shelties, Duncan, Phoebe and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

The “baffling unpopularity” of annuities

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

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

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

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

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

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

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

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

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

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

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

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

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

Why some people don’t retire

 

We were chatting about retirement with a salesman at the local car dealership when he rolled out a bombshell – in his early 70s, he had no plans for retirement. He loved what he does and wants to keep on doing it for as long as he can. Maybe in his mid- to late 80s he might get a cottage, he says.

That made Save with SPP wonder if others aren’t retiring – and why.

The Wise Bread blog says there are five types of people who don’t retire – the “broke non-retiree, the workaholic, the successful investor, the life re-inventor and the mega-successful lifers.”

The article notes that “a startling 47 per cent” of Americans “now plan to retire “at a later age than they expected when they were 40.” The reason why – 24 per cent of Americans 50 and older have saved less than $10,000 for retirement.

For workaholics, the article notes, “it can be devastating to face retirement,” with many fighting it “tooth and nail.” Successful investors, the article notes, may have bought real estate, gold, or stocks early and now have enough money that they don’t need to work. Life re-inventors retire from one job and take on a new, totally different one, and the “mega-successful” tend to be CEOs, actors, star athletes, folks who have sufficient wealth to not worry about a formal retirement.

The New York Times reports that there are 1.5 million Americans over the age of 75 who are still working. Judge Jack Weinstein, age 96, still gets up for work every day at 5:30 a.m., the newspaper reports. “I’ve never thought of retiring,” he tells the newspaper. “If you are doing interesting work, you want to continue.” The paper says that those who are employed in jobs “in which skill and brainpower matter more than brawn and endurance” often keep going past usual retirement age, as do the self-employed and industry stars, like Warren Buffett.

An article in Market Watch picks up on another point – there are many people who don’t like the sound of retirement. “The idea of a retirement where a person has little responsibility, and, worst of all, interacts with very few people, just isn’t appealing to the current crop of pre-retirees,” the article notes.

A more Canuck-friendly view comes from Canadian Living, which lists the main reasons for not retiring as “you need the money, you like working, you hate retirement,” and significantly, “you’ll collect bigger benefits” and “you’ll lose your RRSP later.”

“If you collect your CPP at age 70,” the article points out, “you’ll get 42 per cent more than if you retired at 65.” Similarly, if you collect CPP at 60, you get 36 per cent less than if you collected at 65, the article states.

On the RRSP front, since you must convert your RRSP to a RRIF (or buy an annuity) by age 71, delaying retirement means you will have more money in retirement, the magazine notes.

These are all good points. Save with SPP notes that there are many folks who simply live in the now and won’t think about retirement until they must. The idea that we can all keep working forever is a nice one but tends to be an exception, rather than a rule.

We may not want to retire, but the vast majority of us probably will. Even if you’re in the group that has saved very little up until age 50, there is still time to augment your life after work with some retirement savings. The Saskatchewan Pension Plan is quite unique in that it is open to all Canadians and provides an end-to-end retirement vehicle – your savings are invested and turned into a lifetime pension at retirement time. It’s a wise choice, even for those who don’t want to retire.

 

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

Oct 23: Best from the blogosphere

Sustaining a blog for months and years is a remarkable achievement. This week we go back to basics and check in on what some of our favourite veteran bloggers are writing about.

If you haven’t heard, Tim Stobbs from Canadian Dream Free at 45 has exceeded his objectives and retired at age 37. You can read about his accomplishment in the Globe and Mail and discover how he spent the first week of financial independence here.

Boomer & Echo’s Robb Engen writes about why he doesn’t have bonds in his portfolio but you probably should. He acknowledges that bonds smooth out investment returns and make it easier for investors to stomach the stock market when it decides to go into roller coaster mode. But he explains that he already has several fixed income streams from a steady public sector job, a successful side business and a defined benefit pension plan so he can afford to take the risk and invest only in equities.

On My Own Advisor, Mark Seed discusses The Equifax Breach – And What You Can do About It. In September, Equifax announced a cybersecurity breach September 7, 2017 that affected about 143 million American consumers and approximately 100,000 Canadians. The information that may have been breached includes name, address, Social Insurance Number and, in limited cases, credit card numbers. To protect yourself going forward, check out Seed’s important list of “Dos” and Don’ts” in response to these events.

Industry veteran Jim Yih recently wrote a piece titled Is there such a thing as estate and inheritance tax in Canada? He clarifies that in Canada, there is no inheritance tax. If you are the beneficiary of money or assets through an estate, the good news is the estate pays all the tax before you inherit the money.

However, when someone passes away, the executor must file a final tax return as of the date of death.  The tax return would include any income the deceased received since the beginning of the calendar year.  Some examples of income include Canada Pension Plan (CPP), Old Age Security (OAS), retirement pensions, employment income, dividend income, RRSP and RRIF income received.

When the Canadian Personal Finance Blog’s Alan Whitton (aka Big Cajun Man) started investing, he was given a few simple rules that he says still ring true today. These Three Investment Credo from the Past are:

  • Don’t invest it if you can’t lose it.
  • Invest for the long term.
  • If you want safety, buy GICs.

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 on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.

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.

Pension-income splitting rules can reduce total tax bill

By Sheryl Smolkin

I retired from my corporate job with a defined benefit pension before I turned 55 and I opted to begin receiving my CPP at age 60. And by starting my own business as a workplace journalist I also created another significant income stream.

In contrast, when my husband retired at age 65 he did not have a pension and he elected to defer receipt of CPP and OAS for a year. He also decided not to convert his RRSP into a RRIF until he is required to do so at age 71. Therefore, other than withdrawing funds from our unregistered investment account, he had no source of income.  As a result, when it came to filing subsequent income tax returns, the disparity in our income made us ideal candidates to benefit from pension-income splitting which has been available since 2007.

The way it works is that if you are receiving income that qualifies for the pension income tax credit you’ll be able to allocate up to half of that income to your spouse or common-law partner (and vice versa) each year. You don’t actually have to write a cheque because pension income-splitting is merely a paper transaction done via your tax return.

The type of pension income that qualifies for the pension income tax credit of up to $2.000/year and that is eligible for pension splitting differs depending on whether you were 65 or older in the year.

  • If you were under 65 as of December 31, 2016, “qualifying pension income” includes life annuity payments out of a defined benefit or defined contribution pension plan and certain payments received as a result of the death of your spouse or common-law partner.
  • If you were 65 or older in 2016, other defined payments such as lifetime annuity payments out of your RRSP, DPSP or RRIF also qualify for the pension credit. Qualifying pension income doesn’t include CPP, OAS or GIS payments.
  • It is worthwhile noting that pension payments from SPP qualify for the pension income tax credit.

The extent to which pension income-splitting will be beneficial will depend on the marginal tax bracket of you and your spouse or common-law partner, as well as the amount of qualifying income that can be split. In many cases, the optimal allocation will be less than the allowable 50% maximum.

If you opt to pension split, a special election form (Form T1032) must be signed by the parties affected and filed with the CRA. If you file your return electronically, you should keep the election form on file in case the CRA asks for it. Another result of pension splitting is that the income tax withheld from your pension income will be reported on your spouse or common-law partner’s return, proportional to the amount of income being split.

Pension income splitting may also reduce the Old Age Security claw back while transferring income to your spouse who is taxed at a lower tax rate. In addition, your spouse can access the pension income credit of up to $2,000 for federal tax purposes and $1,000 for BC tax purposes, which would otherwise be unavailable without pension income.

The pension income splitting rules do not make spousal RRSPs obsolete, since spousal plans still have income splitting benefits for the years before you turn 65 or if you have not yet converted your RRSP to a RRIF or annuity. In addition, taking advantage of spousal RRSPs can increase your potential for withdrawals under the Home Buyers’ Plan and the Lifelong Learning Plan.

In 2014 and 2015 the Family Tax Cut credit provided a version of income splitting that allowed an individual to notionally transfer up to $50,000 of income to his or her lower-income spouse or partner, provided they have a child who was under 18 at the end of the year. The credit was capped at $2,000 annually. However, that form of income-splitting was abolished by the new Liberal government for 2016.

Other permitted forms of income splitting with family members are described here.

10 things you need to know about SPP

By Sheryl Smolkin

I have been writing about the Saskatchewan Pension Plan for six years and a member of the plan for just as long. I thought I knew everything there was to know about the plan, but every time I review the website I learn something new.

Here are 10 things about SPP that you may find interesting.

  1. The 30 year old plan is the 25th largest defined contribution plan in Canada (Benefits Canada 2016).
  2. The plan is funded by member contributions and investment earnings. As of December 31, 2016 there was $479.5 million in assets under management administered by a Board of Trustees, some of whom are also plan members.
  3. If you are between age 18 and 71 and have available Registered Retirement Savings Plan room you are eligible to join the 33,000 other members who are saving for their future, whether or not you live or work in Saskatchewan.
  4. With an annual maximum contribution of $2,500, the plan has several payment options designed to suit your budget.
  5. You can also transfer up to $10,000 per calendar year into your SPP account from your existing RRSP or Registered Retirement income Fund (RRIF).
  6. You have two investment options for your funds. The default fund is the Balanced Fund (BF) which is a low to moderate risk/return investment option. Approximately 55% of the fund is invested in equities, 35% in fixed income investments and 10% in a real estate pooled fund.
  7. The Short-term Fund (STF) is a low risk/low return investment option. Its primary purpose is to preserve capital. It is suitable for members who are near retirement and have reached their retirement savings goal, or members who wish to have a cash equivalent component in their investment portfolio.
  8. You may retire from SPP between the ages of 55 and 71 regardless of your employment status. You must apply for SPP retirement benefits; the package to make this application is available by calling SPP.
  9. If you name your spouse as beneficiary of your account, Canada Revenue Agency allows death benefits to be transferred, tax-deferred, directly to his or her SPP account or to an RRSP, RRIF, or guaranteed Life Annuity Contract (LAC).
  10. In addition to spousal rollover of SPP death benefits, rollovers to an RRSP or Registered Disability Savings Plan for a financially dependent infirm child or grandchild are permitted.

For more information about SPP see the website or call the office at 1-800-667-7153.

Who does NOT need an RRSP?

By Sheryl Smolkin

In the first two months of every year financial institutions across the country advertise heavily encouraging every Canadian to open a registered retirement savings plan and make a maximum contribution.

And if you haven’t made all of your permissible RRSP contributions in earlier years you are an even more attractive target because chances are you have thousands of dollars of additional unused RRSP contribution room.

But in spite of the fact that I have been preaching the retirement savings gospel for decades, I agree with other pundits that there may be some circumstances in which it doesn’t make sense for you to top up your RRSP. For example:

  1. Low marginal tax rate: If you have a low marginal tax rate, you may be better off saving in a tax-free savings account or other non-registered savings and wait until you are earning more money to use up your RRSP savings room (which can be carried forward). Of course you could make the RRSP contribution in a year of low earnings and wait until a future year when you are more affluent to take the tax deduction.
  1. High interest debt: If you are carrying high interest credit card or other debt, your priority should be to pay off that debt as soon as possible to avoid further interest compounding. Then put controls in place to avoid getting into further debt. Once you have retired the debt, the additional cash flow can be used to make tax deductible RRSP contributions.
  1. Short -term goals: If you have high priority short-term objectives such as saving a down-payment for a house, funding your education or taking a family vacation, a TFSA is a more flexible savings vehicle. Your TFSA contributions accumulate tax-free. All or part of the balance can be withdrawn without tax consequences. And contribution room in the amount you withdraw will be restored the following year.
  1. Higher retirement income: RRSP contributions are most tax effective if you make them at a time when you are in a higher tax bracket but you have a reasonable expectation that your income in retirement will be lower when you must convert your RRSP account into a RRIF and begin withdrawing funds. However, you may live frugally and build a business in your prime working years. As a result, by the time you retire your income from money in the business, registered and un-registered funds is higher than prior to age 65.
  1. Great DB pension plan: Contrary to what you may have read, the defined benefit pension plan is not completely dead in Canada. For example, a small number of employees of private companies, federal public servants and some provincial employees will have generous monthly pensions when they retire. In these circumstances having a large taxable income in an RRSP maybe a great idea if RRIF withdrawals push your annual income over the threshold and as a result your Old Age Security is clawed back ($74,789 in 2017).
  1. Business owner: Unlike employees, incorporated business owners can control their compensation. If corporate income is not needed for personal living expenses, for example, it can be retained in a corporation to defer income taxes. The tax cost of withdrawing dividends (in retirement) could be significantly lower than the tax cost of withdrawing RRSP or RRIF dollars, which are be fully taxable.

Nevertheless, for all but a small number of people who fall into the categories above, an RRSP is a splendid idea. And consider using some of your RRSP contribution room to contribute to the Saskatchewan Pension Plan (up to $2,500/year) or transferring in up to $10,000/year to the SPP from your RRSP. Your money will be professionally managed and at retirement you can purchase an annuity that will pay you for life.

Jun 20: Best from the Blogosphere

By Sheryl Smolkin

After several weeks of “theme” issues it’s time to check in with some of our favourite bloggers to find out what’s on their mind.

On Boomer and Echo, Marie Engen asks the perennial question RRIF Or Annuity? Which One Is Right For You?  She suggests combining both so an annuity covers your basic retirement expenses together with with your CPP, OAS, and any other pension income you may be receiving to give you a guaranteed income stream for life. This allows your RRIF to provide you with investment growth opportunities and easier access to your money for your more enjoyable lifestyle expenses.

Tax Freedom Day 2016 happened June 7th this year. Retire Happy’s Jim Yih says it’s another reason to celebrate summer. He explains where all of your taxes go because once you realize the severity of tax on your lifestyle, it is your job to investigate legitimate ways to reduce your tax bill. “I’ve often said that good tax planning is the foundation to any financial, investment or estate decision,” Yih concludes.

Bridget Eastgaard lives in Calgary where due to the drop in oil prices the rental market is very soft. On her blog Money After Graduation she shares One Simple Shortcut To Put More Money In Your Budget. Her research revealed a similar unit renting for $250 less in her building plus a half-dozen comparable apartments renting nearby for less. She succeeded in lowering her rent by 20%, saving hundreds of dollar a month that will be redirected to accumulating a down payment on a house.

Sean Cooper thinks Millennials Should Save Their Down Payment and Not Rely on the Bank of Mom and Dad. He says by showing your millennial child tough love, you’re teaching your kids a valuable lesson: not everything in life will be handed to them on a silver platter. Just like you did, he says they should to work for it.You won’t be there to help them forever.

And the Big Cajun Man Alan Whitten reminds readers to keep an eye on their bank account to make sure automatic withdrawals are being processed properly on an ongoing basis. When he checked on his son’s RESP recently, he found that TD Bank mysteriously stopped depositing in November of 2015. There has been a problem ticket opened on this issue, and someone will be getting back to him.

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 on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.