Registered Retirement Savings Plan

Understanding the basics of RRIFs with BMO’s James McCreath

May 12, 2022

Most Canadians understand what registered retirement savings plans (RRSPs) are.

What’s perhaps a little less well known is the registered retirement income fund (RRIF), which is where your RRSP funds generally end up once you move from saving for retirement to spending your retirement income.

Save with SPP reached out to James McCreath, a portfolio manager at BMO Wealth’s Calgary office, to get a better understanding of the basics of RRIFs.

We first learned that McCreath has strong connections to Saskatchewan – both his parents are from here, his mom, Grit McCreath, is Chancellor of the University of Saskatchewan, and the family enjoys time at their cottage north of Prince Albert at Waskesiu Lake.

RRIFs are the vehicle used to turn former RRSP savings into retirement income, he explains.

“You have to convert from an RRSP to a RRIF by the end of the year you turn 71, and must start withdrawing from the RRIF by the end of the year you turn 72,” says McCreath. That potential deferral period, he points out, gives you a 24-month window from the point your RRSP is converted to when you take the first dollar out.

While it is possible to convert to a RRIF earlier than age 71, not many people do, McCreath explains. Such a decision, he says, would be based on an individual’s unique circumstances – perhaps they want “certainty for budgeting,” or other reasons. It’s possible, but rare he says.

While there’s no tax on the interest, dividends or growth within a RRIF, the money you take out of it is taxable. McCreath says the tax on RRIF withdrawals is the deferred tax you didn’t pay when you put money into an RRSP in the past.

Asked if there is a correct or best investment strategy for a RRIF, McCreath says that this again depends on “the circumstances of the individual.”

Generally, a RRIF investment strategy should consider the cash flow needs of the individual, and their tolerance for risk, explains McCreath.

Someone who needs the RRIF income for day-to-day expenses might, for instance, be less interested in risky investments, and would focus on fixed income investments, he says. “These days we are starting to see five-year GICs (guaranteed income certificates) that pay four per cent interest; we haven’t seen them at that rate for years, so that might be a consideration” for risk-averse RRIF investors.

Others with less cash flow needs for the RRIF – perhaps those who retired with workplace pensions – might be able to handle a riskier investment strategy. “They might want to hold equities under the hope that their RRIF grows, for legacy purposes,” he explains.

“I strongly advise people to find an investment professional, or an accountant, who can help develop the optimal plan for their own circumstances,” McCreath says.

On the issue of RRIF taxation, McCreath points out that taking money out of the RRIF is different than taking it out of an RRSP.

There is a minimum amount that you must withdraw from your RRIF each year, a percentage that gradually increases as you get older, he explains.

When you take money out of an RRSP, an amount of tax is withheld at source for taxes (beginning at 10% for withdrawals up to $5,000). No such taxes are automatically withheld when you withdraw the minimum prescribed amount of money from a RRIF.

If you are concerned about having to pay taxes at income tax time because of RRIF income, McCreath says you can often arrange to have the RRIF provider deduct a set amount of tax above the mandated minimum tax withholdings from each withdrawal. In this way, you will help avoid having to make a large payment at tax time, assuming the appropriate amount of tax gets withheld, he explains.

Another good idea, he says, is to use any RRIF income (net of tax) that you don’t need as a contribution to your Tax Free Savings Account (TFSA). “If you don’t need the capital for day-to-day living, you can continue to invest it in the TFSA,” he explains.

An alternative to a RRIF at the end of your RRSP eligibility is the purchase of annuity. Annuities, like a pension, provide a set income each month for life, and many annuity providers offer a variety of options for them around survivor benefits.

The current sharp rise in interest rates may increase interest in annuities, McCreath suggests.

“As interest rates rise, the functionality and usefulness of annuities go up,” McCreath notes. Generally speaking, the higher the interest rate at the time of purchase is, the greater the annuity payment will be.

McCreath concluded by offering two key pieces of advice. First, he notes, a lot of retirement decisions, such as moving to a RRIF or buying an annuity, are important and “irrevocable” ones. It’s important to get professional advice to help you make the decision that’s best for you, he says.

As well, he says, pre-retirees should have a very clear understanding of their cash flow, and “the matching of inflows to outflows,” before they begin drawing down their savings.

We thank James McCreath for taking the time to talk with us.

Saskatchewan Pension Plan members have several options when they want to collect their retirement income. They can choose among SPP’s annuity options, SPP’s variable benefit (available for Saskatchewan residents), or transfer their money to a Prescribed RRIF. Check out SPP’s Time to Collect Guide for more details!


Apr 18: BEST FROM THE BLOGOSPHERE

April 18, 2022

Canadians sock away $50.1 billion in RRSP savings

It appears the venerable registered retirement savings plan (RRSP) is alive and well, reports Investment Executive – and pandemic-related extra cash may be the reason why.

Citing Statistics Canada data, the magazine reports that “the number of Canadians that socked money away in their RRSPs increased in 2020, and their contributions rose too.”

In 2020, Canadians collectively contributed $50.1 billion in their RRSPs, the article notes. That’s an increase of 13.1 per cent over 2019, the article continues, and the number of contributors rose as well by 4.9 per cent.

Investment Executive reports that “the median RRSP contribution in 2020 came in at $3,600, which is the highest on record.”

Why did more people put more money away?

Well, the article states, “savings rose as public health restrictions limited consumer spending.” With little to spend money on other that food and fuel, the average Canadian was able to stash away “$5,800 in extra savings in 2020 on average.”

So, that extra pile of money found its way into people’s retirement savings kitties.

“With the added savings on hand, more Canadians put money into RRSPs. The proportion of taxpayers that made RRSP contributions in 2020 increased for the first time in 13 years, StatsCan said, noting that the share of taxpayers making contributions has been declining since the Tax Free Savings Account (TFSA) was launched as a retirement savings alternative,” the article reports.

While things are not as locked down (thank heavens) today as they were a couple of years ago, the retirement savings bug is still with us, reports Baystreet.ca.

More than $10 billion found its way into Canadian mutual funds this February, the site reports.

“That brought the total amount of mutual fund assets under management in Canada to $2 trillion as of March 1,” Baystreet notes. “In all, Canadians put $111.5 billion into mutual funds in 2021. That’s nearly four times the $29 billion in mutual fund sales in 2020, which was in line with average annual sales going back to 2000.”

So, let’s put those two thoughts together – Canadians are putting more money away in their RRSPs, including managed mutual funds. The trend seems to be that more money is going this way each year.

The Saskatchewan Pension Plan allows you to contribute up to $7,000 annually towards your retirement nest egg. And you are allowed to transfer in up to $10,000 annually from other registered savings vehicles. SPP is a voluntary defined contribution plan – it has some of the characteristics of an RRSP and some of a managed mutual fund. Where SPP differs from a typical retail mutual fund is in the fees charged. SPP provides you with professional investment management, but SPP’s fee is typically less than one per cent – less than half of what most managed retail mutual funds charge. SPP has a stellar investing record, and – again, unlike a RRSP – SPP gives you the option of converting your accounting into a lifetime SPP annuity, among other retirement income options. Check out this made-in-Saskatchewan success story today!

Join the Wealthcare Revolution – follow SPP on Facebook!

Written by Martin Biefer

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


Apr 4: BEST FROM THE BLOGOSPHERE

April 4, 2022

Is working the new “not working” for older Canadians?

Writing for the Financial Post, Christine Ibbotson notes that her own research on retirement in Canada has found that more people than you would think are working later into life.

“According to Stats Canada, 36 per cent of Canadians aged 65 to 74 are still working full-time, and 13 per cent of those aged over 75 are also still working. I was surprised by this finding, and I am certainly not advocating working into your elder years or continuing to work until you die; however, obviously these stats show that a lot of Canadian retirees are not just sitting around,” she writes.

Ibbotson writes that this tendency to keep working past the traditional retirement age of 65 may be because older Canadians want to “feel purposeful.”

“Contrary to popular belief, there is no “right time” to retire and if you are in good health there is no real need for rest and relaxation every day until you die. Retirement was not intended for everyone, even though we now believe we all should have access to it. The 65-year age of retirement was chosen by economists and actuaries when social security was created, when life expectancies were much less than they are now, and only provides a generalized guideline,” she writes.

Continuing to work, she continues, has many added benefits, including “being socially connected, physically active, mentally sharp, and enjoying the benefits of additional revenue.” You may, she writes, have fewer health problems if you continue to work into your later years.

While it’s true that many of us still work part time into our 60s and beyond (raising a hand here) not because we need the money, but because we like it, that’s not always the case for everyone.

Some of us work longer than 65 because we don’t have a workplace pension, and/or have not saved very much in registered retirement savings plans (RRSPs) or tax free savings accounts (TFSAs).

Recently, we looked up the average RRSP balance in Canada and found that it was just over $101,000. The average Canada Pension Plan payment (CPP) comes in around $672 per month, and the average Old Age Security (OAS) at $613 per month (source, the Motley Fool blog).

Ibbotson is correct about working beyond age 65 – we do it because we love the work and the income, but for those without sufficient savings, we may be working because we need the income. If you have a retirement savings program at work, be sure to sign up and take maximum advantage of it. If you don’t a great option for saving on your own is the Saskatchewan Pension Plan.

A personal note here – this writer’s wife is planning her SPP pension for next year. By contributing close to the maximum each year, and regularly transferring $10,000 annually from her other RRSPs, her nest egg has grown to the point where she plans to select one of SPP’s lifetime annuity options. Her first step was to get an estimate of how much per month she will receive from SPP; she has applied for her Canada Pension Plan, and apparently Old Age Security starts automatically when she hits 65 next year.

We’ll keep you posted on how this goes, but it’s exciting for her to plan life after work, with the help of SPP.

Join the Wealthcare Revolution – follow SPP on Facebook!

Written by Martin Biefer

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


Savings resolutions for 2022

January 13, 2022

The start of a new year often has us thinking of things we “resolve” to do – changes we want to make – in 2022.

Save with SPP had a look around the “information highway” to see what people are resolving to do on the all-important savings front.

From The Guardian , ideas include getting debt-free, starting a rainy day fund, and to “have a goal” for savings. The newspaper notes that debt is a real barrier to savings.

“There is no point trying to save if you are burdened by costly debts,” The Guardian reports. While savings accounts in the U.K. pay only about 0.2 per cent interest, the article continues, credit card, store card or overdraft debts may be “in excess of 20 per cent.”

Writing for the GoBankingRates blog via Yahoo!, John Csiszar suggests resolutions should include “bumping up your retirement plan contributions by one per cent,” reviewing your spending from 2021, and that you “don’t buy anything until you get rid of something else.”

Increasing your contributions to a retirement account (here in Canada, this might refer to a Registered Retirement Savings Plan (RRSP), or your Saskatchewan Pension Plan account) by one per cent is, Csiszar writes, an achievable goal. If you earn $50,000 a year, and are contributing five per cent to a retirement plan, he writes, bumping that up by one per cent will boost your retirement savings by $41.67 per month.

Back in the U.K., The Express recommends dropping costly habits, “start counting the pennies” (or nickels here in Canada), and following the 50/30/20 rule.

“Allocate 50 per cent for essentials, such as rent, mortgage and bills, 30 per cent for `wants’ such as hobbies, shopping or subscriptions, and 20 per cent for paying off debt or building up savings,” the article suggests.

Finally, MSN Money adds a few more – review your retirement plan contributions (to ensure you are contributing as much as you can), contribute to both “traditional” retirement savings accounts (here in Canada, an RRSP or SPP) as well as tax-free savings vehicles (for Canadians, the Tax-Free Savings Account) and increase any automatic savings you have going.

These are all great strategies. Another one to add is to live within your means. Don’t spend even a nickel more than you earn, because that overspending can snowball on you. Pay the bills, then pay yourself (and your future self), and spend what’s left over. As the bills go down, you’ll have more to save.

And the SPP allows you to make contributions the easy way – automatically. You can set up a pre-authorized payment plan with SPP and have your contributions withdrawn painlessly every payday. It’s easier to spread your contributions out throughout the year in bite-sized pieces than to try and come up with one big payment at the deadline. And the good folks at SPP will invest your contributions steadily and professionally, turning them into future retirement income. It’s win win!

Join the Wealthcare Revolution – follow SPP on Facebook!

Written by Martin Biefer

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


Dec 20: BEST FROM THE BLOGOSPHERE

December 20, 2021

TFSAs – a handy tool for retirement savers and those drawing down their nest eggs

Writing in Investment Executive, Jeff Buckstein takes a look at how the Tax Free Savings Account (TFSA) can play a key role not only in saving for retirement, but in the trickier “drawdown” stage.

For starters, he writes, “many people quickly identify the registered retirement savings plan (RRSP) as a key component of successful retirement planning,” overlooking the “complementary role” the TFSA can play “in planning for and enjoying retirement.”

One interesting TFSA characteristic is that money saved within them does not – like in an RRSP – have to come from earned income. Examples of income that doesn’t qualify for an RRSP contribution would be dividends from a private corporation or business, or “a windfall, such as an inheritance,” Buckstein writes.

If you are a regular RRSP contributor who maxes out each year, any extra cash can be saved in a TFSA (up to the annual TFSA limit), he writes. As well, if you are in a company pension plan where your contributions produce a pension adjustment – which reduces how much you can contribute to an RRSP – the TFSA is a safe savings alternative, the article notes.

Quoting Tina Di Vito of Toronto-based MNP LLP, the article notes that “lower income clients who anticipate relying on Old Age Security (OAS) or the Guaranteed Income Supplement (GIS) may be better off investing in a TFSA.”

That’s because withdrawals from a TFSA are not considered taxable income, like withdrawals from an RRSP, a registered retirement income fund (RRIF) or an annuity purchased with registered funds are. So TFSA income doesn’t impact one’s ability to qualify for OAS or GIS.

So what’s a good idea, investment-wise, for a TFSA?

The article quotes Doug Carroll of Aviso Wealth Inc. in Toronto as saying that since TFSA investments are going in to the account tax free and coming out tax free, “you probably lean a little more toward equities in there than you would in your RRSP.”

A more complex idea explored in the article is – for those with substantial TFSA savings as well as an RRSP – to draw down the TFSA income first, and try to delay touching the registered money until you have to at age 71. This strategy can reduce your taxable income over the longer term, the article explains.

Our late father-in-law used to use his TFSA as part of his RRIF withdrawal program. He’d withdraw funds as required from his RRIF, pay tax on them, and then put the after-tax income back into his TFSA to invest. This generated a regular and growing supply of tax-free income, he used to tell us with a broad grin.

Many of us semi-retired boomers didn’t get in on the TFSA, launched in 2009, until the latter years of our careers. If you are younger, and decades away from retirement, think of all the tax-free growth and income your savings could produce in the run up to your Golden Years.

If you don’t have a retirement savings program at work – or want to supplement the one you have – a great place to look is the Saskatchewan Pension Plan. This made-in-Saskatchewan success story has been helping Canadians save for more than 35 years. Check them out today.

Join the Wealthcare Revolution – follow SPP on Facebook!

Written by Martin Biefer

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


Dec 6: BEST FROM THE BLOGOSPHERE

December 6, 2021

Students should take advantage of retirement saving and its tax advantages: The Varsity

We all look back fondly at our days as students, whether in regular or post-secondary school. At no time does this writer ever remember any friend or classmate talking seriously about the need to save for retirement. There were many other things to worry about, including passing courses and looking for a job.

But an article in the University of Toronto’s The Varsity newspaper says even students should be thinking about life after the jobs they are about to find.

“As a student, investing in a (registered) retirement savings plan early can prove to have long-term benefits like tax-deductible contributions,” the article begins. “This means that the amount you put into your RRSP for the year is deducted from your taxable yearly income. Further, investments are tax-deferred, which means that taxes on the growth of your investments are not paid until you withdraw the funds from your RRSP account,” the article explains.

The article makes the point that while the tax-free savings account (TFSA) allows money to grow without taxation, contributions made to it are not tax-deductible like RRSP contributions. As well – and a key point if you are thinking of the money being like a piggy bank for the future – is that withdrawing money from an RRSP is more difficult. The RRSP piggy bank is much harder to raid than a TFSA, the article explains.

“The idea of saving for retirement while having to pay outstanding debts like credit card statements or mortgages can be overwhelming,” The Varsity notes. “Everyone has a different financial scenario and students must evaluate what works best for them, even if it means only putting small amounts of money aside in their RRSP every month,” the newspaper adds.

The article also looked at the idea of starting retirement savings early.

Citing a recent study, The Varsity reports that folks in the Gen Z cohort start saving at 19; millennials at age 25 and Gen Xers at 30.

And some great news from The Varsity article is that younger people are getting the message about the importance of getting a head start on retirement savings.

“It appears that starting to save at a younger age has been a message that has trickled down across generations, since the oldest members of Gen Z are only 24 years old. Gen X and baby boomers have been found to contribute an average of 14 to 15 per cent of their income into their retirement fund, while Gen Z and millennials invest, on average, 16 per cent of their income in their retirement savings,” The Varsity reports.

Other points made in the article include the idea that as living costs continue to rise, many households “will need to continue working past the age of 65 in order to afford retirement.” Citing recent research from the Healthcare of Ontario Pension Plan, the Varsity notes that 67 per cent of Canadians “think that Canada will be facing a retirement crisis;” that same study found that 77 per cent of workers liked the idea of their employers offering retirement savings plans.

The Varsity article concludes by saying that if you are young, you should be asking and talking about getting an early start on retirement saving.

If your employer does offer a retirement program, be sure to join it and contribute as much as you can. If you don’t, you need a do-it-yourself retirement plan. The Saskatchewan Pension Plan provides exactly what you need to get rolling. You can contribute up to $6,600 per year to SPP, and like an RRSP, SPP contributions are tax-deductible. Check out SPP, celebrating 35 years of operations, today!

Join the Wealthcare Revolution – follow SPP on Facebook!

Written by Martin Biefer

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


Nov 22: BEST FROM THE BLOGOSPHERE

November 22, 2021

New retirement plan’s goal is to “coast” into retirement

Writing in the Toronto Star, Lesley-Anne Scorgie reveals a new variation on the “financial independence, retire early” or FIRE plan.

This new variant, she tells us, is called the Coast FIRE plan.

But let’s backtrack. What exactly is the basic FIRE plan?

Scorgie writes that the FIRE movement was born in the late 1990s.

“These people were obsessed with early retirement and were willing to sacrifice just about anything to contribute significant sums of money to their nest egg as quickly as possible so that they could quit their jobs generally before age 50 and start to ‘live,’” she explains.

But, she says, for many this FIRE plan meant “going without vacations, eating beans daily and just being a cheapskate.” The idea was that foregoing the “extras” in life would allow one to put away thousands a month until having enough money to retire completely by age 50.

“I have two major issues with the concept,” she writes. “Firstly, the lifestyle of ultra-frugality is not appealing. Secondly, banking many thousands of dollars every month throughout your 20s, 30s and 40s is pretty unattainable for most people living in just about any city in Canada. The cost of living and debt are major preventative barriers.”

She goes on to point out “also, who retires at 50? You could have a whole other life, career and so on at that age!”

This is where Coast FIRE puts a different spin on the plan.

There is still an emphasis on financial independence, writes Scorgie, but “you steadily build up your nest egg until it reaches a point where it can grow independently through the power of compound interest and reinvested returns to the ultimate nest egg size you want, without you having to save another dime after you get to that initial savings point.”

So rather than having a hard stop to work, this variant of the plan has you basically creating a significant wealth creation nest egg that allows you to bolster your retirement income significantly when it’s time to log off for a final time.

And that’s the significant difference – the frugality and penny-pinching ends when your nest egg has reached its target amount.

“Once you reach the point where you no longer need to add another dollar to your retirement portfolio, you can have loads more freedom to do what you want like — work part-time or at a different job you like better, enjoy more cash flow for vacations and fun because you no longer have to tuck away 20 per cent of your income into your registered retirement savings plan (RRSP) and tax free savings account (TFSA),” she writes.

To figure out this retirement math, you need to have a general idea of when you want to retire (age) and the approximate money you will need for financial independence at that age. Scorgie says there are many Coast FIRE calculators out there to help you figure out your numbers, but key to the calculation is “current age, desired retirement age, a safe withdrawal rate… and an inflation-adjusted growth rate.”

This is a great column, and Scorgie’s views make a lot of sense. Many of us, for instance, only put away enough money in RRSPs to get us a tax refund each year. Not putting away enough when you are young makes it harder to catch up later.

Scorgie concludes by recommending that we all get some financial advice to ensure our savings plan is sound, also a wise suggestion.

If you are looking for a retirement savings vehicle that can generate steady growth and good returns during the time between now and the time to “coast” into retirement, consider the Saskatchewan Pension Plan. While past performance is not an indicator of future growth, the plan has averaged returns of eight per cent since its inception in 1986. That’s helped many of us build our retirement nest eggs. Check out SPP today.

Join the Wealthcare Revolution – follow SPP on Facebook!

Written by Martin Biefer

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


Sep 13: BEST FROM THE BLOGOSPHERE

September 13, 2021

Where should you be – retirement savings-wise – at different ages?

Saving for retirement tends to be a solitary process. While we are encouraged to put away what we can for that future post-work life, there’s little information out there on how much is enough, or what targets we should shoot for at various ages.

Writing in Yahoo! News, author Jami Farkas provides a little bit of clarity on those savings benchmarks.

First, Farkas writes, “the best time to start saving for retirement is when you start earning.” So even in your 20s you should be thinking about putting some of your paycheque towards retirement, Farkas continues.

As you age, those savings targets become more concrete, Farkas notes.

“By age 30, you should have saved an amount equal to your annual salary for retirement,” the article advises. “If your salary is $75,000, you should have $75,000 put away.”

The article suggests this goal can be met by putting away 20 per cent of what you earn, and to “live and give on the remaining 80 per cent.” The article, intended for an American audience, says signing up for any workplace retirement program, like a pension plan or here in Canada, a group registered retirement savings plan (RRSP) is another positive step towards your savings goal.

Saving for retirement in your 30s can “even trump paying down debt,” the article notes.

In your 40s, you should have three times your salary stashed away, the article urges.

“If you don’t have a retirement savings strategy as part of your overall financial plan by this point, don’t delay,” Farkas writes.

A common mistake at this point is growing your lifestyle at the expense of your savings, the article explains – moving into a bigger house or apartment, or upgrading your car. Dr. Robert Johnson of Creighton University states in the piece that “what happens is they are unable to improve their financial condition because they spend everything they make. People are wise to effectively invest any money from a raise as if you didn’t receive the raise. That is, continue to live the same lifestyle you led before receiving a raise and invest the difference.”

If, instead, you were to invest some or all of a raise in your future, it would add up, the article notes. A $5,000 raise invested annually at 10 per cent will yield an eye-popping $822,000 in savings after 30 years, the article explains.

By age 50, the article notes, you need five times your salary in savings. With kids usually gone from your home and their education paid for, this is a good age for catch up if you have fallen behind, Farkas writes. And be sure you are investing in a low-fee savings vehicle, the article adds.

At 60, the article concludes, you should have seven to eight times your salary in retirement savings because you are now five years away from retirement. As well, the article warns, you should consider reducing your exposure to riskier investments, such as equities.

The article notes that those approaching retirement in 2007/8 would have seen their equity investments fall by 37 per cent in one year.

Let’s sum all this thinking up. Start saving for retirement as soon as you start making money. Make it automatic. Don’t forget your savings program in the excitement of getting a big raise and making more money. Don’t put all your savings eggs in one basket, particularly if that basket is full of stocks and no bonds or alternative investments.

The article suggests that a great way to get to the finish line in retirement saving is to join up with any retirement plan your employer offers – often, they will match what you contribute. That’s great advice. But if you don’t have access to an employer retirement program, fear not – the Saskatchewan Pension Plan is available for do-it-yourselfers. Through SPP you can save in a low-fee program that has delivered strong investment returns for over 35 years. Check them out today!

Join the Wealthcare Revolution – follow SPP on Facebook!

Written by Martin Biefer

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


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

September 9, 2021

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

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

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

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

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

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

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

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

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

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

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

Other ideas that have flashed across the screen of late:

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

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

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

Join the Wealthcare Revolution – follow SPP on Facebook!

Written by Martin Biefer

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


Aug 30: BEST FROM THE BLOGOSPHERE

August 30, 2021

How to hang on to any “pandemic cash” that may be pilling up

While some of us have had to struggle to make ends meet during the pandemic, others have – somewhat ironically – seen their personal savings shoot to new heights.

A report by CTV News looks at how some of us may have to adjust our budgets as COVID-19 restrictions begin to taper off.

The article notes that by the second quarter of 2021, Canada’s savings rate rocketed up to 13.1 per cent, more than double the previous year’s savings rate.

“Even Canadians’ credit card debts have been dropping, with rates hitting a six-year-low in June due to reduced spending,” the article informs us, citing data from Equifax.

You read that right. Credit card debt is dropping.

“Across the board in all age groups, we’re starting to see people pay more than they actually spend on a credit card, which is a real positive behaviour change in terms of consumers,” Rebecca Oakes of Equifax tells The Canadian Press in the article.

That’s great, but when things return to “normal,” will we still be saving and paying off debt?

CTV suggests a few things to do with any extra cash you may have accumulated as normality begins – and there are more tempting things to spend your money on than during the locked-down pandemic.

Finance expert David Lester is quoted in the article as suggesting one destination for extra bucks would be an emergency fund, which should be enough to cover “six to nine months of expenses.”

Next, Lester tells CTV that your retirement piggy bank should not be neglected in the rush to spend, spend, spend.

“It could go into your tax-free savings account (TFSA) or registered retirement savings plan (RRSP), but we should just get used to saving 10 to 15 per cent” for retirement, he states.

If you spend with a credit card, Lester says it’s important to pay off the card each month, and to avoid letting a credit balance begin to grow.

He recommends that you pay off credit card balances first, as soon as you get paid, “and then going to zero (balance).”

If you are setting a budget for the world after the pandemic, be realistic, adds Lester.

There were a lot of things we couldn’t do – many of them expensive – that we may not want to spend as much on post pandemic, he explains. We lived without them for a long period of time, Lester tells CTV.

“Maybe it was travel, maybe it was movies, maybe it was having coffee at home, or not buying expensive clothing,” he says in the article. “So see what you really don’t miss and go back through that budget line-by-line and see what you don’t have to add back on now that things are opening up. We don’t want to go back to that bad spending that we were doing before.”

Our late Uncle Joe frequently would pull us aside and recommend the 10 per cent rule – bank 10 per cent of your money off the top, and live on the remaining 90 per cent. “You will never have any problems,” he said. It’s very sensible advice.

Pay yourself first, the old adage goes. And if you are putting away that cash in a retirement account, you are paying your future self first. You’ll be making life easier down the road, because you’ll be entering retirement with money in the bank and at the ready. A great way to pay your future self first is to set up an account with the Saskatchewan Pension Plan. They’ll invest your savings, at a low cost and a historically strong rate of return, and at the appropriate time, will help you convert those savings into retirement income. After all, they’ve been delivering retirement security for an impressive 35 years!

Join the Wealthcare Revolution – follow SPP on Facebook!

Written by Martin Biefer

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