RRIF

Saying a fond farewell to SPP’s Executive Director, Katherine Strutt

June 24, 2021

After nearly 31 years of service, the Saskatchewan Pension Plan’s Executive Director, Katherine Strutt, starts her “life after work” July 31.

Over the phone from Kindersley, Strutt tells Save with SPP that she has seen “a lot of changes” over her decades of working for the plan.

“When we started in 1990, we didn’t all have our own computers and the secretaries, as we called them then, did the typing. It was quite a revolution when we got our own computer,” she adds. “We kept the same number of people, but the computer changed how we did things.” SPP was an early adopter of having a toll-free number for members, and Strutt says it is still very important for the plan to have “that human touch” when members contact them with questions. “They tell us that it is so nice to have a person to talk to on the other end of the line,” she says.

A key change along the way for SPP was raising the contribution ceiling from the old $600 back in 2010, to $6,600 today. That was a “game changer” in terms of growing the plan’s assets, she says. Similarly, moving to pre-authorized contributions years ago allowed members – who had tended to make contributions at the February deadline – to spread contributions out throughout the year.

Over the years, SPP “grew, and grew well – we had very good investment earnings, and a lot of loyalty from our members,” she says. She has high words of praise for the team at SPP. “It’s a good solid team… a good bunch of people with some really good synergies,” she says.

Strutt says she takes great pride in the improvements SPP has made in outreach, via the web and social media. “That has been gold for us,” she says. Having a great website, videos, e-updates, and “leveraging the use of social media has helped make us a leader” in outreach and communications, she explains.

A more recent achievement Strutt looks upon with pride is the introduction of the Variable Benefit, a program that lets a retiree keep his or her money within SPP at retirement, with income being gradually drawn down, much like a registered retirement income fund (RRIF) operates. “This benefit has been very well received,” she says, and while it is currently only available to Saskatchewan residents Strutt is hopeful it will be rolled out to members in other provinces soon.

Another growing effort has been outreach to businesses, with the goal of having them offer SPP as their company pension plan. “Having a pension plan is a big benefit to a small business, and with SPP, they can offer a pension plan no matter how small a business they are. It’s a great way to retain, and attract people,” she says.

SPP has always been about delivering a pension savings program to those who wouldn’t have one otherwise. The plan initially was aimed at homemakers, but gradually expanded its reach. Today SPP has, according to its 2020 annual report, $528.8 million in assets under management, and more than 32,000 members.

That growth speaks to the success SPP has had bringing pensions to those who otherwise wouldn’t have them. “The whole point is being able to save at a reasonable cost, and to offer the pooling of risks,” she explains. With SPP, all contributions are pooled together and invested, which lowers the investment cost, lately to about 85 basis points or less. And with a rate of return exceeding eight per cent since the plan’s inception 35 years ago, the strategy is a winning one, Strutt says.

And SPP is more than just a retirement saving vehicle. Through e-updates, presentations, and other outreach a goal is to build up the financial literacy of plan members, she says.

Strutt – already active with several service clubs – doesn’t plan to slow down much in retirement. She’ll have more time to farm, with her husband, their farm near Kindersley. There’s a son to visit in Finland, a daughter in Nova Scotia, and a spry, 92-year-old mom in B.C. – so travel is in order, she says.

“When I started in November 1990 I was so pleased to be given the opportunity,” she says. “It has turned into a 31-year career. I’m proud to have been part of such an innovative program, one that is a made in Saskatchewan success story.” She says she is excited for incoming Executive Director Shannan Corey, who will benefit from “a really great staff” at SPP. “I’m looking forward to positive things coming out of SPP – I feel I’m leaving on a really good note,” she concludes.

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.


May 24: BEST FROM THE BLOGOSPHERE

May 24, 2021

TFSAs are great, but may not be ideally suited for retirement savings: MoneySense

Writing in the Toronto Sun, MoneySense writer Joseph Czikk opines that the rise of the Tax Free Savings Account (TFSA) may spell trouble for the venerable Registered Retirement Savings Plan (RRSP).

He writes that the TFSA has been “a huge hit” since its inception in 2009, with more than two-thirds of Canadians now the proud owners of accounts.

“But,” he writes “there’s reason to suspect that the TFSA’s popularity is growing at the expense of the RRSP, and if that’s true, it should lead many Canadians to rethink how they plan to invest for retirement.”

Before 2009, he explains, the RRSP was the chief retirement savings tool for Canadians.

“RRSP contributions aren’t taxable, which incentivizes people to top up the accounts every year. The more money you put into your RRSP, the less tax you’ll pay,” the article notes.

When Canadians stop working, the article explains, they “generally convert their RRSP balance to a Registered Retirement Income Fund (RRIF), which they then draw from to cover expenses.” Money coming out of the RRIF is taxable, but “the idea… is that you’ll probably be in a lower tax bracket in retirement than you were in your career, meaning you’ll get to keep more of the money than you otherwise would have.”

Then, Czikk notes, “along came the TFSA,” which works opposite from an RRSP. No tax break for putting money into a TFSA, but no taxation when you take it out, the article adds.

There are tax penalties for robbing your RRSP savings before retirement, but with the TFSA, not so much.

“You can see how such an account — which could be drawn upon like any bank account and which sheltered capital gains — would become popular,” he writes.

“And so it went. Just eight years after TFSAs came on the scene, their aggregate value rocketed to match 20 per cent of RRSPs, RRIFs and Locked-In Retirement Accounts (LIRAs).”

But, the article says, there are unintended negative consequences with the TFSA.

Quoting The Canadian Tax Journal, the article notes that $4 of every $10 that would otherwise have gone to an RRSP are now going to TFSAs. The number of Canadians contributing to RRSPs is in decline. And, the article says, that’s a problem.

Research from BMO suggests that Canadians need about $1.5 million in retirement savings to retire comfortably, the article says. And while for some a TFSA could get you there, the fact that there are no withdrawal rules is posing problems, the article says.

Prof. Jonathan Farrar of Wilfrid Laurier University is quoted in the article as saying “we’re seeing that … a lot of people are not using it for retirement. People are using the TFSA as a bank account instead of an investment account, from which you make a very rare withdrawal.”

“Part of the genius of the RRSP is how it disincentivizes people from taking money out before retirement. The TFSA lacks that aspect,” the article adds.

If you rob your retirement nest egg before hitting the golden handshake, the article concludes, you’ll have to rely more on government income programs like the Canada Pension Plan and Old Age Security. The government is thinking about creating a TFSA that has withdrawal rules more like an RRSP to address this problem.

Save with SPP once spoke with some Australian colleagues. There, everyone gets put in a mandatory defined contribution pension plan where their employer makes all the contributions. But, as with a TFSA, there aren’t any strict rules on withdrawals – so you could take all the money out and buy a house, for instance. In a strange paradox, a country with one of the highest rates of pension plan coverage has experienced senior poverty and a heavy reliance on the means-test Age Pension – and the lack of withdrawal rules may be to blame.

TFSAs are awesome, for sure, but perhaps not ideally suited for retirement savings. The tried and true approach may be a better path. The Saskatchewan Pension Plan operates similarly to an RRSP, but has the added feature of being a locked-in plan. You can’t crack into your SPP early, meaning there will be more there for you when you don’t have a paycheque to rely on.  Be sure to check out SPP – delivering retirement security for 35 years – today.

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.


May 17: BEST FROM THE BLOGOSPHERE

May 17, 2021

Knowing what you really need as retirement income is key: My Own Advisor

Poll after poll seems to confirm the idea that Canadians think saving for retirement is a good thing – whether or not they are actually doing it.

But the My Own Advisor blog notes that unless you really understand what your retirement income needs are, you could actually be saving too much for retirement.

The blog starts by rolling out the party line on retirement saving – “live within your means; maximize savings to registered accounts like the registered retirement savings plan (RRSP) and tax-free savings account (TFSA) – then consider taxable investing;” then keep investment costs low.

“Rinse and repeat for 30 years,” the blog notes, and “retire with money in the bank.”

All good. However, the blog warns, there is an important question you must know the answer to before you begin drawing down your retirement income – “how much is enough?”

“When it comes to you, only you know what you need or want from retirement,” the blog explains. And figuring this out is not easy – the blog says it is akin to “putting together a 10,000-piece jigsaw puzzle.”

The blog says you need to thinking about the overall picture – your income from all possible source. If you have a pension at work, will you take it as soon as you can? When should you draw down your RRSP assets? Or should they be kept intact and rolled into a RRIF? Should you consider an annuity?

The blog then asks when you should start accessing any TFSA funds, the Canada Pension Plan, and Old Age Security. “Dozens more questions abound,” the blog says.

Some people, the blog says, “don’t know any of these answers, and err on the very conservative side.” The blog then publishes a nice exchange between the blogger and a retired reader in Germany, who makes two key points – “you don’t need as much as you think,” and “your cost of living steadily decreases as time wears on.” The reader also states that “every senior I’ve spoken with reminds me they are living on substantially reduced incomes, but with no differences in their standards of living.”

These are all great points, and very accurate, based on what we’ve observed since leaving the full time workforce nearly seven years ago. None of our friends and neighbours have had to make radical changes in their lifestyles due to retiring, but we all certainly spend a lot more time talking about taxes than we used to! So you do tend to just adjust to the reality of living on less, and after a while, it’s OK.

The article mentions annuities as an option – and if you’re a Saskatchewan Pension Plan member, they are an option for you as well. There are a couple of great things about annuities. First, you know exactly what you’ll get each month – and can provide for survivors if you wish. Second, you don’t have to worry about the markets – whether they are up or way down, you get the same income. Third, it’s a lot simpler for tax planning – your income is known in advance, not based on some percentage of your declining assets. Check out SPP today.

Written by Martin Biefer

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


May 10: BEST FROM THE BLOGOSPHERE

May 10, 2021

“Mind shift” on taxation needed when you enter retirement

Writing in the Sarnia Observer, financial writer Christine Ibbotson notes that taxation – fairly straightforward before you retire – gets a lot more complicated after you retire.

“Managing your taxes during your working years is relatively generic,” she writes. “You maximize your registered retirement savings plan (RRSP) contributions, purchase investments that attract the least tax possible on investment income or buy real estate to increase your net worth.”  The goal with taxes is get them as low as possible, she explains.

It’s a different ball game in retirement, Ibbotson notes.

“As you transition into retirement, the tax planning process shifts onto withdrawing assets, and doing so in the most tax-efficient manner,” she explains. This requires what she calls a minor “mind shift” for most people, the article notes.

“Most are preoccupied with minimizing current taxes each year. But this cannot be at the expense of your long-term objective for maximizing after tax income for your entire retirement (often estimated at 25 to 40 years),” she notes.

For that reason, Ibbotson says retirees need to get a handle on how the various types of income they may receive are taxed.

“There are three main types of taxation to consider: interest income, dividend income, and capital gains. All are taxed differently, so this makes it easier to structure your portfolio more efficiently when you are creating your plan with your advisor,” Ibbotson writes.

“As a general rule you want to place income that is going to be unfavourably taxed, (interest income) into tax-sheltered products such as tax-free savings accounts (TFSAs) or RRSPs. Investment income that generates returns that receive more favourable tax treatments (dividends or capital gains) should be placed in non-registered accounts.”

If you are retiring, it’s critical that you know what your income is from all sources – government retirement benefits, a workplace pension, and “anticipated income” from your own savings. This knowledge can help you to “avoid clawbacks as much as possible,” she explains.

Other tax-saving suggestions from Ibbotson include the ideas of Canada Pension Plan/Quebec Pension Plan “sharing,” splitting employer pension plans for tax purposes with your spouse, and holding on to RRSPs, registered retirement income funds (RRIFs) or locked-in retirement accounts (LIRAs) to maturity. Those age 65 and older in receipt of a pension (including an SPP annuity) will qualify for the federal Pension Income Tax Credit, another little way to save a bit on the tax bill.

“Simply put, paying less tax translates into keeping more money in your pocket, allowing you to enjoy a better quality of life,” she concludes.

This is great advice. Save with SPP can attest to the unexpected complexity of having multiple sources of income in retirement after many years of having only one paycheque. You also have fewer levers to address taxes – while you might be able to contribute to an RRSP or your SPP account, it’s probably only on your earnings from part-time work or consulting. You can ask your pension plan to deduct additional taxes from your monthly cheque if you find you are paying the Canada Revenue Agency every year.

The older you get, the more you talk about taxes with friends and neighbours, and many a decumulation strategy has been mapped out on the back of a golf scorecard after input from the other players!

Wondering how much your Saskatchewan Pension Plan account will total when it’s time to retire? Have a look at SPP’s Wealth Calculator. Plug in your current account balance, your expected annual contributions, years to retirement and the interest rate you expect, and voila – there’s an estimate for you. It’s just another feature for members developed by SPP, who have been building retirement security for 35 years.

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.


Pape’s book provides solid groundwork for a well-planned retirement

March 4, 2021

Gordon Pape has become a dean of financial writers in Canada, and his book Retirement’s Harsh New Realities provides us with a great overview of our favourite topic.

There’s even a shout-out to the Saskatchewan Pension Plan!

While this book was penned last decade, the themes it looks at still ring true. “Pensions. Retirement age. Health care. Elder care. Government support. Tax breaks. Estate planning,” Pape writes. “All these issues – and more – are about to take centre stage in the public forums.”

He looks at the important question of how much we all need in retirement. Citing a Scotiabank survey, Pape notes that “56 per cent of respondents believed they would be able to get by with less than $1 million, and half of those put the figure at under $300,000” as a target for retirement savings. A further 28 per cent thought they would need “between $1 million and $2 million.” Regardless of what selection respondents made, getting that much in a savings pot is “daunting,” the survey’s authors note.

Government programs like the Canada Pension Plan (CPP), Old Age Security (OAS) and the Guaranteed Income Supplement (GIS) help, but the benefits they provide are relatively modest. “If we want more than a subsistence-level income, we have to provide it for ourselves,” Pape advises.

He notes that the pre-pandemic savings rate a decade ago was just 4.2 per cent, with household debt at 150 per cent when compared to income. Debt levels have gone up since then. “Credit continues to grow faster than income,” he quotes former Bank of Canada Governor Mark Carney as saying. “Without a significant change in behaviour, the proportion of households that would be susceptible to serious financial stress from an adverse shock will continue to grow.” Prescient words, those.

So high debt and low savings (they’ve gone up in the pandemic world) are one thing, but a lack of financial literacy is another. Citing the report of a 2011 Task Force on Financial Literacy, Pape notes that just 51 per cent of Canucks have a budget, 31 per cent “struggle to pay the bills,” those hoping to save up for a house had managed to put away just five per cent of the estimated down payment, and while 70 per cent were confident about retirement, just 40 per cent “had a good idea of how much money they would need in order to maintain their desired lifestyle.”

One chapter provides a helpful “Retirement Worry Index” to let you know where your level of concern about retirement should be. Those with good pensions at work, as well as savings, a home, and little debt, have the least to worry about. Those without a workplace pension, with debt and insufficient savings, need to worry the most.

If you fall anywhere other than “least worried” on Pape’s list, the solution is to be a committed saver, and to fund your own retirement, he advises. He recommends putting away “at least 10 per cent of your income… if you’re over 40, make it a minimum of 15 per cent.” Without your own savings, “retirement is going to be as bleak as many people fear it will be.”

Pape recommends – if you can — postponing CPP payments until age 70, so you will get “42 per cent more than if you’d started drawing it at 65.” RRSP conversions should take place as late as you can, he adds. This idea has become very popular in the roaring ‘20s.

Pape also says growth should still be a priority for your RRSP and RRIF. “Just because you’ve retired doesn’t mean your RRSP savings need to stagnate,” he writes. And if you find yourself in the fortunate position of “having more income than you really need” in your early retirement needs, consider investing any extra in a Tax Free Savings Account, Pape notes.

Trying to pay off debt before you retire was once the norm, but the idea seems to have fallen out of fashion, he writes. His other advice is that you should have a good idea of what you will get from all retirement income sources, including government benefits.

In a chapter looking at RRSPs, he mentions the Saskatchewan Pension Plan. The SPP, he writes, has a “well diversified” and professionally managed investment portfolio, charges a low fee of 100 basis points or less, and offers annuities as an option once you are ready to retire.

This is a great, well-written book that provides a very solid foundation for thinking about retirement.

If you find yourself on the “yikes” end of the Retirement Worry Index, and lack a workplace pension plan, the Saskatchewan Pension Plan may be the solution you’ve been looking for. If you don’t want to design your own savings and investment program, why not let SPP do it for you – they’ve been helping build retirement security for Canadians for more than 35 years.

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.


Feb 1: BEST FROM THE BLOGOSPHERE

February 1, 2021

Canadians have socked away nearly $300 billion in Tax Free Savings Accounts

It’s often said that high levels of household debt, compounded by the financial strains of the pandemic, make it difficult for Canadians to save.

However, a report in Wealth Professional magazine suggests that Canadians – once again – are indeed a nation of savers. According to the article, which quotes noted financial commentator Jamie Golombek, as of the end of 2018, we Canucks had stashed more than $298 billion in our Tax Free Savings Accounts (TFSAs).

“[A]s of Dec. 31, 2018, there were 20,779,510 TFSAs in Canada, held by 14,691,280 unique TFSA holders with a total fair market value of $298 billion,” Golombek states in the article.

Again looking at 2018, the article says Canada Revenue Agency (CRA) data shows 8.5 million Canadians made TFSA contributions in ’18, with “1.4 million maxing out their contributions.” In fact, in 2018, the average contribution to a TFSA was about $7,811 – more than that year’s limit of $5,500 – because of the “room” provisions of a TFSA, the article explains.

The reason that people were contributing more than the maximum is because they were “making use of unused contribution room that was carried forward from previous years,” Wealth Professional tells us.

Another interesting stat that turns up in the article is the fact that TFSA owners tend to be younger. “Around one-third of TFSA holders were under the age of 40; two-fifths were between 40 and 65, and those over 65 made up about 25 per cent,” the article explains.

“This is not overly surprising since the TFSA, while often used for retirement savings, is truly an all-purpose investment account that can be used for anything,” Golombek states in the article.

However, there is a reason older Canadians should start thinking about TFSAs, writes Jonathan Chevreau in MoneySense.

“Unlike your Registered Retirement Savings Plan (RRSP), which must start winding down the end of the year you turn 71, you can keep contributing to your TFSA for as long as you live,” he writes – even if you live past 100.

He also notes that a TFSA is a logical place to put any money you withdraw from a Registered Retirement Income Fund (RRIF) that you don’t need to spend right away.

While tax and withdrawal rules for RRIFs must be followed, “there’s no rule that once having withdrawn the money and paid tax on it, you are obliged to spend it. If you can get by on pensions and other income sources, you are free to take the after-tax RRIF income and add it to your TFSA, ideally to the full extent of the annual $6,000 contribution limit,” Chevreau writes.

This is a strategy that our late father-in-law used – he took money out of his RRIF, paid taxes on it, and put what was left into his TFSA, where he could invest it and collect dividends and interest free of taxes. He always looked very pleased when he said the words “tax-free income.”

2021 marks the 35th year of operations for the Saskatchewan Pension Plan. The SPP is your one-stop shop for retirement security. Through SPP, you can set up a personal defined contribution pension plan, where the money you contribute is professionally invested, at a low fee, until the day you’re ready retire. At that point, SPP provides you with the option of a lifetime pension. Be sure to check out the SPP today.

Written by Martin Biefer

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


Dec 14: BEST FROM THE BLOGOSPHERE

December 14, 2020

Could we see a change in RRIF withdrawal rules?

An interesting idea that’s apparently being discussed in political circles is one of high interest to retirees – it’s the thought of doing away with minimum withdrawal rules from Registered Retirement Income Funds (RRIFs).

According to an article on the Sudbury.com site, this idea seems to be focusing on the fact that retirees may not want to withdraw funds – or at least, less funds than the usual minimum – from their RRIFs during a time when the markets have been volatile due to the worldwide pandemic.

“Each year, seniors with registered retirement income funds have to withdraw a minimum amount from their savings, which is considered taxable income,” the article explains.

“The Liberals shifted the marker this year, dropping the minimum for each senior by 25 per cent to ease concerns raised by the effect of the COVID-19 pandemic. That let those who could afford it leave more money in their tax-sheltered investments, hoping to recoup losses from the pounding the pandemic delivered to the markets,” the article continues.

The article notes that 2.1 million Canadians had RRIFs in 2018, with an average balance of $114,019. That average withdrawal, again according to the article, was $10,645 in 2018, with 41 per cent of RRIF owners withdrawing more than that.

When you’re too old to put money into a Registered Retirement Savings Plan (RRSP), one of your options is to transfer the funds into a RRIF. There, your funds continue to grow tax-free, but you are taxed on a minimum amount you have to take out each year – at least under the present rules.

Your other options for the RRSP, when it ends, are to buy a life annuity (more on that later) or to withdraw it all in cash and pay taxes on the entire amount.

So what’s the deal with this new RRIF idea?

It could be a good option for those of us with RRIF savings who don’t want to “sell low,” and take money out when markets aren’t strong. But, as the Sudbury.com article tells us, if this option ever comes to pass, it carries a price tag – for Ottawa.

The Parliamentary Budget Office, the article notes, says “cutting the minimum withdrawal all the way to zero would end up costing the federal treasury $940 million next year, rising each year until hitting just over $1 billion in 2025.”  That said, presumably – even if there is no minimum withdrawal amount – some seniors will still need to withdraw money from their RRIFs and would pay some of those “waived” taxes.

RRIFs aren’t perfect. As mentioned, you (currently) have to take money out even if markets tank, a set amount each year. As well, your income from a RRIF tends to fluctuate; you generally don’t get the same amount each year because you are withdrawing funds from a declining account balance. And, you could run out of RRIF money before you run out of life.

If you’re a Saskatchewan Pension Plan member, you have an additional option when you retire. You can convert your SPP savings to a life annuity. You’ll get the same income every month – for life – regardless of whether the markets go up or down, and the longer you live the more payments you get. SPP also has options for your spouse and beneficiary to receive income upon your death. Check this important SPP benefit out today!

Written by Martin Biefer

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


Oct 19: BEST FROM THE BLOGOSPHERE

October 19, 2020

Watch out for these 20 mistakes retirement savers are making

The journey between the here and now of work, and the imaginary future wonderworld of retirement, is a peculiar one. We all imagine the destination differently and no one’s super clear on the route!

The folks over at MSN have a great little post about 20 pitfalls we need to avoid on the retirement journey.

The first, and probably most obvious pitfall, is “not having enough savings.” The blog post notes that “32 per cent of Canadians approaching retirement don’t have any savings,” citing BNN Bloomberg research. “Middle-aged and older Canadians should start saving as early as possible,” the post warns.

If you’re already a saver, are you aware of the fees you are paying on your investments? “High fees can eat up huge amounts of your savings over time if you’re not careful,” the post states.

Many of us who lack savings say hey, no problem, I’ll just keep working, even past age 65. The post points out that (according to Statistics Canada), “30 per cent of individuals who took an early retirement in 2002 did so because of their health.” In other words, working later may not be the option you think it is.

Are you assuming the kids won’t need any help once you hit your gold watch era? Beware, the blog says, noting that RBC research has found “almost half of parents with children aged 30-35 are still financially subsidizing their kids in some way.”

Another issue for Canucks is taking their federal government benefits too early. You don’t have to take CPP and OAS until age 70, the blog says – and you get substantially more income per month if you wait.

Some savers don’t invest, the blog says. “While it may seem risky to rely on the stock market, the real risk is that inflation will eat up your savings over time, while investments tend to increase in value over long periods of time,” the MSN bloggers tell us.

Raiding the RRSP cookie jar before you retire is also a no-no, the blog reports – the tax hit is heavy and you lose the room forever. Conversely, there are also penalties for RRIF owners if they fail to take enough money out, the blog says.

Other tips – expect healthcare costs of $5,391 per person in retirement each year, avoid retiring with a mortgage (we know about this one), be aware of the equity risks of a reverse mortgage, and don’t count on your house to fully fund your retirement.

The takeaway from all of this sounds very straightforward, but of course requires a lot of self-discipline to achieve – you need to save as much as you can while eliminating debt, all prior to retirement. And you have to maximize your income from all sources. That’s how our parents and grandparents did it – once there was no mortgage or debt they put down the shovel and enjoyed the rest of their time.

If you have a workplace pension, congratulations – you are in the minority, and you should do what you can to stay in that job to receive that future pension. If you don’t have a pension at work, the onus for retirement savings is on you. If you’re not sure about investments and fees, you could turn to the Saskatchewan Pension Plan for help. They have been growing peoples’ savings since the mid-1980s, all for a very low investment fee, and they can turn those savings into lifetime income when work ends and the joy of retirement begins.

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 31: BEST FROM THE BLOGOSPHERE

August 31, 2020

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Written by Martin Biefer

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


Dreams can be realized if you put the work in, book suggests

August 6, 2020

A glance at the title on the Indigo website – How to Retire Debt-Free & Wealthy – made this writer decide to add Christine Ibbotson’s book to our retirement library. What else, after all, could anyone want from their retirement?  What’s great about this book is that it illustrates the path you need to take to get there, and uses dozens of different anecdotal/testimonial trails to illustrate the key points.

Ibbotson starts by noting that “very few clients (she is a licensed financial and investment advisor, estate planner and tax specialist) entering retirement will want to compromise their current lifestyles, but will find it difficult to live on less income, especially if they still have a mortgage or outstanding debt.”

That’s seminal retirement advice, and the book builds on it.

A key part of the book is her five-step methodology to establishing what she calls “your core plan.”  Step one is debt elimination, she writes. No easy way out – the best step is to target one of your debts with extra payments, pay it off, and then go after the others. “Once all the debt is paid, you can use these new-found funds to start a savings program towards investing,” she says.

The second idea is one we’ve not seen before, specifically the idea that your “mortgage amortization should match the years left to your retirement.”

“If you are now 45, the amortization on your mortgage should be 20 years,” she explains. Why this idea is so smart is that it basically guarantees you will retire without a mortgage, which is usually the largest debt we Canadians carry. Carrying a mortgage when you have less money (because you are retired) is not always a lot of fun.

Other ideas in the five-step plan are to set up a daily cash journal and track all expenses (so you know where every nickel of your money is going), determining your total debt-servicing ratio, and to “explore ways to increase your wealth” once debt is out of the picture.

In one of the many examples in the book, 50-somethings “Tracie and Kyle” are able to get out of a debt quagmire by tracking and then dramatically slashing their discretionary spending, enabling them to live on one salary. Then, both added side gigs, their debts were addressed and eliminated, and their turnaround resulted in an education plan for the kids and retirement savings for themselves.

The experience turned great spenders “into great savers,” the book declares.

For those who can’t imagine becoming savers, the book has a chapter just for you on “Ways to Save Every Day.” Do your own house cleaning and cut your own lawn. Do small repairs yourself. Cut back on phone and cable. Bundle services where you can. Buy second hand. Drive your car longer.  Cut back on expensive memberships. Buy generic brands. Buy in bulk, and shop when there are sales. There are many more tips like these in this well-thought-out volume.

There’s even advice on the tricky problem of making your money last in retirement. Ibbotson suggests when you are retired, there will be a “honeymoon phase” for the first five years of retirement, followed by the middle age of retirement (years six to 20) and the “long-term” phase, 20 years and beyond.

Use your unregistered savings for the first phase as much as you can. Start tapping into RRSPs, pensions, and government benefits in phase two. By phase three you will need income from your RRIFs and fixed-income investments, which you will have been “laddering” in phases one and two.

This great little book is well worth adding to your collection.  If, like the book suggests, you are banking on retiring more than 20 years from now, it’s probably well past time to start putting away money for retirement. The Saskatchewan Pension Plan offers you a choice of a Balanced Fund or Diversified Income Fund for your contributions. Be sure to check out SPP today!

Written by Martin Biefer

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