Tag Archives: RRSP

Aug 31: BEST FROM THE BLOGOSPHERE

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.

About one-third of Canadians lack an emergency fund – here are some tips to get you started

According to a recent article in MoneySense nearly two-thirds of Canadians have built an emergency fund. That’s great, but means that one-third of us have not.

For those of us is in that bottom third, an emergency fund is designed to cover “unexpected expenses, such as urgent major repairs (not renovations) to your home or car, unexpected medical expenses not covered by universal healthcare or insurance, or lack of income due to job loss,” MoneySense explains.

As many of us are finding out during this bizarre year 2020, without an emergency fund, these unexpected expenses are being covered “with a credit card… payday loans, or heavily using your unsecured line of credit,” the article continues. All of these are high-interest options, and the interest piles up if you can’t pay the money back in full.

Some folks also raid their retirement savings to pay the bills, a strategy that can backfire at tax time or in the distant future when you’re trying to leave the workforce – more about that later.

MoneySense recommends we all set aside enough money to cover “three to six months’ worth of fixed expenses.” OK, so we know the what and the why – let’s turn to the how.

An emergency fund, the article suggests, should not be set up like a retirement savings account. “Saving for an emergency isn’t about long-term goals, increasing your wealth, or planning for retirement, it’s about having immediate access to cash,” the site advises.

MoneySense recommends that you first create a budget to see how much you can set aside each month. That amount should be invested in either a TFSA or a high-interest savings account, the article notes. “Disconnect the account from your debit card so you won’t spend it,” the article advises. Automate payments so you don’t “forget” to make them, MoneySense says. “Pay yourself first.”

At Manulife’s website, the advice is similar. An additional idea on how to build the emergency fund is to cut back on costs – “think about how much you spend on coffee, lunches out, and other impulse purchases. Give up one or two things and week and stash that money into your savings,” the site suggests.

They also reiterate the idea of making savings automatic – treat your emergency fund “like a bill… the sooner it’s saved, the less time you will have to spend it.” Manulife also warns against the dangers of analysis paralysis – start small, say $10 a week or so, and ratchet things up as you go along.

Sun Life covers much of the same ground, but warns against using debt as an emergency fund or tapping into retirement savings.

“All withdrawals from RRSPs (except for education and home purchases, under the Lifelong Learning Plan and the Home Buyers’ Plan, respectively) are subject to income tax and will result in the permanent loss of contribution room – that is, once you’ve taken it out, you can’t put it back in. Any withdrawals from your RRSP are immediately subject to withholding tax,” Sun Life explains.

“If you withdraw up to $5,000, the withholding tax rate is 10 per cent. If you withdraw between $5,001 and $15,000, the withholding tax rate is 20 per cent, and more than $15,000, the rate is 30 per cent. These tax rates apply in all provinces except Quebec, where provincial tax rates apply on top of the federal withholding tax,” the Sun Life article warns.

So to recap – create a savings account that isn’t hooked up to any of your cards, and automatically transfer money into it regularly. Keep the money in some sort of high-interest savings account so that it remains liquid, and ready to spend when an emergency arrives. You don’t want to risk losses here.

Think of it as an obligation, like a bill, that you have to pay each month. Then set it and forget it, until the next emergency comes along.

And if you’re busily automating your emergency fund savings, think about doing the same thing for your Saskatchewan Pension Plan retirement account. Have a pre-set amount earmarked for retirement automatically withdrawn from your bank account every payday. That way, just as is the case for a well-designed emergency fund, you’re paying your future self first.

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

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.

The CAAT is out of the bag – any employer can now join established “modern DB” plan

We often hear how scarce good workplace pensions are, and how many employers, notably those in the private sector, have given up on offering them altogether.

But, according to Derek Dobson, CEO and Plan Manager of the Colleges of Arts and Technology (CAAT) Pension Plan, there is an option for any Canadian employer that doesn’t want to go through the effort and expense of managing a pension plan for their employees. That option is CAAT’s DBplus plan.

Dobson tells Save with SPP that there are three main themes as to why some employers – with or without their own pension plan – might want to look at DBplus.

Running what is called a “single employer” defined benefit (DB) plan means the risk of ensuring there’s enough money invested to cover the promised benefits rests on the shoulders of one employer. In a multi-employer plan, however, many employers are there to shoulder the load – the risk is shared.

As well, he notes, it might be a chance to upgrade pension benefits. “A lot of organizations want to have access to something better for their people… some employers offer nothing, or a group RRSP. Now they can move to a modern DB plan,” Dobson explains. One study by the Healthcare of Ontario Pension Plan (see this prior Save with SPP post) found that most Canadians would take a job with a good pension over one that pays more, Dobson notes.

A final benefit, he says, is the ability that DBplus has to move all employees to a common retirement benefit platform. “In many organizations, you may find that one group of employees has nothing, one has a defined contribution plan, others have a DB plan that is now closed to new entrants… DB plus allows you to put everyone on the same platform,” he says.

Noting that another large pension plan – Ontario’s OPSEU Pension Trust – has launched a similar program for non-profit organizations, Dobson says the idea of leveraging existing pension plans to deliver pensions to those lacking good coverage “is great…the long and the short of it is that there’s a general belief that these larger plans want to put up their hands to help where they can.”

“It’s the right thing to do,” he says.

Why are pensions so important?

Dobson points out some key reasons. “The average person these days will live to age 90, and on average, they retire at age 64 or 65,” he explains. “That’s 25 years in retirement. So having a secure, predictable income, one with inflation protection and survivor pensions, and that is not being delivered for a profit motive – that’s why these plans are so powerful.”

Another great thing about opening up larger plans to new employers is that it addresses the problem of “pension envy,” Dobson says. Instead of pointing out who has a good pension and who doesn’t, now “everyone has access to one, to the same standard.”

Those without a pension have issues to face when they’re older, he warns. “The Canada Pension Plan and Old Age Security systems weren’t designed to be someone’s only source of income,” he explains. “We had a three-pillar system in the past – CPP, OAS, and the third pillar, your workplace pension plan and your private savings,” Dobson says. But a large percentage of Canadians don’t have pensions at work, and a recent study by Dr. Robert Brown found that the median RRSP savings of someone approaching retirement age is just “$2,000 to $3,000,” Dobson says. Yet the same study found Canadians are willing to try and save 10 to 20 per cent of their income for retirement.

Dobson says he is energized by the goal of bringing pensions to more Canadians. “It’s a way of making Canada better,” he concludes.

Here’s a video about how the CAAT pension plan delivers on benefit security.

We thank Derek Dobson for taking the time to speak to Save with SPP.

If you don’t have a workplace pension, or the one you have offers only modest benefits, don’t forget the Saskatchewan Pension Plan. SPP allows you to decide what your savings rate will be, grows those dollars at a very low management rate, and can convert the proceeds to a variety of lifetime pensions when you retire. Check them 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.

JUL 6: BEST FROM THE BLOGOSPHERE

New research from the World Economic Forum, reported by Corporate Advisor, suggests the “savings gap” between what we should set aside for retirement, and what we actually have, is on track for monumental growth.

“Globally, experts are concerned many people could be sleepwalking into retirement poverty. The World Economic Forum (WEF) highlighted that the gap between what people save and what is needed for an adequate standard of living in retirement will create a financial black hole for younger generations,” the Advisor’s Emma Simon reports.

The WEF looked at the some of the world’s largest pension markets, including Canada, the U.K., Australia, the U.S., the Netherlands, China, India and Japan, and concluded “the gap” could reach a staggering $400 trillion U.S. in 30 years.

But, the article says, there is still time to do something to avert a crisis.

“With ageing populations putting increasing pressure on global pension and retirement plans, employees, employers and governments need to take more responsibility and act to prioritise pensions and savings,” Simon explains.

Countries around the world have done some interesting things to boost retirement savings.

In the U.K., the article notes, “automatic enrolment” was rolled out in 2012. This means that new employees are automatically signed up for their workplace pension plan, with an option to opt out. Thanks to this, there are 10 million more pension plan members in the U.K., although there are concerns about 9.3 million who aren’t in plans because they were too old for auto-enrolment, the article explains.

In Australia, the Superannuation fund system was made mandatory “in 1992 for all employees older than 17 and younger than 70 earning more than $450 (AUD) a month.” So this means everyone is saving on their own – but with the current maximum contribution of 9.5 per cent (soon to rise to 12 per cent), there are questions as to whether they are saving enough.

A Benefits Canada article from a couple of years ago raised the same question – are Canadians saving enough for retirement on their own? While Canadians had accumulated an impressive-sounding $40.4 billion in RRSPs as of 2016, the article notes that the median contribution annually was just $3,000.

As of 2018, reports the Boomer & Echo blog, the average Canadian RRSP was an impressive sounding $101,155. But if someone handed you $100 grand and then said “live off this for 30 years in retirement,” it wouldn’t sound quite so great.

There’s no question that saving needs to be encourage in Canada and around the world. The Canada Pension Plan and Old Age Security both provide a pretty modest benefit, and most of us don’t have a workplace pension. So steps should be taken to encourage more access to pensions, to look at increases to government benefits, and to encourage more saving.

If you don’t have a workplace pension plan, the Saskatchewan Pension Plan may be just what you’re looking for. The SPP is a defined contribution plan. You can contribute up to $6,300 a year, and your contributions are carefully invested at a very low fee. When the day comes that work is no longer a priority, the money you’ve accumulated through growth and ongoing contributions can be converted to a lifetime pension. Check them 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.

Napkin Finance: breaking down complex concepts in bite-sized nuggets of wisdom

Author Tina Hay’s Napkin Finance is, as the name would suggest, a great way to boil complex financial planning concepts into easy, digestible pieces.

While the book is intended for U.S. readers, there’s a treasure trove of good information for those of us who reside north of the border.

In the chapter on saving, she quotes famed investor Warren Buffett as saying “do not save what is left after spending, but spend what is left after saving.” It’s a great idea, she writes, “to make sure you have cash available for emergencies, unexpected bills… and future goals,” and a savings account, ideally separate from your spending account, is a great way to get there.

Hay talks about budgeting ideas, including what she calls “the 50-20-30 budget.” That’s “50 per cent for essentials, 20 per cent for financial goals, and 30 per cent for flexible spending,” the book explains.

In talking about debt, she calls borrowing for a home or education “good debt,” and credit card balances “bad debt,” noting it takes the average American 12 years to pay off a credit card if he or she only pays the minimum amount owing.

If you want to have a good credit rating, Hay advises, then pay your credit card on time and, where possible, in full; don’t miss loan payments; resolve your bank overdraft (pay it off), pay all bills on time and avoid going into collection. All these factors are strikes against good credit, she warns.

Investing, she writes, can be a “powerful way to grow your wealth,” chiefly because stocks generally perform well over the long term. By buying stock, you become “a part-owner of the company” and share in profits via growth in the value of your shares and, occasionally, through dividends. With a bond, “you become the lender to the entity that issued the bond,” and the interest you receive is basically like rent on the use of your money. Hay says alternate investment classes can also be good in your portfolio, including real estate (“you may earn a return when your tenants pay rent”), hedge funds, and private equity investments.

Watch for fees if you invest in mutual funds, she writes; fees are lower with exchange-traded funds or if you use a Robo-adviser rather than a broker.

For retirement savings, Hay advises that you “save 15 per cent of your income and invest heavily in stocks while you are young.” She says you should “take advantage” of tax-assisted savings (in Canada, this would be things like RRSPs or workplace registered pension plans). Don’t forget, she writes, to think about your estate planning as well – don’t leave the decision on what should happen to your money and possessions up in the air.

This is a nicely-written book that’s offering up complex topics in a simple, easy-to-digest way. There’s a nice splash of colour, such as the fact that some people measure inflation over time by looking at the historic price of a Big Mac! It’s definitely worth a read.

If you aren’t great at investing, and want to follow a diversified approach while avoiding high fees, take a good look at the Saskatchewan Pension Plan. Through SPP’s Balanced Fund your investment dollar accesses Canadian and international equities, bonds, mortgages, real estate, infrastructure and short-term investments – all for a very low management fee.

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. He and his wife live with their Shelties, Duncan and Phoebe, and cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

MAY 11: BEST FROM THE BLOGOSPHERE

Recession, sure – but keep saving what you can for retirement, experts say

Only the very oldest of us will remember times less scary than the spring of 2020, with so much illness, so many folks forced to stop working and stay home, and scary markets for investors.

Many of us are naturally more worried about keeping afloat financially than retirement savings.

However, a report in The Motley Fool blog says that this COVID-19 crisis should not be a reason to entirely give up on retirement saving.

“The coronavirus is driving the global economy into a recession. Stock markets are very volatile and it’s hard to tell where they’re headed. While it’s normal to be worried, you should continue to save for your retirement,” the blog advises.

You should continue to try and set aside “a small portion of your income for retirement savings,” notes the blog. One reason why is that if you don’t put money in a Registered Retirement Savings Plan (RRSP) or registered pension plan, “you my not have as much extra money as you expect… as you’ll get a higher tax bill.”

The Motley Fool agrees with the idea of directing some of any precious extra dollars to an emergency fund in this crisis, “in case you get sick or lose your job.”

But, notes the Motley Fool, those who decided to quit saving for retirement during the last big recession more than a decade ago found themselves far behind those who kept saving and who “stayed on course.”

“A study by Teresa Ghilarducci, director of the Schwartz Center for Economic Policy Analysis at the New School for Social Research, showed the negative impact on those who stopped or decreased their contributions during the 2008-2009 recession. People who came out of the markets sold low and bought high. We have to buy low and sell high to make money,” the blog reports.

“After the Great Recession, 64 per cent of high-income workers and 56 per cent of low income workers saw their accumulated retirement savings increase,” the blog adds.

Let’s recap what the blog is telling us, because there are several moving parts here. Some folks stopped saving for retirement during the last recession, and others sold their investments at the bottom of the market.

But those who kept contributing, and who didn’t sell, saw the value of their investments rise after the crisis was over.

It’s been said that every crisis has a beginning, a middle, and an end. It’s very hard to see the end when you’re at the beginning or even in the middle, but it will come eventually. If you can continue saving, even at a reduced rate, and if you can hold off selling your investments, your future you will thank you for remembering that one day, those savings will be your retirement income.

There’s a great little retirement savings trick that can really work well when markets are low. Say you’re contributing $100 per pay to your retirement account, and let’s say it is a balanced fund, such as that offered by the Saskatchewan Pension Plan. If you continue to chip in the same amount while markets are low, you are essentially buying low, which will help grow your savings when better times return.

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

Time to use realistic yardstick to measure senior poverty: John Anderson

It’s often said that Canadian seniors are doing fairly well, and that the rate of senior poverty experienced back in the pre-Canada Pension Plan days has dropped considerably.

However, says Ottawa-based union researcher John Anderson, the yardstick used to measure senior poverty levels needs to be updated to international standards. He took the time recently for a telephone interview with Save with SPP.

Currently, says Anderson, a “Market Basket Measure” (MBM) system is used to measure the cost of living, a “bizarre” system that factors in the cost of housing, clothing, food and other staples by province and region. By this old system, it is reckoned that 3.5 per cent of Canadian seniors live in poverty, although recent tweaks to the measurement process will see this number jump to 5.6 per cent.

The intricate MBM system – unique to Canada — goes into arcane details such as “what clothes you should have, how many pairs of long underwear, what kind of food you should buy, how many grams of butter. And there’s a sort of built-in stigmatization of rural living; it’s assumed that you don’t need as much money to live in a rural area as you do to live in Toronto,” Anderson says. The opposite is often true, he points out.

LIM system a better comparator

Anderson says the rest of the world uses a different measurement, one that’s much simpler, Anderson explains. The low income measure (LIM) scale defines poverty as being “an income level that is less than 50 per cent of the median income in the country,” he says. “This gives you a very clean comparison.”

By that measure, a startling 14 per cent of Canadian seniors are living in poverty, which is more than triple that figure that MBM currently quotes. “When you think about it, it means they are making less than half of what the average Canadian earns,” he explains. “They are not earning a lot.”

Why are today’s seniors not doing so well? Anderson says there has been a decline in workplace pensions over the years. “The numbers are way down,” he says. As recently as 2005, there were 4.6 million Canadians who belonged to defined benefit plans through work. By 2018, that number had dropped to 4.2 million, “at a time when we have seen a significant increase in the population, and more seniors than ever before.”

Defined benefit plans are the kind that guarantee what your monthly payment will be. About two million Canadians belong in defined contribution plans, which are more like an RRSP – money contributed over a working person’s career is invested and grown, and then drawn down as income in retirement.

“Only 25 per cent of workers have defined benefit plans now. And only 37 per cent have any kind of registered pension plan. Most have nothing,” says Anderson. This lack of pensions in the workplace, and the tendency towards part time and “gig” work that offers no benefits, is a primary reason why senior poverty is on the upswing, he contends.

“The kinds of jobs people are in today have changed,” Anderson explains. “People are working more non-standard jobs, gig jobs, contract work. Many are not even contributing to the CPP.” They tend not to be saving much on their own with these types of jobs, so it means that “when they retire, if they work that way, they don’t get much of a pension.”

That will leave many people with nothing in retirement except Old Age Security and the Guaranteed Income Supplement, Anderson says. Neither the OAS or the GIS has “really kept up” with increases in living costs. The most anyone can get from these two programs is about $1,500 a month, for a single person, he says. “These major government pension plans have not yet taken a leap forward,” he says. “The government has improved the Canada Pension Plan, and people will benefit from that (in the future),” he explains, but these other two pillars should get a look too.

Looking forward

Anderson says by moving to a LIM-based measurement of poverty, governments could have a more realistic basis on which to make program improvements.

“We already have a form of universal basic income for seniors through the OAS and the GIS,” he says. “The monthly amounts these pay out need to be raised.”

The goal should be to raise income for seniors to the LIM target of 50 per cent of Canada’s median income which is $30,700 per person based on median after tax income for 2018.

He also thinks that the OAS should be an individual benefit, rather than being designed for couples or singles. “You get less per person with the couples’ benefit; people should get the same amount,” he explains.

He says seniors today face an expensive retirement, with possible time spent in costly long-term care homes. “Can I survive when I retire – this isn’t a question that our seniors should have to worry about,” he explains.

Anderson remains optimistic that the problem will be addressed. The Depression prompted governments of the day to begin offering OAS; experience during and after the Second World War led to the introduction of EI and the baby bonus. CPP benefits started following a serious period of senior poverty in the 1950s. “We have to do better, but maybe there’s a silver lining with the COVID-19 situation, and maybe government will take a closer look at this issue again,” he says.

We thank John Anderson for speaking with Save with SPP. John Anderson is the former Policy Director of the federal NDP and now a union researcher.

If you don’t have access to a workplace pension, consider becoming a member of the Saskatchewan Pension Plan. It’s an open defined contribution plan – once you’re a member, the contributions you make are invested and grown over time, and when you retire, you have the option of turning your savings into a lifetime monthly pension. Check them 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. He and his wife live with their Shelties, Duncan and Phoebe, and cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

Apr 27: Best from the blogosphere

The pros and cons of allowing emergency access to retirement funds

It’s been a grim time for all of us, coping with this pandemic, and Save with SPP and everyone at the Saskatchewan Pension Plan hopes everyone is staying safe.

With businesses closing, and the jobless rate rising, some experts are suggesting that raiding the retirement cookie jar be allowed – penalty-free – to help people access savings during the emergency.

Interviewed by Benefits Canada, noted pension expert and actuary Malcolm Hamilton was asked what he thought about a plan by Australia to allow folks there to withdraw up to $10,000 a year from their superannuation plans this year and next.

““It looks to me very creative and very sensible,” Hamilton, also a senior fellow at the C.D. Howe Institute, told the magazine. The magazine notes that the withdrawal option Down Under is open only to people “who are unemployed or who have had their working hours reduced by 20 per cent or more.”

“Telling people you’ve got to leave your money in your pension plan so you have enough money later, when you don’t have enough money now, is really stupid… who, given a choice, would elect to be hungry now instead of hungry later? You have to deal with the immediate needs first,” Hamilton tells Benefits Canada.

Other experts, the magazine reports, agree. Financial author Fred Vettese also sees the Australian policy as a good idea.

“Why not do this? What they’re doing is simply giving people access to their own money sooner. I don’t see anything wrong than that. And they’re not giving them all their money; it’s fairly limited and it’s also under fairly strict conditions,” he tells the magazine.

Other experts see downsides to allowing an early withdrawal of retirement savings.

Bonnie-Jeanne MacDonald of Ryerson University’s National Institute on Ageing tells the magazine she is concerned that allowing emergency access to retirement funds might be “short-sighted.” (Here’s a link to an earlier Save with SPP interview with her.)

“The idea is that this will pass and, if we can get beyond it without tapping into our nest egg, then that’s the better approach because life will need to go on,” she tells the magazine.

And Hugh O’Reilly, a senior fellow at the C.D. Howe Institute, says people who take their money out now, at the peak of a crisis, will be effectively selling low, and will miss out when markets rebound. “I think it’s going to do it much more rapidly than in a typical bear-market scenario,” he tells Benefits Canada.

There are already a few allowable reasons – making a down payment for a home, or paying for education – where Canadians can tap into their Registered Retirement Savings Plans (RRSPs) early. But in both cases, the money is supposed to be repaid, and those who don’t repay are taxed annually on what they should have repaid. And if you just withdraw RRSP money, there’s a withholding tax followed by a possible second tax hit when you file your income tax.

That all said, we have never seen times like these. Maybe the government will decide to permit withdrawals with some sort of repayment option down the road. Save with SPP worries about people taking money out of their retirement savings for other purposes and then not being able to afford to replace it, because that could lead to hardship when they are older.

One great thing about being a member of the Saskatchewan Pension Plan is that it is an open plan. You can decide how much to put into your account, and when times are tough, you can choose to reduce or even stop contributing until better times return.

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