SPP

Romancing your sweetie on a budget

February 9, 2017

By Sheryl Smolkin

You are still paying off the credit card bills from Christmas. Your SPP and RRSP contributions have to be in before the end of February. You don’t have time to go to the mall and even if you did, you don’t have any idea what to buy.

Four years ago I posted Thrifty ways to romance your valentine. Since then I’ve had lots more ideas. So even if you were planning to stick with the traditional flowers and chocolates, consider some of these ideas as an add-on.

  1.  Sign up for a class he/she has suggested that both of you to take together. It could be for anything from cake decorating to ballroom dancing to couples’ yoga.
  2. Volunteer together at a local homeless shelter, food bank or even the SPCA. Doing something for others will help deepen your own relationship.
  3. Pack a lunch with all kinds of goodies including a beautiful cupcake for dessert. Add a personal, humorous, handwritten note.
  4. Load phone apps that will make life easier and teach your partner how to use them. Also add a romantic picture of the two of you as the wallpaper on his/her phone.
  5. Rerun romantic movies that one of you may never have seen or that you saw together at a special time. Classic examples are: When Harry Met Sally, Sleepless in Seattle, Love Actually and You’ve Got Mail.
  6. Binge watch on Netflix a season or two of a romantic show on a cold winter weekend and plan snacks that fit the theme. Tea and scones with clotted cream and strawberry jam would be a perfect fit for Downton Abbey.
  7. Clean the house, make the beds and do the laundry, all without having to be asked. Give your lover coupons that can be redeemed at a negotiated time for future cleaning services.
  8. Pick a pet together and bring the puppy or kitten home on Valentine’s Day. This assumes you both want a pet and it was just a matter of time until you added one to your family. A red collar and leash would be in keeping with the day.
  9. Plan an active adventure. Take a hike; go skating on an outdoor rink and drink hot chocolate. Snowshoe through the park or toboggan down a hill. Winter is much more bearable when you embrace it instead of constantly trying to avoid it.
  10. Arrange an unexpected visit with a loved one, i.e. a housebound senior, a new grandbaby or your youngest child who is away at college for the first time. Helping to bring lonely people together on or around Valentine’s Day will create unforgettable memories.

2016 RRSP countdown is on!

February 8, 2017

With the RRSP deadline a mere three weeks away, we’re providing you with some information that will make this time of year easier for everyone.

If you aren’t big on reading this early in the morning here is a video highlighting the same information. Links are below.

Wednesday, March 1 is the final day to contribute to your RRSP for the 2016 tax year. SPP contributions must be received at the office in Kindersley on or before that day.

There’s several fast convenient ways to make your SPP contribution in order to meet the deadline:

  • Use your credit card at saskpension.com;
  • Use your online banking service; or
  • Call our office (1-800-667-7153) during regular business hours.
  • Cheques can be mailed to our office; please make sure you mail them no later than mid February.
  • If you are in the Kindersley area come visit our office and make your contribution in person.

The SPP balanced fund returned 6.53% in 2016. The short-term fund return was 0.52% in 2016. You are can see returns from prior years here.

You can reach us at in**@sa*********.com or check out our website:  saskpension.com.  Our wealth calculator can help you determine how long your money will last in retirement.

Thanks for your continued support of SPP.


Who does NOT need an RRSP?

February 2, 2017

By Sheryl Smolkin

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

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

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

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

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


Why you should join SPP

January 19, 2017

By Sheryl Smolkin

It’s registered retirement savings plan season again and media ads from financial institutions encouraging you to open a plan and invest in their products are running 24/7. But you are really not sure whether you should opt to save your hard-earned money in the Saskatchewan Pension Plan, an RRSP or a tax-free savings plan.

There is not a single answer that will meet the needs of every individual or their family. You may opt to split your savings among the three types of plans in order to meet different savings objectives. But the fact is that SPP is the ONLY one of these three types of registered plans that has a single purpose:

“To help you save money exclusively for retirement.

You can withdraw money from your RRSP and pay the taxes in your year of withdrawal, but when you do take money out, that contribution room is totally lost to you. You can also take money out of your TFSA and your contribution room is restored the following year. However, every time you withdraw money you interrupt the tax-free growth of your contributions plus investment earnings.

SPP is a locked-in pension plan which means your account must stay with the Plan until you are at least 55 years old. In the event of your death, the money in your account will be paid to your beneficiary. Within six months of joining SPP, you can withdraw your contributions if you decide that you do not wish to participate in the Plan. After six months, the funds are locked in.

SPP follows the same income tax rules as an RRSP except that SPP is locked in. Under tax rules contributions to SPP can be used as repayments to the Home Buyers Plan (HBP) and the Lifelong Learning Plan (LLP). However SPP withdrawals are not permitted for this purpose. A taxpayer can designate all or part of the contribution as a repayment on Schedule 7 and file it with their tax return. SPP does not track repayments to the HBP.

The plan is designed to be very flexible and to accommodate your individual financial circumstances. Even contributing $10 per month will build your SPP account and provide you with additional pension at retirement. The maximum contribution is $2,500 per year subject to available RRSP room and there is no minimum contribution.

Transfers into SPP from RRSPs and unlocked RPPs of up to $10,000 a year are also allowed and spousal contributions are permitted. Contributions you make to a spouse or common-law partner’s account reduce your RRSP deduction limit. The total amount you can deduct for a given tax year cannot be more than your RRSP deduction limit. Contribution and PAC forms have a section to designate contributions for spousal deduction.

Between the ages of 55 and 71 when you opt to retire, one of the options available is to transfer to the amount in your SPP account to either a Prescribed Registered Retirement Income Fund (PRRIF) or a Locked-in Retirement account (LIRA) with another financial institution.

You can also select an annuity option. The amount of your monthly payment will depend on which annuity option you choose, your age at retirement, your account balance, and the interest and annuity rates in effect when you retire. SPP can provide a personal pension estimate for you if you call the toll-free line at 1-800-667-7153.

*****

It’s been six years since I started working with SPP and wrote my first article about the plan. I joined SPP and have transferred $10,000 in every year since. According to my June 2016 statement I had $80,140.74 in my account. By the time I am 71, I hope to have a total of about $150,000 in the plan. I like the low fees (1% a year or less) and that my money is professionally managed.

In five years I intend to purchase a joint and survivor annuity to provide a guaranteed monthly payment for my husband’s and my lifetime. This stream of income will provide further income security as we age in addition to our other pension income.

We also have other registered and unregistered savings which we can use for a variety of purposes including funding an estate for our children. But I’m pleased that that over a 30 year period the average SPP balanced fund return has been 8.10% and as of the end of November 2016, balanced fund YTD returns were 5.29%.

If you want to fund a pension that will be there when you need it most, check out SPP or top up your SPP savings. Then allocate the balance of your savings for next year to other available accounts.

You will be glad you did. After all, no one wants to put all their eggs in one basket!


One in three Gen-Xers expect to work during retirement

January 5, 2017

By Sheryl Smolkin

According to a recent TD survey, more than two-thirds of Canadians between the ages of 35 and 54 say they’re not saving enough for retirement, and one in four say not being ready for retirement is keeping them up at night. As a result, the majority of Gen-X Canadians (60%) who aren’t saving enough do not expect to be able to retire on time and half as many (29%) expect to still be working in some capacity during retirement.

The top barrier preventing Gen-Xers from retiring on time is everyday financial demands like living expenses, mortgage or rent, and childcare costs (61%), followed by existing debt (42%) and major unexpected life events such as divorce or death of a spouse (19%). Given these challenges, it’s not surprising that more than half (54%) of Gen-X Canadians surveyed say they need help meeting their financial goals, with a majority feeling guilty about not saving enough for retirement and wishing they had started earlier.

If you have fallen behind in saving for retirement, here are some ways you can get on track to achieving your savings goals and become retirement-ready.

Track your spending
More than three in five (61%) Gen-Xers attribute everyday financial demands as the reason they don’t expect to retire on time. Keeping a record of your spending is a simple way to see where your money goes each month and look for ways to cut back on expenses to free up funds and help boost your savings.

Once you’ve identified some monthly savings, consider arranging for those funds to be transferred automatically into Saskatchewan Pension Plan, a Retirement Savings Plan (RSP) or Tax-Free Savings Account (TFSA). As you identify even more savings over time, you can increase the amount transferred automatically each month. Remember to also factor in any additional money you receive throughout the year such as annual raises or bonuses.

Tackle your debt while also saving
Four in ten (42%) Gen-Xers attribute existing debt as a top reason that prevents them from retiring on time. While everyone’s financial picture is different, there are a few key steps you can take immediately to help pay down debt while building up savings:

  • As you start tracking your spending and becoming more in control of your finances, take a look at where your money is going and determine where you can free up cash flow to go towards paying down debt.
  • Seek out groups and communities – either online or in your neighbourhood – where you can sell stuff you no longer use or need, and use those funds to pay down your debt. One person’s junk is another person’s treasure.
  • Look for tips and tools online, like this Debt Repayment Calculator, to help you become organized by determining how much you owe and prioritizing what to tackle first. You can stay on top of your debt more easily when you have a repayment plan.

According to the survey, of Gen-Xers who are already saving for the future, the majority (64%) rely on RSPs to help fund their retirement. If you have RSP savings room, this video will show you how easy it is to join the Saskatchewan Pension Plan. SPP is an easy, flexible, cost-effective way that any Canadian over age 18 can save $2,500/year. You can also transfer an additional $10,000 a year into your SPP account from another RSP.


Put SPP under the Christmas tree

December 15, 2016

By Sheryl Smolkin

It’s tough to come up with ideas year after year for memorable holiday gifts, particularly for young adults. One gift that will stand the test of time is contributions to a retirement savings account with the Saskatchewan Pension Plan.

Anyone age 18 to 71 can join SPP. Participation is not restricted by where they live or membership in other plans. However, in order to contribute members must have available RRSP room. The member application form is available online and must be submitted with a photocopy of the prospective member’s birth certificate, driver’s license or passport.

Maximum annual contributions (which become locked in until retirement) are $2,500/year but up to $10,000 per year can be transferred in from another RRSP. SPP is designed to be very flexible and to accommodate individual financial circumstances. There is no minimum contribution. Even contributing $10 per month will build an SPP account and provide a plan member with additional pension at retirement.

Contributions can be made in a number of ways: directly from a bank account using the PAC system on the 1st or 15th of the month; at a financial institution using a contribution form; using a VISA or MasterCard; through online banking; or by mail to the Plan office in Kindersley. SPP also provides the option to make contribution online using your VISA or MasterCard.

This means you can make an SPP contribution as a one-time gift this Christmas or make recurrent gifts at regular or irregular intervals for future occasions. One way to encourage your friend or relative to continue contributing to SPP is to offer to match contributions up to a specified amount – much like employers do in company plans.

The Plan’s average return to members since inception (1986 – 2015) is 8.10%. The five year average is 7.57% and the ten year average is 5.25%.  SPP has independent, professional money managers. The funds are invested in a diversified portfolio of high quality investments to ensure a competitive rate of return.

Chances are that 20-somethings entering the work force today will have precarious work for at least the first few years of their career with organizations that do not offer a retirement savings plan. Once they are married and have children, retirement savings may take a back seat to mortgage payments and daycare costs.

Helping a friend or relative to develop the retirement savings habit and topping up their savings is an invaluable gift. Savings of just $2,500/year earning interest at 5% will result in a retirement savings balance of $237,672.11.

So make gift giving this year easy by putting  SPP under the Christmas tree!


Saskatchewan Pension Plan employees trust 30 years of simplicity and security

October 18, 2016

Seeing what the Saskatchewan Pension Plan has done for its members is giving Debbie Dand confidence about her own retirement.

“I usually talk to people who are inquiring about retiring,” said Dand, who works as a retirement officer for the plan.

“I educate them the best I can as to what their options are with the plan so they can make the best decision about what to do with their retirement savings.”

She discusses those options on the phone with members, knowing in detail what the plan has done over the last 30 years, first as a member and then, as an employee.

“Since 1986, when the plan started, it has accumulated an average return of 8.1 per cent less administration fees, so it has been a very good plan.”

It’s not just the return history that has benefited members.

“Saskatchewan Pension Plan has very low management fees at around one per cent, which is very low if you look around at some of our competitors,” said Dand.

“(The competitors) fees could be quite a bit higher. Over the years, it makes a quite a difference in what you are going to make in the long run.”

Now, after working for the Saskatchewan Pension Plan for the last 26 years, Dand is looking ahead to her own retirement.

“I myself have been a member of the plan right from 1986. The accounts have grown very nicely,” said Dand.

Her co-worker, Melody Lamont, sees the plan having a solid future capable of taking caring of members in retirement.

“For anybody that’s a member, they have the opportunity to receive an annuity if they remain with the Saskatchewan Pension Plan, guaranteed for the balance of their life,” said Lamont.

“So we’re offering the members something that’s very simple to work with. It’s a fit for anybody who’s interested in obtaining a wonderful pension plan.”

That’s why she encouraged her husband and daughter to join the plan while Dand says her husband and four children are also members.

Canadians between the ages of 18 and 71 with room to make RRSP contributions are eligible to become members. Your Notice of Assessment from Canada Revenue Agency will tell you what amount you are eligible to contribute each year. There is no minimum contribution amount and members have options about how they will make their contributions, including through online banking or directly from a bank account.

“I believe it’s something that’s there for the long term and that’s what’s very important for anyone who wants to look toward retirement and a good pension plan,” said Lamont.


10 things you need to know about enhanced CPP benefits

August 11, 2016

By Sheryl Smolkin

Well, the earth moved and in late June at a meeting of provincial/federal finance ministers, Bill Morneau got the consensus he needed from eight provinces including Saskatchewan for the phase in of modest enhancements to the Canada Pension Plan. As a result Ontario has agreed to shelve its plans for a home-grown Ontario Registered Pension Plan.

The feds plan to start collecting higher premiums beginning January 1, 2019. Many details still have to be ironed out, but here are 10 things you need to know about how enhanced CPP benefits will impact both employers and employees.

  1. The Canada Pension Plan Act says that once a sufficient number of provincial governments have indicated support, the federal government can move forward and lock in the reform with an Order in Council—no new Parliamentary debate or legislation is required. From that point forward, the expansion will be fixed in place unless amended through a subsequent agreement of two-thirds of provinces to reverse the expansion—which is very unlikely.
  2. If you are already retired or close to retirement you will not benefit from the changes. Someone retiring in 2020 who made one year of the increased contribution would get a tiny amount. Someone retiring in 2030 would have 10 years of extra contributions.
  3. Canadians who work a full 40 years will see their benefits increase (in 2016 dollars) to a maximum of $17,478 instead of $13,000. Therefore the replacement rate will inch up from 25% of the Year’s Maximum Pensionable Earnings (YMPE) to one-third.
  4. The maximum amount of income subject to CPP will increase 14%  from $54,900 this year to $82,700.
  5. Increased premiums of one percent will be phased in over seven years beginning in 2019. That means depending on the income levels of individual Canadians, up to $408 will come off their pay cheques.
  6. The refundable tax credit known as the federal working income tax credit will be expanded to help low-income Canadians offset the increase in premiums.
  7. Changes will not impact RRSP (and SPP) contribution room.
  8. To avoid increasing the after-tax cost of the added premiums, Ottawa will provide a tax deduction for the additional contributions rather than a tax credit.
  9. Company pension plans are not always offered – particularly Defined Benefit plans. Therefore it makes sense that young people and mid-career employees will benefit.
  10. Participation is mandatory and from the limited information released to date, it appears that even companies that do have a pension plan will have to make additional contributions and their employees will not be exempt.

How to pay off your mortgage sooner

June 23, 2016

By Sheryl Smolkin

A continuing debate among personal finance pundits is whether you should pay off your mortgage first or save for retirement, particularly in a low risk environment. The fact is you should probably do a little of both as frequently as possible. One strategy some experts advocate is to make an RRSP/SPP contribution and then use your tax return to decrease your mortgage balance, thereby reducing your amortization period and minimizing the total cost of your loan.

But whatever you decide to do, your goal should be to eliminate your mortgage entirely before you retire. By doing so, you will reduce your monthly expenses and minimize the impact the drop in income at retirement will have on your lifestyle.

How much you can pay down your mortgage and when will depend on the terms of the loan secured on your property. That’s why it’s important when you are negotiating or re-negotiating your mortgage to clearly understand the terms and what if any penalties you might incur if you deviate from the prescribed payment schedule.

Here are four ways to pay off your mortgage faster with examples as suggested by the Financial Consumer Agency of Canada:

1. Increase the amount of your payments

One of the ways to pay off your mortgage faster is to increase the amount of your regular payments. Normally, once you increase your payments, you will not be allowed to lower your payments until the end of the term. Check your mortgage agreement or contact your mortgage lender for your payment options.

For example, if John is getting a mortgage of $150,000 amortized over 25 years with a fixed interest rate of 5.45% for five years, minimum monthly payments amortized over 25 years are $911.  If John pays just $50 a month more, it will only take 22.5 years to retire the mortgage and he will save $14,000.

2. Renew at a lower rate, keep payments the same
At the end of your mortgage term, when you renew or renegotiate your mortgage, you may be able to obtain a lower interest rate. Although you will have the option to reduce the amount of your regular payments, you can take advantage of this situation to pay off your mortgage faster. Simply keeping the amount of your payments the same will make you mortgage-free sooner.

Stephanie adopted this strategy when she renewed her $100,000 mortgage after five years and the interest rate dropped from 6.45% to 5.45%. While the lower interest rate would have reduced Stefanie’s monthly payments to $924, she decided to keep the monthly payments at $1,000 in order to reduce the total amount of interest payable over the term of the mortgage.By keeping the monthly payments at $1,000 per month with the lower interest rate for the rest of her mortgage, Stefanie will save over $12,000 and will pay off the mortgage two and a half years sooner.

3. Choose an “accelerated” option for your mortgage payment
You can spend approximately the same amount of money on your mortgage each month and still save money by choosing an accelerated option for making your payments. Most financial institutions offer a number of payment frequency options:

  • Monthly
  • Semi-monthly
  • Biweekly
  • Accelerated biweekly
  • Weekly, and
  • Accelerated weekly

Accelerated weekly and accelerated biweekly payments can save you thousands,  or even tens of thousands in interest charges, because you’ll pay off your mortgage much faster using these options. The reason is that you make the equivalent of one extra monthly payment per year.

Let us assume that Richard has a mortgage of $150,000, amortized over 25 years, with a constant interest rate of 6.45%. If he chooses an accelerated payment frequency equivalent to one extra monthly payment a year, Richard will pay off his mortgage over four years sooner and save more than $29,000 in interest over the amortization period.

4. Making lump-sum payments: Prepayments
A prepayment is a lump-sum payment that you make, in addition to your regular mortgage payments, before the end of your mortgage term. The prepayment reduces your outstanding balance and allows you to pay off your mortgage faster.The sooner you can make the prepayment, the less interest you will pay over the long term, and the sooner you will be mortgage-free.

5. Key things to remember:

  • Your mortgage agreement will specify whether you can make prepayments, when you can do so and other related terms or conditions. Read it carefully, and ask your mortgage lender to explain anything you don’t understand.
  • If your mortgage lender is a federally-regulated financial institution such as a bank, as of January 2010, it must show your prepayment options in an information box at the beginning of your mortgage agreement.
  • Your mortgage agreement may specify minimum and maximum amounts that you can prepay each year without paying a fee or penalty.
  • The prepayment option is generally not cumulative. In other words, if you did not make a prepayment on your mortgage this year, you will not be able to double your prepayment next year.
  • A closed mortgage agreement may require you to pay a penalty or fee for any prepayment.

RRSP frenzy

February 5, 2016

 

With the RRSP deadline a mere three weeks away, we thought providing you with an FYI blog would make this time of year easier for everyone.

Monday, February 29, 2016 is the final day to contribute to your RRSP for the 2015 tax year. SPP contributions must be received at the office in Kindersley on or before that day.

There’s several fast convenient ways to make your SPP contribution in order to meet the deadline.

  • Use your credit card via;
    • yours online banking service;
    • call our office (1-800-667-7153) during regular business hours or;
    • you can use our website.
  • Cheques can be mailed into our office, please make sure you mail them no later than mid February.
  • If you are in the Kindersley area come visit our office and make your contribution in person.

In case you missed it, the SPP balanced fund returned 6.25% in 2015.  The short-term fund return was 0.45% in 2015. You are can see your full returns here.

A couple of weeks ago we posted an SPP quiz in this blog. If you haven’t already taken the quiz, check it out at http://wp.me/p1YR2T-1dI. There is a chance to win prizes!

Finally, watch the snail mail for tax receipt and member statements coming your way over the next month.

You can reach us at in**@sa*********.com or check out our website:  saskpension.com.  We have an enhanced wealth calculator that can help you determine how long your money will last in retirement.

Thanks for your continuing support of SPP.

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