Tax Free Savings Account

SEPT 12: BEST FROM THE BLOGOSPHERE

September 12, 2022

Some clever ways to tuck away more money in your retirement piggy bank

Writing for the GoBankingRates blog, Jami Farkas comes up with some “clever” ways to save more for our collective retirements.

First, the article suggests, use an online calculator to figure out how much you need to save. There are plenty of these, and the Saskatchewan Pension Plan’s own Wealth Calculator can show you how much your savings can grow.

Next, the article urges, make savings automatic. “Don’t give yourself the option of whether to set aside money each month. Automate your savings so it’s not a choice,” the article suggests, quoting David Brooks Sr., president of Retire SMART. This option is available to SPP members too – you can arrange to make pre-authorized contributions to your account.

If you are in any sort of retirement arrangement at work, be sure you are contributing to the max, the article notes. And if there is no employer match to your retirement savings, “set up your own match” by giving up a cup of coffee daily, the article suggests.

Once you’ve started automatically saving for life after work, be sure to bump up your annual rate of contributions every year, the article tells us. “A 25-year-old earning $40,000 a year who contributes just one per cent more of his salary each year (or $33 more each month) until age 67 would have $3,870 of additional yearly income in retirement, assuming a seven per cent rate of return and a 1.5 per annual pay raise,” the article explains.

It’s the same, the article continues, for raises. If you get one, so should your retirement savings – stash some or all of it into savings. “Since workers are already accustomed to living on their existing salary, they won’t notice money that they never had before is missing,” the article explains.

We’ll Canadianize the next tips – consider putting some or all of your tax refund back into retirement savings, such as your SPP account or a Tax Free Savings Account (TFSA). A few of the ideas for saving in this article, intended for a U.S. audience, aren’t available here, but remember that SPP operates similarly to a registered retirement savings plan, so contributions you make to it are tax-deductible. If you put money in a TFSA, there’s no tax deduction but as is the case with both vehicles, your money grows tax-free. And with a TFSA there’s no tax payable when you take the money out.

Other ideas – don’t downsize after you retire, but before when you can more readily afford to move, the article suggests.

Spare change can power your savings, the article adds. “Tossing spare change in a jar might seem like an old-fashioned approach to saving, but you’d be surprised how quickly your nickels, dimes and quarters can add up,” the article notes. Do the same with any money you save on purchases using coupons or apps, we are told.

We’ll add one more to this list. If you get a gift card that can be spent like cash anywhere, why not add it to your SPP account? SPP permits contributions to be made from credit cards, so it’s a nice way to turn a gift, or a rebate, into retirement income for your future self.

Join the Wealthcare Revolution – follow SPP on Facebook!

Written by Martin Biefer

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


Understanding the basics of RRIFs with BMO’s James McCreath

May 12, 2022

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


Apr 18: BEST FROM THE BLOGOSPHERE

April 18, 2022

Canadians sock away $50.1 billion in RRSP savings

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

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

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

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

Why did more people put more money away?

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

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

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

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

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

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

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

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

Join the Wealthcare Revolution – follow SPP on Facebook!

Written by Martin Biefer

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


Apr 11: BEST FROM THE BLOGOSPHERE

April 11, 2022

Having a withdrawal strategy should help your savings withstand inflation: McGugan

Reporting for the Globe and Mail, columnist Ian McGugan says retirees living off a nest egg of money need a strategy to cope with inflation.

“Unlike a truly rare disaster such as a global pandemic, the current inflationary outburst resembles a muted replay of the 1970s – and retirement planners have long used strategies designed to soldier through such episodes,” he writes.

He notes that a key tactic is the “four per cent rule,” developed by financial adviser William Bengen in 1994.

The rule, McGugan explains, “holds that a retiree planning for a 30-year retirement can safely withdraw an inflation-adjusted four per cent of their starting portfolio each year without fear of running out of money.”

Bengen, the article continues, based his formula on a “U.S. retiree with a portfolio split evenly between bonds and stocks,” and his research showed that even during the Great Depression, the Second World War or the “stagflation” period of the 1970s (a long period of very high, stubborn inflation), the four per cent rule would have worked.

Some industry observers, notably Morningstar, advise a lower withdrawal rate of 3.3 per cent, in light of “how bond yields have fallen,” he reports. Others say you could go up to 4.5 per cent.

McGugan notes that economist Karsten Jeske found “no strong relationship between prevailing levels of inflation and future safe withdrawal rates.”

He is more concerned, McGugan reports, about stock valuations as a problem for retirees.

“When stocks are expensive compared with their long-run earnings – as they are now – retirees should be cautious about how much they withdraw from their portfolio because high valuations are usually a sign of lower stock-market returns to come,” the article notes.

When talking about withdrawal rates, we should qualify the discussion by saying that certain retirement savings vehicles, such as registered retirement income funds (RRIFs), set out a minimum amount you must withdraw each year. When you look at the rates, you’ll notice they start out at four per cent when you’re 65, but gradually increase over time. If you make it to 95, the minimum withdrawal rate jumps to 20 per cent.

But if your savings are in a Tax Free Savings Account or any non-registered vehicle, the four per cent is worth consideration. We are all used to getting a steady paycheque, usually every two weeks or twice a month. If you got all your pay in January, you’d have to figure out a way to make it last so you don’t run out with a month or two left in the year. The four per cent rule is a way to make a lump sum of retirement savings last for the long haul.

The way that people used to deal with volatility in stock prices was to invest in bonds and stocks equally, as the article describes. Because interest rates have been low for decades, and bond yields have declined in recent years, modern “balanced” funds tend to add in some bond alternatives that deliver steady, bond-like income, like real estate, infrastructure and mortgages. If stocks pull back, these sources still generate reliable regular income.

A good example is the Saskatchewan Pension Plan’s Balanced Fund. The asset mix of the fund includes not only bonds, but real estate, mortgages, infrastructure and money market exposure, as well as Canadian, U.S. and international equities. This multi-category investment vehicle is a fine place to store your retirement nest egg. Check out SPP today.

Join the Wealthcare Revolution – follow SPP on Facebook!

Written by Martin Biefer

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


Your Retirement Income Blueprint – a “do it properly, do it better” resource

March 31, 2022

From the get-go, where author Daryl Diamond describes his book as being a “do it properly” or “do it better” book on retirement income planning, rather than a “do it yourself” volume, a wonderfully written tome filled with valuable insights begins.

Your Retirement Income Blueprint makes great strides in explaining that retirement is not really “the back nine” of life. Retirement, he explains, is “not simply a continuation of the same thing (pre-retirement)… the playing field changes because there are such substantial differences between the planning approaches, investment strategies, risk-management issues and sheer dynamics of these two phases in someone’s life.”

There’s a lot to cover in a short review, so let’s look at some of Diamond’s retirement income gems.

Early on, Diamond explains the importance of having “a formal income plan, or blueprint, to show what your assets can realistically be expected to provide in terms of sustainable cash flow.” In other words, do you have enough income, from all sources, for an adequate retirement? Retiring without sufficient income, he warns, “can be a very unfortunate decision.”

On debt in retirement, he notes “ideally, you want to be debt free at the time you actually retire,” because otherwise, “you will have to dedicate income toward servicing the debt. And that is cash flow that could be used to enhance your lifestyle in other ways.”

Another great point, and this was one that Save with SPP personally used when planning retirement, is the idea of making a “net to net” comparison of your pre-retirement income versus post-retirement.

“That difference between your gross employment income and gross retirement income may appear quite significant, however, some analysis of your earnings statement may narrow this disparity. Compare what you are bringing home on a net basis with what your net income will be in retirement. You may find the difference in net pay is not as significant as you thought.”

The book provides a chart showing gross employment income being 33 per cent greater than retirement income – but only about 12 per cent different on a net basis, because the retiree isn’t paying into Canada Pension Plan (CPP), Old Age Security (OAS), a company pension or company benefits.

Diamond points out that the investment principles for retirement saving differ from the retirement income, or “using your nest egg” years.

“When people begin to draw income from their portfolios, their focus changes from ‘rate of return’ to ‘risk management,’” he writes. “Capital preservation becomes the number one issue, because with capital preservation, you also have sustainable income,” he adds. The goal is longevity of your income – meaning, not running out of money.  

Diamond sees annuities as a way to ensure you don’t run out of retirement income. The book shows how your CPP, OAS and company pension – along with an annuity purchased with some of your retirement savings – can create a guaranteed lifetime monthly amount for your core, basic expenses. The rest of your income can be used for discretionary, fun expenses, he explains.

Diamond isn’t opposed to the idea of taking one’s Canada Pension Plan benefits early. He advises us all to “assess whether or not there is merit to do so in your own situation.” He makes the point that while many of us live long lives, some of us don’t, so deferring a pension carries a risk.

He sees the Tax Free Savings Account (TFSA) as becoming “one of the great tools at our disposal. I look for ways to help retirees fund their TFSA accounts to the maximum, whether that be through taking CPP early, withdrawing additional amounts out of registered accounts or even moving other non-registered holdings systematically into them.”

He suggests that using one’s registered retirement savings early in retirement may be preferable to deferring them until the bitter end at 71. “Deferring all of your registered assets can create real tax problems in the future and could eliminate main credits and entitlements that you would otherwise have been receiving,” he explains.

Near the end of this excellent book, Diamond alerts retirees to what he calls the “three headwinds” that can “be a drag on” any retirement income solution – taxation, inflation, and fees. Attention should be paid to all three factors when designing a retirement income solution, he writes.

When you retire, Diamond concludes, it’s when “your ticket gets punched… and baby, you had better enjoy the ride.” The three commodities that will support a great retirement are your state of health, your longevity and “your income-producing assets and benefits.” Only the last commodity is one that you can fully control, he says.

This is a great book and highly recommended for those thinking about retirement.

Do you have a handful of different registered savings vehicles? Consolidating them in one place can be more efficient than drawing income from several sources. The Saskatchewan Pension Plan allows you to transfer in up to $10,000 per year from other registered vehicles. Those funds will be invested, and when you retire, your income choices include SPP’s family of annuities. Check out SPP today!

Join the Wealthcare Revolution – follow SPP on Facebook!

Written by Martin Biefer

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


Dec 20: BEST FROM THE BLOGOSPHERE

December 20, 2021

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

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

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

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

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

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

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

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

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

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

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

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

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

Join the Wealthcare Revolution – follow SPP on Facebook!

Written by Martin Biefer

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


Nov 22: BEST FROM THE BLOGOSPHERE

November 22, 2021

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Join the Wealthcare Revolution – follow SPP on Facebook!

Written by Martin Biefer

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


Navigating the complexity of the golden years: The Boomers Retire

August 26, 2021

The concept of retirement “has grown increasingly more sophisticated,” begin authors Alexandra Macqueen and David Field in their new book, The Boomers Retire.

“Canadians preparing for retirement,” they write, “have been able to contemplate a variety of highly personalized approaches – from early (or even very early) retirement, to phased retirement, working retirement, and more.”

This thorough book covers all matters retirement and boomer with clear, concise explanations, tables, charts, and focus.

Early, we learn about three “realities” in today’s retirement world – the amount of time we are retired is “increasingly longer,” that retirement is much more diffuse than the old “retire at 65” days of the past, and that funding retirements that may last longer than one’s working years is “increasingly complex.”

Workplace pensions aren’t as common as they were in the past, especially in the private sector, so many of us have to rely on government benefits, the authors explain. But Canada Pension Plan and Quebec Pension Plan maximum benefits are just over $1,200 a month, and worse, the “average benefit amount for new recipients is $710.41 per month, or about 60 per cent of the maximum.”

Old Age Security provides another $7,384.44 annually, but is subject to clawbacks, the authors observe. Lower-income retirees may qualify for the Guaranteed Income Supplement, we are told.

Those without a workplace pension plan (typically either defined benefit or defined contribution) will have to save on their own.

In explaining the difference between two common do-it-yourself retirement savings vehicles, the Tax Free Savings Account (TFSA) and the registered retirement savings vehicle (RRSP), the authors call the TFSA “a nearly perfect retirement savings and retirement income tool” since growth within it is free of tax, as are withdrawals. They recommend a strategy, upon withdrawing funds from an RRSP or registered retirement income fund (RRIF) of “withdrawing more than needed… and instead of spending that extra income, move it over to the TFSA.”

Our late father-in-law employed this strategy when decumulating from his RRIF, chortling with pleasure about the fact that he received “tax-free income” from his TFSA.

The book answers key timing questions, such as when to open a RRIF. Planners, the authors write, used to advise waiting “until the last possible moment” to move funds from an RRSP to a RRIF, at age 71. “The problem with this approach,” they tell us, “is that it sometimes results in low taxable income between retirement and age 71.” If you are in that situation, be aware that you don’t have to wait until 71, and can RRIF your RRSP earlier, they note.

A section on annuities – a plan feature for SPP members – indicates that they address the concern of running out of money in retirement, as annuities are generally paid for life. The trade-off, of course, is that you don’t have access to the funds used to provide the annuity.

Other retirement options, like continuing to work, taking a reverse mortgage, and starting your own business, are addressed. There’s a nice section on investing that looks at the pros (security) and cons (low interest rates) of bonds, how to treat dividend income, index exchange-traded funds, and more.

An overall message for this book, which is intended for both planners and individuals, is a focus on having an individualized strategy, rather than relying on various “rules of thumb.”

“Aiming for a smooth, even withdrawal over a retiree’s lifetime will often be the optimal approach,” the authors say. That’s complicated if, as our friend Sheryl Smolkin told us recently, your retirement income “river” comprises many different registered and non-registered streams. The authors say that a withdrawal rate of four per cent from your various retirement income sources is generally a good target.

Tax tips include remembering to claim medical expenses – many of us forget this category and miss out on tax savings – claiming the disability amount if you qualify, and taking advantage of income splitting. There’s a chapter on being a snowbird (there can be some unexpected downsides with it) and going the rental route in your latter years, when “the future is now.”

This clear, detailed, and very helpful book is a must for your retirement library.

If you’re a member of the Saskatchewan Pension Plan, you’ll have the option at retirement to choose from a variety of great annuity products. Some offer survivor benefits, including the Joint & Survivor option where your surviving spouse will continue to receive some (or all) of your pension after you are gone. It’s a solid part of the SPP’s mandate of delivering retirement security, which it has done for more than 35 years.

Join the Wealthcare Revolution – follow SPP on Facebook!

Written by Martin Biefer

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


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.

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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.