Tax-Free Savings Account

May 17: BEST FROM THE BLOGOSPHERE

May 17, 2021

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

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

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

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

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

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

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

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

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

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

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

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

Written by Martin Biefer

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


May 10: BEST FROM THE BLOGOSPHERE

May 10, 2021

“Mind shift” on taxation needed when you enter retirement

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Written by Martin Biefer

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


Dec 28: BEST FROM THE BLOGOSPHERE

December 28, 2020

Retirement income will come from many different buckets – so be aware of tax rules

When we are working full time, taxes are fairly straightforward. Our one source of income is the only one that gets taxed. Very straightforward.

It’s a far different story, writes Dale Jackson for BNN Bloomberg, once you’re retired. Income may come from multiple sources, he explains.

“Think of your retirement savings as several buckets with different tax consequences: registered retirement savings plan (RRSP), spousal RRSP, workplace pension or annuity, part-time work income, tax-free savings account (TFSA), non-registered savings, Canada Pension Plan (CPP) and Old Age Security benefits (OAS), and home equity lines of credit (HELOC),” he explains. 

“The trick is to take money from the buckets with the highest tax implications at the lowest possible tax rate and top it off with money from the buckets with little or no tax consequences.” Jackson points out.

A company pension plan is a great thing, he writes, but income from it is taxable. “If you are fortunate enough to have had a company-sponsored pension plan – whether it is defined contribution or defined benefit – or an annuity, you have the misfortune of being fully taxed on withdrawals in retirement,” he explains.

It’s the same story for your RRSP – it’s fully taxable. Both pension income and RRSP income may be eligible for income splitting if you qualify, Jackson notes.

He explains how a spousal RRSP can save you taxes. “If one spouse contributes much more than the other during their working life, they can split their contributions with the lower-income spouse through a spousal RRSP. The contribution can be claimed by the higher-income spouse and gives the spouse under 65 a bucket of money that will be taxed at their lower rate,” Jackson writes.

CPP and OAS benefits are also fully taxed, and the latter can be clawed back in whole or in part depending on your other income, he notes.

Other buckets to consider include part-time work. “More seniors are working in retirement than ever,” Jackson writes. While income is taxable, he recommends that you talk to your financial adviser – there may be work-related expenses that are tax-deductible. And you can always work less if you find your other sources of income are increasing!

Interest from non-registered investments like Guaranteed Investment Certificates (GICs) or bonds is taxable. Dividends on non-registered investments are also taxable, but dividend tax credits are available. You will be taxed on half of the gains you make on investments like stocks (again, if they are non-registered) when you sell, Jackson explains. There’s no tax on interest, dividends or growth for investments that are in a RRSP, a Registered Retirement Income Fund, or a TFSA, Jackson notes.

Tax-free income can come from TFSAs or reverse mortgages and HELOCs, but Jackson warns that “a HELOC is a loan against your own home… you will pay interest when the house is sold or the owner dies.”

The takeaway from all this great advice is this – be sure you’re aware of all your sources of post-work income and the tax rules for each. That knowledge will making managing the taxes on all these buckets a little less stressful.

The Saskatchewan Pension Plan is celebrating its 35th year of operations in 2021. Check out their website today!

Written by Martin Biefer

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


May 4: Best from the blogosphere

May 4, 2020

Pandemic crisis challenges some of our long-held financial beliefs

There’s no question about it, the COVID-19 pandemic and its disastrous impact on employment, the economy, and world markets is something we’ve not seen before.

And, writes Globe and Mail columnist Rob Carrick, the crisis is challenging some long-held notions about personal finance.

People used to think that, since the interest rates paid are so low, there was “no point in keeping money in a savings account,” Carrick writes. Instead, he notes, conventional pre-pandemic wisdom was to “access money when you’re in need from your home equity line of credit.”

However, now – given the sharply rising unemployment numbers – “piling on more debt to weather a layoff is a last resort, not a go-to strategy,” Carrick writes.

His next point is that up until now, most long-term saving by Canadians was for retirement, not for building an emergency fund. But retirement savings can’t be accessed – at least not without a big tax hit – for emergencies, so Carrick’s new rule of thumb suggests 75 per cent of savings go to retirement and the rest to an emergency fund.

Echoing his earlier point on the low rates paid via savings accounts and GICs, Carrick notes that those who invested their TFSA savings in fixed-income products can no longer be “mocked for their timidity and unworldliness.” They still have all their savings, while those in riskier TFSA investments have losses to deal with.

Given the high cost of housing, Carrick writes that most of us are used to “pushing (our) finances to the max to buy a house,” and dealing with “crushing” and huge mortgage payments. “But taking as much money as the bank will let you have means you have almost no ability to cope with a loss of income, particularly if you have kids and car payments,” he notes.

The other beliefs he shatters include carrying high debt – easy to do when you are working, less so otherwise – and “spending big” on your vehicles, particularly if you are getting your new truck or car through a car loan.

The takeaway points here are quite clear: paying for everything with debt is easy when jobs are plentiful, but it’s a recipe for disaster when times suddenly – and without any prior warning – get hard. Save with SPP knows more than a few people who have always “poo-poohed” savings because the interest rates are so low. Even if the interest rate was zero, having savings is a lot better than having debt when times get tough.

So perhaps Rob Carrick is right when he suggests going 75/25 on your retirement savings, with some money going to an emergency fund. Now that we’re in an emergency, some of us have that extra bit of security, while the rest must scramble. Now may not be the best time for much saving, but when better times return, let’s all remember this solid advice.

If you are looking for a good place to put away 75 cents of your savings dollar, be sure to check out the Saskatchewan Pension Plan. The SPP’s two major funds, the Balanced Fund and the Diversified Income Fund, are professionally managed, and when the markets are choppy, it’s good to know that there are experienced hands on deck, folks who know how to protect and preserve your savings for the long haul.

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

Leave your RRSP savings alone, and watch them grow, urges author Robert R. Brown

April 30, 2020

If a farmer brought 64 rabbits to a deserted island, and left them alone to multiply, 60 years later there would be an astonishing 10 billion rabbits living on the island.

That example is how Ajax author Robert R. Brown explains the need for all of us to save early in our RRSPs, and then leave the money alone to grow.

Brown’s book, Wealthing Like Rabbits, uses lots of great metaphors and examples to drive home key points about not only saving, but avoiding debt and overspending.

Retirement savings grow in importance as you age, he writes. Given that the Canada Pension Plan and Old Age Security deliver only a modest benefit, “it is better to be 65 years old with $750,000 saved than it is to be 65 years old with $750 saved.”

Canadians have two great options for retirement savings, “the RRSP – don’t pay tax now, grows tax-free inside, pay taxes later,” or the TFSA, “pay taxes now, grows tax-free inside, don’t pay tax later.” Either vehicle, he writes, “is an excellent way to save for your long-term future,” and ideally we should all contribute the maximum every year.

Yet, he writes, just as his beloved Maple Leafs “swear that next year they will do better,” Canadians all swear they will put more money away for retirement, yet don’t.

If you do save, explains Brown, pay attention to the cost of investing. Many mutual funds have high management expense ratios, or MERs, that “range from around two per cent to three per cent. That doesn’t sound like a lot, but it is,” he warns. It’s like the power of compound interest, but in reverse, Brown notes. Index funds and ETFs have far lower fees, allowing more of your money to grow, he points out.

Brown’s key takeaway with retirement saving is “start your RRSP early. Contribute to it regularly. Leave it alone.”

The book takes a look at the ins and outs of mortgages, and why it isn’t always the best idea to get the biggest house you possibly can. Watch out, he warns, when you go for a pre-approved mortgage at the bank – they may offer you an amount that is more than you want to afford. “You shouldn’t ask the bank to establish the amount you’ll be approved for. That needs to be your decision. After all, McDonald’s sells salads too. It’s up to you to order one,” he explains.

Credit cards are another way to pile up debt, he says. Not only are the posted interest rates high, “as much as 29.99 per cent,” but there are late payment fees, higher interest rates and extra fees for cash advances, annual fees just to have certain cards, and more. “Credit card companies are always looking for some sort of new and innovative way to jam you with a fee,” he advises. The 64 per cent of Canadians who pay off their credit cards in full each month enjoy an interest rate of zero, he writes – “think about that.”

He provides some great strategies for the 36 per cent of us who carry a balance on their cards, including leaving the cards at home, locking them up or freezing them to cut back on use, and cutting back on the overall number of cards.

Home equity lines of credit, which are easy to get, can backfire “if you have to sell your house during a soft market,” he warns.

Finally, Brown offers some sensible advice on spending – don’t eat out as often, and avoid alcohol when you’re out. Consider buying a used car over a brand new one. “If spending cuts alone won’t provide you with the cash flow you need to pay off your debt, you’re going to have to make more money,” he says. Get a raise, or get a little part-time job like dog walking, lawn mowing, or washing cars.

This is a great read – the analogies and stories help make the message much easier to understand. Once you’ve set the book down, you feel ready and energized to cure some of your worst financial habits.

If you are looking for a retirement savings vehicle that offers professional investing at a low MER, consider the Saskatchewan Pension Plan. SPP has a long track record of solid investment returns, and the fee is typically around one per cent. That means more of the money you contribute to SPP can be grown into future retirement income.

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

Save for retirement, sure – but think of your loved ones also

March 19, 2020

We spend most of our annual allocation of pixels talking about saving for retirement. But there’s an equally important consideration for all of us to think about – what happens to our retirement savings when we die?

Naming a beneficiary is a very important thing, but it is also an incredibly complex topic.

Writing in the Globe and Mail, Rob Carrick says that TFSAs, RRSPs and RRIFs all have a place for you to designate a beneficiary “buried in the boilerplate of the application form.” Don’t “blow it” by rushing past beneficiary designation without “considering the implications,” he writes.

Carrick notes that single people can name anyone as their RRSP beneficiary. If they don’t name a beneficiary, any leftover balance in the RRSP will go to the individual’s estate. Where there is a spouse, Carrick writes, a spouse who is the beneficiary can receive the RRSP balance in a tax-deferred way, it can be “rolled over” to the spouse’s registered retirement vehicle, and taxes are deferred “until the surviving spouse removes money from the plan,” the article notes.

Similar rules are in place for RRIFs.

Jim Yih, blogger for Retire Happy also stresses the importance of a beneficiary choice.

“The designation of the beneficiary in your RRSPs and RRIFs is one of the most important factors in how much taxes you are going to have to pay at the time of death,” he writes. “Yet, it is astonishing how many people make this decision without regard to the overall estate plan or simply forget to designate a beneficiary.”

The Boomer & Echo blog also underlines the importance of this choice.

“Naming a beneficiary is a very important part of tax and estate planning.  The RRSP (or RRIF) will not form part of the estate assets, which may require probate.  The assets will transfer directly to the beneficiary, which may result in significant savings,” the blog notes.

The Saskatchewan Pension Plan, a specified pension plan, has similar rules.

In the SPP Member Guide we learn that “if you name your spouse as beneficiary of your SPP account… death benefits (can) be transferred, directly, to his or her SPP account, RRSP, RRIF or guaranteed life annuity contract.”

As well, a variety of annuities are available through SPP which allow you to provide for your surviving spouse or other beneficiary. The Retirement Guide explains that you can choose a “life only” annuity, where only you receive monthly payments, a “refund life annuity” that provides a lump sum benefit for your beneficiary, and a “joint and last survivor” annuity that provides “your surviving spouse or common law partner… a monthly payment for the rest of his or her life.”

Let’s end with an important warning, here. The rules for beneficiary designation vary from province to province, and for the type of savings vehicle you have. It’s important to understand the consequences of making, or not making, a beneficiary choice. Be sure to talk to your retirement savings provider about this, be it a workplace pension, an RRSP, or the SPP. You might want to get some professional advice before making your choice.

Survivor benefits can be a huge help to the folks we leave behind when we pass away, so be sure to make an informed choice.

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

Nov 4: Best from the blogosphere

November 4, 2019

Figuring out how much is enough to save for retirement

The idea that saving for retirement is a good thing – a must, even – is repeatedly drilled into our collective heads.

But how much is enough, when it comes to retirement savings?

A recent article in the Toronto Star estimates that a Canadian making $65,000 a year would need to save “a nest egg of between $1 and $2 million for retirement, not including one’s house.”

That’s a big number!

The number, the article explains, “is higher than a few decades ago because we’re living longer in a more expensive Canada.” The article then goes on to provide some savings benchmarks – a list of what you should have saved at various age points in your life.

Those of us in our 20s “live paycheque to paycheque” and are unlikely to have any savings.

By your 30s, you should be putting away 15 per cent of what you make, the article explains. “You’ll need to bump that up by one per cent each year,” the article advises. The article advises signing up for any retirement program your workplace offers, whether it’s a pension plan, a group RRSP, or a TFSA. A couple should end their 30s with $250,000 as their retirement savings target, “not including their house,” the article warns.

By your 40s, “you and your partner are saving between 15 and 20 per cent of your gross earnings by making sure you follow healthy budgeting principles,” the article continues. This is the decade when many people have bought a home and are paying it down, the Star notes. You should have $500,000 in savings by the end of your 40s, the article proclaims.

The 50s is said to be the “burn your mortgage” era, but the cost of kids going off to university because a new stressor, the Star reports. You ought to have $700,000 in savings by the end of this decade.

Once you are in your 60s and mortgage free, the article suggests you put away half of your money (what you paid on the mortgage) towards your retirement savings, which will get you to $1 million by age 65. The article recommends that you make your investments less risky at this point, moving to “lower-risk, often ‘fixed income securities,’ which are investments that kick off a regular stream of income that you can use in retirement. You’ll also want to understand your pension, CPP, and OAS benefits.”

If you haven’t hit the million dollar plateau, the article concludes, “no problem – you can typically make up the shortfall by working a bit longer or downsizing your home.”

It’s interesting that this article makes no mention at all of any restrictors on savings, such as high personal debt. The implication is that, like when you are trying to lose weight and get fit, that you shouldn’t be coming up with excuses as to why you can’t do it.

The article gives a good guideline for savings. Many people choose not to join pension arrangements through work, a decision that saves them a bit of dough today but costs them a lot of money down the line. Be sure to take full advantage of what’s out there – don’t leave money on the table.

If you don’t have a workplace pension plan to join, or you are self-employed, you should set up your own savings plan. A great place to begin your savings journey is the Saskatchewan Pension Plan, open to all Canadians. They have a great track record of turning savings into retirement income – 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, classic rock, and darts. You can follow him on Twitter – his handle is @AveryKerr22

Sep 30: Best from the blogosphere

September 30, 2019

A look at the best of the Internet, from an SPP point of view

After the saving comes the tricky part – turning savings into income

Writing in the Regina Leader-Post, noted financial commentator Jason Heath saves that while most people agree saving is a great idea, “how much to set aside and how to set your targets are up for debate.”

He notes that when RRSPs were first rolled out back in 1957, you were allowed to contribute up to 10 per cent of your earnings, to a maximum of $2,500, each tax year.

“The percentage limit was doubled to 20 per cent in 1972. In 1991, it was decreased to the current 18 per cent of annual earned income for the previous year, to a maximum of $26,500 for 2019. Unused RRSP room from previous years accumulates each year as well,” he explains in the article.

So, he asks, can we assume that the “right” level of savings is somewhere between the two RRSP limits of 10 and 20 per cent?

The argument for putting away 10 cents of every dollar you earn was most recently popularized by author David Chilton, Heath writes. But the World Economic Forum suggests we save “10 to 15 per cent” of earnings,” he notes.

Having a savings target – let’s say 15 per cent – is only half the battle, the article continues. When you’ve saved up all that money, how much should you be withdrawing each year as retirement income?

Heath notes that in 1994, financial planner William Bengen proposed the so-called “four per cent rule,” meaning that “four per cent was a sustainable withdrawal from a balanced investment portfolio for a 30-year retirement even if stock markets subsequently had a bad 30-year run,” Heath writes.

But a 2017 Morningstar paper suggests “three to 3.5 per cent may be more appropriate,” assuming high investment fees and today’s relatively low interest rates, both factors that weren’t the same 25 years ago.

“If you assume a 3.5-per-cent withdrawal rate, you can work backwards from retirement. For example, a 65-year-old who needs $35,000 per year of withdrawals indexed to inflation would need to save $1 million. And a 45-year-old starting from scratch to save towards that same $1-million target in 20 years would need to save about $25,000 per year indexed to inflation (assuming a return of four per cent and two-per-cent inflation),” Heath writes.

As Heath notes, the math here is somewhat head-spinning, but the concept for setting a savings target is actually fairly simple – how much income per year do you want to have? From there, do the math backwards and figure out how much to put away.

He goes to explain that there are other programs that can help. You have the newer option of saving for retirement in a tax-free savings account (TFSA), and most of us will receive money from the Canada Pension Plan, Old Age Security, and even the Guaranteed Income Supplement to top up the income we’ve created from savings.

When people roll out this sort of stuff, it’s somewhat akin to finding out that your “ideal” weight is 100 lbs less than what you are walking around with right now. A lot of times, knowing that you will need to put a lot of effort into fitness and diet is so daunting that you take yourself out for a cheeseburger and fries to dull the mental pain. But like anything else, a long-term journey can be achieved by making many small steps. It’s the same with retirement savings. Start small, gradually increase what you save, and in a few decades you’ll be happily surprised at your balance. But start – don’t suffer analysis paralysis.

And a great place to start the retirement savings journey is the Saskatchewan Pension Plan. They have everything you need to set up your own plan, make regular contributions, and watch as they are professionally invested and grown. At gold-watch time, you can get them to start making regular, monthly payments – for life – to the account of your choosing! So if you’re on the sidelines and not quite ready to put your toe in the water of retirement savings, check out SPP – the water’s fine!

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

Sep 23: Best from the blogosphere

September 23, 2019

A look at the best of the Internet, from an SPP point of view

Canadians “confused” about TFSA savings – poll

A new poll carried out for Royal Bank of Canada has found that Canadians “don’t know how to use a TFSA to generate wealth.”

The research, conducted for RBC by Ipsos, is reported on by the Baystreet blog.

It finds that “43 per cent of Canadians are misinformed about the funds, believing TFSAs are for savings and not for growing investments,” Baystreet reports, adding that a further 42 per cent of those surveyed use their TFSAs only for savings and cash. Just 28 per cent of those surveyed “hold mutual funds” in their TFSAs, along with 19 per cent for stocks, seven per cent for exchange-traded-funds, and six per cent for fixed income, the blog notes.

In plainer terms, people don’t realize that you can hold all the same types of investments – stocks, bonds, ETFs and mutual funds – in either a TFSA or an RRSP.

Yet, despite the fact that they tend to hold mostly cash in their TFSAs, the tax-free funds are more popular than RRSPs – 57 per cent of those surveyed said they had a TFSA, with only 52 per cent saying they have an RRSP, Baystreet notes.

The TFSA is a different savings vehicle from a registered savings vehicle, such as an RRSP. When you put money into a TFSA, there is no tax benefit for the deposit. However, the money in the TFSA grows tax-free, and there is no tax charged when you take money out.

With RRSPs (and registered pension plans) the contributions you make are tax-deductible, and the money grows tax-free while it is in the RRSP. However, taxes do apply when you take money out of the plan to use it as income.

While TFSAs are relatively new, some financial experts have suggested they might be well-suited for use as a retirement savings vehicle, reports Benefits Canada.

“While RRSPs have the advantage of deferring tax payments into the future, which TFSAs don’t do, the deferral may not be as important to low-income seniors, especially those who want to avoid clawbacks or maintain their eligibility for government benefits, like the GIS, after they retire,” explains the article.

A lower-income earner “might find it more advantageous to maximize their TFSA contributions, which is currently $6,000 annually and indexed to inflation going forward. Unlike funds withdrawn from RRSPs, funds withdrawn from TFSAs — including the investment growth component — aren’t taxable, and contribution room after withdrawals can be restored,” Benefits Canada reports. The article also talks about employers offering group TFSAs as well as group RRSPs.

Those taking money out of a RRIF might want to put the proceeds – minus the taxes they must pay – into a TFSA, where it be re-invested tax-free and where income from it is not taxable.

A key takeaway for all this is that you need to think about putting money away for retirement while you are working. The concept of paying yourself first is a good one, and one you will understand much better when you’re no longer showing up at the office and are depending on workplace pensions, government retirement programs, and personal savings for your income. No amount is too little. If you are just setting out on your savings journey, an excellent starting point is the Saskatchewan Pension Plan. Be sure to 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, classic rock, and darts. You can follow him on Twitter – his handle is @AveryKerr22

Book makes “fin lit” understandable, easy to digest, and inspires action

August 29, 2019

A fear one has when picking up a financial self-help book is that the advice it contains will be so confusing and complex that you’ll feel less financially literate than before.

That’s not the case with A Canadian’s Guide to Money-Smart Living, by Kelley Keehn. In fact, her book – a slender volume – is designed to break down big ideas into small, digestible ones. And once you’re done, you feel that maybe yes, you will go out and follow some of the things you’ve learned.

Keehn begins by saying her mission is “to make Canadians feel good about money.” She says her mom, who as a single parent was an excellent manager of money, would probably change her view that “money doesn’t grow on trees” to “money doesn’t grow in plastic.” Keehn says her mom saw credit cards as being for emergencies – and that they should be paid off in full, every month.

Yet, Keehn writes, even though someone making $51,000 a year will see, in his or her life, “over $2 million past through (their) hands,” why are so many Canadians “living from paycheque to paycheque… burdened with excessive debt… and not better off when it comes to retirement?”

Keehn’s advice is simple. We need to take control of our finances by spending less than we earn, and by paying ourselves first – saving before you spend. “Do not look upon savings as something left over after you’ve spent everything else. Save first, live and budget within the net amount.”

Your goal, she writes, should be “a comfortable life.”

“I’m not talking about applying some complex budget plan to your paycheque that requires you to watch every penny in order to squeeze out something at the end of the month to be put away and called `savings.’ I’m talking about setting aside something from every paycheque before you do your spending,” she writes. The goal should be 10 per cent of your gross earnings, she advises.

You and your partner also need to do a little goal-setting to get on the same page, she writes. Define your goals, establish a “needs and wants” list, check your progress, talk about next steps, make changes, and “take action and get help,” she recommends.

The book reviews major spending categories and offers specific tips to manage each. In the mortgage chapter, her advice is to “seriously consider your options to speed up the mortgage amortization,” so that your biggest expense is paid off as quickly as possible.

In the chapter on credit cards, she notes that most Canadians have a “household debt to disposable income” ratio of around 170 per cent. She cuts to the chase here, recommending people carry no more than three credit cards, and to avoid department store cards that carry higher interest and “are a temptation you should resist.”

Interestingly, she says debit cards can be expensive “unless you have a no-fee arrangement with your institution,” so consider carrying cash to avoid debit card fees.

With any type of consumer debt, remember that when interest rates go up on a loan or line of credit, so do your payments – and you still “have to pay back the entire principal.”

There’s a chapter on retirement savings that walks you through the rules of RRSPs and RRIFs. For RRIFs, she says when you withdraw money each year, it “doesn’t mean you have to spend it, all you have to do is report it as taxable income.” So that money could be reinvested in a TFSA or non-registered account, she says. She explains Old Age Security, noting that depending on your income in retirement, you may have to pay back some or all of the OAS payments you receive. (A good reason to bank it until tax time.)

This is a great book that makes you feel energetic about winning back control of your wallet. It’s a highly recommended addition to your retirement planning library. And a great destination for the money you save is a Saskatchewan Pension Plan account!

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