TFSA

How you can set up a “Pay Yourself First” plan

September 9, 2021

By now, practically all of us have heard about “pay yourself first” as a savings strategy.

The general idea is to put away some percentage of your earnings, and then live on the rest. It sounds simple in theory, but in practice, less so. To that end, Save with SPP took a look around the Interweb to get some ideas about how to actually get going on a “pay yourself first” plan.

The folks at MoneySense see several simple steps you need to take to put your plan into action.

First, they suggest, “zero in on your savings goals.” What are you paying yourself first for – to build an emergency fund, or save up for a down payment, or a wedding or (our favourite) retirement, the article asks.

There has to be a reason why you are directing money away from your normal, bill-paying chequing account, MoneySense tells us.

Next, they recommend, take pen to paper and figure out how much you actually can pay yourself first. Make a list of your monthly “must spends,” like “shelter, food, electricity/heat, phone, transportation, etc.,” the article says. What’s left over is “discretionary” money, which can be spent or saved, the article adds.

If you are saving for more than one thing, you need to figure out how much each month to put away for each category. Then comes the actual “doing” part – automating your savings plan.

MoneySense recommends setting up an automatic transfer each month that moves money from chequing into savings. This amount can be increased when you get a raise, the article notes. Savings should be directed to either a tax-free savings account (TFSA), a registered retirement savings plan (RRSP), or a combination of both, the article concludes.

The Oaken Financial blog notes that guaranteed investment certificates (GICs) can be a good place to stash savings. GICs are locked in for a time, but pay a set amount of interest for a fixed term, the blog notes. High-interest savings accounts pay good interest but allow you to make withdrawals at any time, the blog notes.

The Golden Girl Finance blog says there are apps that take the difficult thinking part out of the saving equation. Wealthsimple, the blog notes, allows you to round up your credit card purchases, so you are actually paying a little extra, with that money being directed to your savings account. So you save a little as you spend, the blog notes.

Save with SPP notes that similar arrangements – where you pay a little extra on debit card purchases, or where a money-back credit card deposits the cashback directly to your savings account – exist at other Canadian banks.

Other ideas that have flashed across the screen of late:

  • Banking your raise. You were paying off the bills OK before you got the raise, so why not stick the difference between your former pay and your new pay into savings, and live off the rest? You were the day before the raise!
  • Banking your cost of living adjustment. Same concept, but for us lucky pensioners who get cost of living increases, why not direct the increase to savings and continue to live on what you were getting prior to the increase?
  • Starting small. You may not stick with a pay yourself first plan if it is overly ambitious. Uncle Joe always said bank 10 per cent and live on the 90 per cent; he did, and he did well, but Joe was a very disciplined spender. Better to start smaller, maybe two or three per cent, and phase it up.

So to recap – you either need to know how much you spend each month to figure out how much you save, or you need to just pick an affordable percentage of your earnings and set it aside. Once you have automated the process, you won’t miss the saved amount, which will grow happily in a savings account, a retirement account, or perhaps the Saskatchewan Pension Plan.

Celebrating 35 years of operations, the SPP permits automatic contributions. They can set it up for you, or you can set up SPP as a bill on your bank website and set up the automation yourself. Either way, the money you direct to SPP will be put away for your future, invested professionally, and – grown – will await you after you get home from the retirement party!

Written by Martin Biefer

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


Aug 30: BEST FROM THE BLOGOSPHERE

August 30, 2021

How to hang on to any “pandemic cash” that may be pilling up

While some of us have had to struggle to make ends meet during the pandemic, others have – somewhat ironically – seen their personal savings shoot to new heights.

A report by CTV News looks at how some of us may have to adjust our budgets as COVID-19 restrictions begin to taper off.

The article notes that by the second quarter of 2021, Canada’s savings rate rocketed up to 13.1 per cent, more than double the previous year’s savings rate.

“Even Canadians’ credit card debts have been dropping, with rates hitting a six-year-low in June due to reduced spending,” the article informs us, citing data from Equifax.

You read that right. Credit card debt is dropping.

“Across the board in all age groups, we’re starting to see people pay more than they actually spend on a credit card, which is a real positive behaviour change in terms of consumers,” Rebecca Oakes of Equifax tells The Canadian Press in the article.

That’s great, but when things return to “normal,” will we still be saving and paying off debt?

CTV suggests a few things to do with any extra cash you may have accumulated as normality begins – and there are more tempting things to spend your money on than during the locked-down pandemic.

Finance expert David Lester is quoted in the article as suggesting one destination for extra bucks would be an emergency fund, which should be enough to cover “six to nine months of expenses.”

Next, Lester tells CTV that your retirement piggy bank should not be neglected in the rush to spend, spend, spend.

“It could go into your tax-free savings account (TFSA) or registered retirement savings plan (RRSP), but we should just get used to saving 10 to 15 per cent” for retirement, he states.

If you spend with a credit card, Lester says it’s important to pay off the card each month, and to avoid letting a credit balance begin to grow.

He recommends that you pay off credit card balances first, as soon as you get paid, “and then going to zero (balance).”

If you are setting a budget for the world after the pandemic, be realistic, adds Lester.

There were a lot of things we couldn’t do – many of them expensive – that we may not want to spend as much on post pandemic, he explains. We lived without them for a long period of time, Lester tells CTV.

“Maybe it was travel, maybe it was movies, maybe it was having coffee at home, or not buying expensive clothing,” he says in the article. “So see what you really don’t miss and go back through that budget line-by-line and see what you don’t have to add back on now that things are opening up. We don’t want to go back to that bad spending that we were doing before.”

Our late Uncle Joe frequently would pull us aside and recommend the 10 per cent rule – bank 10 per cent of your money off the top, and live on the remaining 90 per cent. “You will never have any problems,” he said. It’s very sensible advice.

Pay yourself first, the old adage goes. And if you are putting away that cash in a retirement account, you are paying your future self first. You’ll be making life easier down the road, because you’ll be entering retirement with money in the bank and at the ready. A great way to pay your future self first is to set up an account with the Saskatchewan Pension Plan. They’ll invest your savings, at a low cost and a historically strong rate of return, and at the appropriate time, will help you convert those savings into retirement income. After all, they’ve been delivering retirement security for an impressive 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.


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.

Written by Martin Biefer

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


May 24: BEST FROM THE BLOGOSPHERE

May 24, 2021

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Written by Martin Biefer

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


May 17: BEST FROM THE BLOGOSPHERE

May 17, 2021

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

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

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

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

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

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

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

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

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

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

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

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

Written by Martin Biefer

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


May 10: BEST FROM THE BLOGOSPHERE

May 10, 2021

“Mind shift” on taxation needed when you enter retirement

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Written by Martin Biefer

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


Guide aims at folks planning on retiring in 10 years or less

April 22, 2021

If you are one of the many Canadians who is a decade (or less) away from retirement, and haven’t had time to really think about it, there’s an ideal book out there for you.  The Procrastinator’s Guide to Retirement by David Trahair walks you through all the decisions you’ll need to make, and the strategies you may want to employ, to have a solid retirement – soon.

Trahair makes the point early that you need to track your current spending to have an accurate sense of how much you need to save to fund your retirement.  He says the old 70 per cent rule – that you will be comfortable if you can save up enough to live on 70 per cent of your pre-retirement income – is “problematic… it may be the right answer for one person, but totally wrong for you because your financial situation is as individual as your fingerprints.” Knowing what you spend now, and will spend when retired, is a key piece of knowledge when setting savings targets, he explains.

Through the deft use of charts, examples and worksheets, Trahair explains that most of us have “golden opportunity” years for retirement savings when we have surplus funds, thanks to paying off a car loan, or having a child graduate from university. What you do during these periods of excess money “can make or break” your retirement plans, he advises, noting that an obvious destination for some of this cash is retirement savings.

He looks in detail at whether it’s a good idea to save for retirement in a registered retirement savings plan (RRSP) or pay off debt, like credit cards or mortgages, first. Trahair says anyone with high-interest credit card debt should pay that off first before saving for retirement, because of the “rate of return” you get by eliminating the debt.

“A lack of cash outflow is as good as a cash inflow, and better if that inflow is taxed,” he explains. In other words, all the money once spent on paying down the credit card is now in your pocket instead.

Whether to pay down the mortgage versus saving for retirement is a trickier calculation (Trahair has a spreadsheet for you to make your own choice). He says the “commonsensical” approach is to make an RRSP payment and then put the refund on the mortgage. However, later in the book he warns of the dangers of not paying off the mortgage until after retirement.

“If you went into retirement with a $200,000 mortgage, you’d need $293,254.75 extra in your RRSP just to break even,” he writes. “Put another way, you’d be just as well off as someone who had a zero-mortgage balance and $293,254.74 less in their RRSP.”

There’s a lot of good stuff here. There’s a chapter on selecting an investment advisor, and good advice for those investing on their own. He warns that those saving later in life often look for higher returns, which can be risky. “Hoping for a 10 per cent rate of return to solve your problems will mean you’ll have to take extreme risk… chances are good this strategy will result in dismal failure. So, he advises, have a disciplined investment approach, and manage risks. A rule of thumb he likes is the one that suggests 100 minus your age should be the percentage of your portfolio that is in fixed income. The rest should be in the stock market.

Later, he explains how GICs are his favourite investment, especially when held in RRSPs, Registered Retirement Income Funds (RRIFs) and Tax Free Savings Accounts (TFSAs).

He examines the concept of how much you’ll spend in retirement, noting that some costs, like Canada Pension Plan (CPP) contributions, car operating costs, dining out and dry cleaning will drop once you’re no longer going to work, well-dressed.

He talks about how you can maximize both CPP and Old Age Security benefits by deferring them until later – and covers the pros and cons of doing so.

Later chapters cover the “risk” of living a long life, the “snowball” versus “avalanche” methods of debt reducing, and estate planning.

This is an excellent resource for all aspects of retirement planning, and – even better – it is written for a Canadian audience.

If your retirement plan includes the Saskatchewan Pension Plan, you’re already getting professional investing help at a low fee of just 0.83 per cent in 2020. SPP manages investment risks for you – and has chalked up an impressive rate of return of 8 per cent since its inception 35 years ago. Why not to check out SPP today!

Written by Martin Biefer

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


Should we still be savers after we retire?

March 11, 2021

The mental image most of us have of the retirement process is quite clear – you save while you work, and then you live on the savings while retired.

But is this a correct view of things? Should people be adding to their savings once they’ve stepped away from a long life of endless meetings, emails, Zoom or conference calls, and annoying performance reviews? Or not?

Save with SPP decided to scout this out on the good old Interweb.

What we notice is that when you query about “saving after retirement,” you’ll find lots of advice about how to save by spending less. For example, U.S. News & World Report suggests things like asking for senior discounts, shopping “for cheap staples online,” downsizing your home or hobbies, etc.

You’ll also find general advice on saving that can apply to folks of any age – Yahoo! Finance points out that you need to “spend less than you earn,” and “grow and invest your money.”

The type of advice we’re looking for is more along the “pay yourself first” rule that our late Uncle Joe lived by until almost age 90; and Yahoo! Finance does have a bit of that.

“When people say `pay yourself first,’ they mean you should take your savings out of your paycheque as soon as it hits your chequing account to make sure you save something before you spend it all on bills and other expenses. The key to saving successfully is to save first, save a lot — 10 per cent to 20 per cent is often recommended — and save often,” the article states. Uncle Joe would endorse this thinking.

But it’s not clear this article is aimed at retirees – so is putting money systematically away when retired even a thing?

Maybe, but perhaps not quite in the way Uncle Joe might have envisioned.

MoneySense notes that Tax Free Savings Accounts (TFSAs) are a great savings tool for older, retired Canadians.

The article suggests that if you are retired, and don’t need to spend all the income from your Registered Retirement Income Fund (RRIF) or other sources, like a pension, a great home for those dollars is the TFSA.

“Unlike Registered Retirement Savings Plans (RRSPs) and RRIFs you can keep contributing new money into TFSAs after age 71. Even if you live to celebrate your 101st birthday – as my friend Meta recently did – you can continue to pump (the TFSA annual maximum) to your TFSA, as Meta has been doing,” the article explains.

“In contrast, you can no longer contribute to RRSPs after the year you turn 71 (or after the year the youngest spouse turns 71), and even then this depends on either carrying forward RRSP room or earning new income,” MoneySense tells us. So the TFSA is a logical savings account, and is still open to older folks.

Our late father-in-law gleefully directed money from his RRIF (after paying taxes) to his TFSA, so that he could continue to invest and save.

The TFSA has many other benefits, including the fact in can be transferred tax-free to a surviving spouse. An article in the Globe and Mail points out a few other interesting TFSA facts – investments must be Canadian, you can re-contribute any amounts you cash out, and your contribution room carries forward, the article notes.

It would appear then, that “saving” after retirement means two things – it means budgeting and bargain hunting to make your income last longer, and it means using savings vehicles like TFSAs to manage taxation. That’s probably the answer – when you’re working, taxes are simple to manage. You get a T4, your employer is usually deducting the correct amount of taxes, so filing income tax is simple. It’s more complicated for retirees with multiple income streams and chunks of withdrawn RRIF money.

You will have a greater opportunity to save when you are retired if you put away some cash now, before they give you the gold watch. The less retirement income you have, the tighter your future budget will be. If you haven’t got too far yet on the retirement savings trail, why not have a look at the Saskatchewan Pension Plan? You can set up a “pay yourself first” plan with SPP, which allows contributions via direct deposit. Money can be popped into your retirement nest egg before you have a chance to spend it – always a good thing. Be sure to check out SPP, celebrating 35 years of delivering retirement security in 2021!

Written by Martin Biefer

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


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

March 4, 2021

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Written by Martin Biefer

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


Feb 1: BEST FROM THE BLOGOSPHERE

February 1, 2021

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Written by Martin Biefer

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