Tag Archives: TFSA

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Written by Martin Biefer

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

What do millennials think about retirement?

It’s clear to most of us – especially older Canadians – that younger people have a very different way of doing things. So that said, what do they think about retirement?

Save with SPP spoke recently to David Coletto, founding partner and CEO of research firm Abacus Data. His firm has carried out a lot of research on millennials – indeed, he has a book in the works – and he has noticed quite a few things about how younger people approach money and saving.

“No one young Canadian is going to be the same,” he says. As well, he adds, the current COVID-19 situation was not yet a factor when he carried out his research. However, he notes that the data suggests that some millennials are “as well off as the previous generation,” but others, less so. It really comes down to whether or not they live somewhere where they can afford a home, he explains.

There are reasons why housing affordability is an issue for millennials, he notes. For starters, housing prices in Canada’s major cities are near all-time highs. As a group, millennials do tend to have debt, and “the debt levels are much higher” than those of older generations, he explains. Dealing with heavy debt from student days, or the cost of raising kids, tends to “delay key milestones” for millennials.

“So much of their experience is different,” he says, “that it is difficult for them (millennials) to think of retirement when they are still focused on today. About one-third of this generation is struggling more than their parents did, and they will be less well off as a result.”

Abacus recently did some research with the Healthcare of Ontario Pension Plan that found, among other things, that 80 per cent of respondents would take a job that paid less money if it offered a pension.

Job security isn’t what it once was, Coletto explains. “There’s more freelance work, more part-time work – what we call precarious work, and less pensions available.”

When there’s no workplace pension, the onus for retirement saving falls on the individual. “It’s lower on the list for them, and saving (for retirement) is difficult to do,” he explains. “They are having to manage a lot of other expenses. And we are talking about the pre-COVID era, here.”

“It’s a big chunk that has to go to savings for a down payment, or to pay for a mortgage,” he says.

And it’s not just the workplace that has changed. Millennials are dealing with “a climate change crisis that is existential.” Some “are putting off having a family” over climate concerns, he says.

Millennials therefore tend to want to do things now, while they still can, instead of deferring life experiences and grand trips until they are older. “If the experiences won’t be there, or are not possible, what’s the point of trying to save? Especially when you can’t afford to,” asks Coletto.

Statistics show that only “one in four millennials put any money into an RRSP, and even those that do don’t have a lot of equity in them,” Coletto explains. And while Tax Free Savings Accounts are more attractive to younger people (due to the fact they aren’t locked in) take-up is pretty low there as well.

Absent personal savings, Coletto is concerned that the gap between those with pensions – such as their parents – and those without will create a real split. “There’s an inequality there which will continue to grow,” he predicts.

A way to avoid that scenario might be for Canada to adopt the Australian model for retirement savings, he explains. There, a percentage of every worker’s salary is automatically placed into retirement savings, no matter where you work. The money is then invested by large funds offering pooling and low-cost investing. Moving to an Australian model is “something that needs to be seriously discussed,” he says.

A final piece of advice from Coletto for millennials is this – look at what your parents did for their retirement, and see what you can learn from them.

We thank David Coletto for taking the time to speak with us.

There’s no question that access to a workplace pension is a great benefit for an employer to offer. The Saskatchewan Pension Plan can help. Please contact us for more details.

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

Well-written book identifies – and help fixes – retirement mistakes

A recent headline shouted out the fact that an eye-popping 40 per cent of Canadians “think they’ll be in debt forever.”

The article by Anne Gaviola, posted on the Vice website, cites data from Manulife. The article goes on to note that the average Canuck has $71,979 in debt – up from $57,000 five years ago. These figures, the article says, come via Equifax.

It wasn’t always like this, was it? Why are we all willing to live with debt levels that are approaching record highs?

Save with SPP had a look around for answers – why are we so comfy carrying heavy debt loads?

According to the Advisor, it may simply be that paying the way with debt has become so common that no one gets worked up about it anymore.

“Living with debt has become a way of life for both Generation X… and baby boomers as the stigma of owing money is gradually disappearing,” the publication reports, citing Allianz Life research originally published by Generations Apart.

The research found that “nearly half (48 per cent) of both generations agree that credit cards now function as a survival tool and 43 per cent agree that ‘lots of smart, hardworking people who are careful with spending also have a lot of credit card debt,’” the article reports. Having debt is making people plan to work indefinitely – the article notes that 27 per cent of Gen Xers, and 11 per cent of boomers “say they are either unsure about when they plan to retire or don’t plan to retire at all.”

Why the comfort with debt? The Gen Xers got credit cards earlier than their boomer parents, and half of Gen Xers (and nearly a third of boomers) never plan to pay anything more than the minimum payments on them, the article notes.

“Over the last three decades, there has been a collective shift in how people view debt – it’s now perceived as a normal part of one’s financial experience and that has fundamentally altered the way people spend and save,” states Allianz executive Katie Libbe in the article. “If Gen Xers continue to delay saving for retirement until they are completely out of debt, their nest egg is clearly going to suffer. For Gen Xers who are behind on saving, better debt management, with a focus on credit card spending, should be the first issue they address to get back on track,” she states.

To recap, it almost sounds like there’s a couple of generations out there who have never worried about debt.

What should people do to get out of debt?

According to the folks at Manulife, there’s a five-step process that will get you debt-free.

Manulife cites the fact that Canadians owe about $1.65 for every dollar they make. That suggests they aren’t ready to “make a budget and stick with it,” and always spending more than they earn, the article says.

In addition to getting real about budgeting, the other tips are paying off credit cards by targeting those with the highest interest rate first, considering debt consolidation, earning extra money, and negotiating with creditors.

Tips that Save with SPP can personally vouch for in managing debt include giving your credit cards to a loved one, and instructing that person not to hand them over even if you beg; paying more than the minimum on your credit cards and lines of credit; and trying to live on less than 100 per cent of what you earn, so that you are paying the rest to yourself.

While a country can perpetually run deficits and spend more than it earns – and most do – the math doesn’t work out as well for individuals. The piper eventually has to be paid. And if you only pay the minimums, that piper will get paid for many, many years.

Getting debt under control and paid off will help you in many ways, including saving for retirement. Perhaps as you gradually save on interest payments, you can direct the savings to a Saskatchewan Pension Plan retirement account, and watch your savings grow.

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

Dec 16: Best from the blogosphere

First wave of retiring boomers finding retirement disappointing

Retirement has always seemed like the light at the end of the tunnel for hard-working Canucks. But new research suggests that retiring boomers are finding it a little disappointing.

Writing in the Ottawa Citizen, noted financial journalist Jonathan Chevreau reports that new research from Sun Life finds “almost three in four retirees – 72 per cent – say retirement is not what they were expecting, and not in a good way.”

The 2019 Sun Life Barometer, he notes, found 23 per cent of retirees reported life after work was a tight money environment, where they were “following a strict budget and refraining from spending money on non-essential items.”

And those not yet retired are delaying their plans, Chevreau notes. A whopping 44 per cent of Canadians “expect they’ll still be employed full time at age 66,” and it’s because they “need to work for the money, rather than because they enjoy it.”

Why the strict budgeting? Chevreau notes that about half – 47 per cent – of those still working believe “there’s a serious risk they could outlive their retirement savings.”

The article says the lack of defined benefit pensions – the type where the retiree receives a pension equal to a percentage of what they were making at work – is one of the reasons for these concerns. Everyone without such plans is either saving in RRSPs or in defined contribution plans. In both these types of savings plans, you save as much as you can, and then turn that lump sum into retirement income, normally on your own.

This tendency for retirement plans to be savings plans designed to build a lump sum is, the article says “devolving responsibility onto the shoulders of individuals,” making the RRSP unit holder or DC plan member the person handling the risk of outliving the savings, known as longevity risk in the industry.

The article offers a couple of ways people can improve their retirement security.

Be sure, the article warns, that you are fully taking part in any retirement program your work offers. “Canadians are leaving up to $4 billion on the table,” the article notes, by not taking full advantage of plans where the employer matches some or all of any extra money they put in.

There’s also a worryingly large group of people who don’t have a workplace pension and aren’t saving on their own via RRSPs or TFSAs, the article reports. That group, the article says, will probably have to work well beyond age 65, but at least they will get more income from CPP and OAS if they take them at a later age.

The article concludes by noting that running day-to-day finances is “hard enough” for Canadians, which may explain the savings shortfall.

If you have a pension plan or retirement savings benefit through your work, consider yourself lucky, and be sure you are getting the most you can out of it. Can you consolidate pension benefits from other workplaces into the plan you’re in now, rather than retiring with several small chunks of savings? Are you eligible for a match, and if so, are you signed up for it?

If you are saving on your own, the Saskatchewan Pension Plan may be of help. You can save on your own through SPP, much like an RRSP, except SPP has the added advantage of offering a variety of annuity products when you retire – these turn your savings into a lifetime income stream that never runs out. As well, you can often transfer pension funds from past periods of employment into your SPP account – contact SPP to find out how.

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

Dec 9: Best from the blogosphere

Year end – time to make sure you’re taking full advantage of employer retirement programs

The end of the year is always a highlight – the festive season, the New Year, family and friends; it’s an endless list.

But, according to a report from the Toronto Star, there’s another little item that should be on your growing year-end list – retirement, and particularly, any program you’re in at work.

“Many medium-to-large-sized employers offer some form of savings program for their staff; some with a matching component, such as the employer matches 50 per cent of the contribution that the employee makes up to a certain maximum value, while other programs are simply to facilitate savings exclusively from the employee. The draw for employees is that the funds are typically deducted right off one’s paycheque, and of course, the free money if a match is offered,” the Star notes.

You could be leaving that free money on the table if you haven’t signed up, the article warns.

Be sure, the article advises, to find out which employer-sponsored program you’ve signed up for.

“Have you enrolled in a defined benefit or defined contribution pension? Do you contribute to an RRSP or TFSA? Are you funding an RESP for your children? Is your company offering non-registered plans? Which accounts offer a company match, as these should be your priority to fund,” the Star notes.

You may have options to choose from if you are in a company retirement program – often mutual funds, ETFs, or target-date funds (or a combination of each).

Know what you’re paying into, the Star suggests. “Grab a list of what your fund options are and compare historical rate of return, risk level, the composition of the fund and read up on the fund’s objectives. In most cases, your company will be covering a large portion of the fees associated with these investments,” the article notes.

Finally, the article notes, be sure that if there is a company matching option, that you are signed up for it. The Star recommends that you “find out how to get the maximum matching dollars. For example, sometimes they scale the match up (or down) depending on how much you contribute. Simply take advantage of all the free money that’s available to you. It’s the easiest ‘return’ on your investment you’ll ever make,” the article advises.

Those without retirement programs at work must do the job on their own, the article concludes. If you are in this situation, “it’s then up to you to save independently.”

An option for that self-managed saving is the Saskatchewan Pension Plan . With SPP, your contributions are invested professionally and at a low fee. As of the end of September, 2019, the SPP’s balanced fund is up more than 10 per cent. In addition to growing your savings, SPP is equipped to offer you a multitude of ways to turn savings into lifetime income via annuities – SPP’s Retirement Guide provides full details.

There’s still time to sign up and join SPP prior to the RRSP deadline in 2020, so check them out today and make them part of your year-end to-do list.

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

How to Get a Down Payment For a Home in Canada

You’d like to become a homeowner one day soon, but similar to a lot of Canadians the only thing stopping you is the down payment. When taking out a mortgage, the lender will require that you make a down payment of at least five percent. This provides the lender with some reassurance that you have some skin in the game.

Coming up with the down payment is perhaps the most challenging part of homeownership. Saving a down payment can be especially challenging if your cost of living is already high. The good news is that there are various ways you can come up with your down payment. Let’s take a look at the most common ways right now.

Personal Savings

Personal savings is probably the first way that comes to mind for getting a down payment. Personal savings isn’t just your savings account. It also covers investment accounts, mutual funds, GICs and Tax-Free Savings Accounts (TFSAs). Just make sure your money is available on closing and easily accessible. Your real estate lawyer will ask for the balance of the down payment funds a day or two before closing.

Registered Retirement Savings Plans (RRSPs)

Your Registered Retirement Savings Plan (RRSP) isn’t just to fund your retirement. It can also be used towards the down payment on a home. In order to do that you need to be a first-time homebuyer. Under the Home Buyers’ Plan (HBP), you can withdraw up to $35,000 from your RRSP towards your first home (up to $70,000 if you’re a couple buying together). The best part is that you won’t pay any taxes on the withdrawals (provided the funds are in your RRSP account for at least 90 days). You’ll have to pay back the funds eventually, although you have up to 15 years to do so.

In case you’re wondering, you can’t withdraw from your Saskatchewan Pension Plan (SPP) account for the HBP. However, contributions to the SPP can be considered as repayments to the HBP.

Gifts

It’s becoming a lot more common for first-time homebuyers to receive a part of their down payment as a gift from family. If you’re fresh out of college or university and you have a sizable student loan, it can take you years to repay it. In fact, student loans are one of the biggest barriers to entry for homeownership among younger folks. That’s where “the bank of mom and dad” can step in.

Many parents may be willing to lend their adult children a helping hand in the form of a gift. Gifting your adult child part or all of their down payment is pretty straightforward. All you’ll need to do is sign a gift letter stating that you’re gifting them the funds rather than it being a loan.

Another way parents can help you out is by gifting their children home equity. If you’re selling the family home to your adult child, you can gift your child home equity. For example, if the home is worth $600,000 and your child has saved up $80,000, you may be willing to gift your child $40,000 in equity, so that they’ll have a 20 percent down payment and can avoid paying mortgage default insurance.

The Bottom Line

These are just a few ideas for ways to come up with your down payment. You can use one of them or all of them. It’s all about figuring out which options makes the most sense for you and putting it into action.

 About the Author
Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians. He bought his first house when he was only 27 in Toronto and paid off his mortgage in just 3 years by age 30. An in-demand Personal Finance Journalist, Money Coach and Speaker, his articles and blogs have been featured in publications such as the Toronto Star, Globe and Mail, Financial Post and MoneySense. Connect with Sean on LinkedInTwitterFacebook and Instagram.