TFSA

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.


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.


Workplace pensions can ease pandemic financial worries, panelists say

December 3, 2020

A recent online event, COVID-19 and Canada’s Workforce: A Crisis of Financial Security, suggests the pandemic has thrown a wrench into the retirement plans of Canadians.

The event, hosted by the Healthcare of Ontario Pension Plan (HOOPP) and Common Wealth, took a look at how the pandemic is impacting our finances.

Common Wealth’s founding partner, Alex Mazer, noted that even before COVID-19, 43 per cent of Canadians were living cheque to cheque. Forty-four per cent had less than $5,000 in emergency savings, and 21 per cent had less than $1,000, Mazer says.

On the retirement savings front, Mazer says, things are even bleaker. “The median retirement savings of near-retirement households is only $3,000,” he notes. Four of 10 Canadians have no retirement savings at all, and 10 million lack any kind of workplace pension program.

With the pandemic now impacting work and income, many Canadians “don’t feel they have the capacity to save… and that is a real problem for our society,” he warns.

Citing recent research from FP Canada, Mazer noted that worries about money impact our performance at work. That research found 44 per cent of Canadians are “stressed” about their finances, and research from the Canadian Payroll Association found we are spending “30 minutes a day worrying” about money.

“If you are worried about your finances, it’s hard to bring your full self to work,” Mazer notes.

He noted that the lack of workplace pensions, long considered a pillar of Canada’s retirement system along with government pension benefits and individual savings, is having a negative impact.

“The greatest weakness in the Canada’s retirement system is the lack of workplace pensions,” he says. Coverage levels today are at about half of what they were in the 1970s.

Mazer is a proponent of giving more Canadians access to pension programs; he says the most efficient types are “large scale pooled plans, or large Canada model (defined benefit) plans.” Both types feature retirement saving at low fees, professional investing, and risk pooling, he explains.

Elizabeth Mulholland, CEO of Prosper Canada, says 47 per cent of people working in the non-profit sector work freelance or part time, and face lower pay. “Insecurity is a way of life for our sector,” she says.

She notes that 28 per cent of Canadians have raided their registered retirement savings plans or Tax Free Savings Accounts due to the pandemic. “They have depleted their already inadequate retirement savings, and are now further behind due to COVID,” Mulholland says, adding that the pandemic has been “a wakeup call for the financial vulnerability of Canadians.”

Pension plans should consider automatic enrolment – an “opt out” feature rather than “opt in” – and need to be flexible for part-time workers. She says support for workers with general financial literacy would help them make the most of their retirement benefits.

Bell Canada Vice-President, Pension & Benefits and Assistant Treasurer Eleanor Marshall says her company’s pension plan is appreciated by employees. “Eighty per cent strongly value the pension plan,” she explains.

When COVID hit, she says, “there were a couple of responses from our employees.” Top priority, she says, was health and safety and social distancing. Next was job security. But the third concern was their pension plan and its investments.

Marshall says there needs to be more emphasis on individuals building emergency savings for situations – such as during the pandemic – when they need to “bridge the gap” for a period of job loss.

Pension plans, she adds, are important “for attracting and retention.” While younger employees don’t worry much or think about their pensions, they “will eventually appreciate having a pension plan” once they get older.

In general, Marshall said, there’s a link between financial wellness and mental wellness, and delivering a retirement system for employees is a positive measure on both fronts.

Renee Legare, Executive Vice-President and Chief Human Resources Officer at The Ottawa Hospital, says that during the pandemic, the worry for hospital workers wasn’t so much job security but definitely “their health and wellness.” She says healthcare workers feel lucky to have a good workplace pension.

She says portability – the ability to continue with the pension when you move from one job to another – is a solid feature of the plan. “It’s a major benefit for healthcare workers; they can move from one employer to another without losing their (pension) investment,” she explains.

The event was chaired by Ivana Zanardo, Vice President of Client Services at HOOPP. Save with SPP would like to thank James Guezebroek of HOOPP for directing us to the presentation.

If you’re among the many millions of Canadians who don’t have a workplace pension plan, the Saskatchewan Pension Plan may be the savings program for you. It features low-cost, professional investing and pooling, and since it is a member-directed savings program you can continue to belong to SPP even if you change jobs. SPP can also be offered as a workplace pension. Why not check out it 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.


Start early and work the tax system in your favour, says Gordon Pape

October 1, 2020

Gordon Pape is one of Canada’s best-known authors and commentators on investing, retirement and tax issues. Save with SPP reached out to him by email to ask a few questions about our favourite topic – saving for retirement.

Q. What are the three most important tips you can provide on saving for retirement?

A. Create a savings plan and stick to it. To do that, make sure it’s realistic. To maximize the odds of success, set up an automatic monthly withdrawal at your financial institution, with the proceeds going directly into a pension plan, Registered Retirement Savings Plan (RRSP) or Tax Free Savings Account (TFSA).

  • Start as early as possible. Let the magic of compounding work for you for as many years as you can. If you invest $1,000 for 20 years with a five per cent average annual return, it will be worth $2,653.30 at the end of that time. After 40 years, the value will be $7,039.99.
  • Use the tax system to your advantage. All RRSP and pension contributions within the legal limit will generate a deduction that will lower your tax bill. Contributions to Tax-Free Savings Accounts are not deductible, but no tax is assessed on withdrawals.

Q. Given today’s markets, are there any things you think people should be doing differently with their retirement investments?

A. This is a very difficult environment in which to invest because of the uncertainty related to the pandemic and the time it will take the economy to recover. In these circumstances, I advise caution, especially with retirement money. Aim for a balanced portfolio (typically 40 per cent bonds and cash, 60 per cent equities). Dollar-cost average your stock or equity fund investments over time. Always have some cash in reserve to deploy in market corrections.

Q. Given what seems to be a lack of workplace pension plans in many job categories, is saving for retirement more important than ever before?

A. It has always been important but it’s especially so if you do not have a pension plan (most people in the private sector do not). Few people want to scrape by on payments from the Canada Pension Plan (CPP) and Old Age Security (OAS). To enhance your retirement lifestyle, you’ll need your own personal retirement nest egg – and the larger, the better.

Q. Do you think we’ll see more people working beyond traditional retirement age – and if yes, why do you think that is?

A. Absolutely. We’re already seeing that trend. In some cases, the motivation is financial – people simply don’t have the savings needed to quit work. But in other cases, people keep working because they want to. I’m in my 80s and still work full-time. I enjoy what I do and don’t intend to stop until health forces me to. I know a lot of people that feel the same way.

We thank Gordon Pape for taking the time to answer our questions. Be sure to check out his website for more great information.

If you don’t have a workplace pension, or are looking for a way to top up what you are already saving, consider the Saskatchewan Pension Plan. It’s a one-shop, personal retirement plan that you can set up for yourself or your employer can offer it as part of a benefit package. Once you are a member, your contributions are grown via risk-controlled, low-cost investing, and when it’s time to receive the gold watch, you can choose from a variety of retirement income options including life annuities. Consider checking 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 and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.


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

August 20, 2020

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.


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

What do millennials think about retirement?

April 9, 2020

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

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