Paper suggests employers should help workers build emergency savings

Should employer help their employees save up for emergencies?

An article by Bianca Thompson in The Globe and Mail reports on a recent report that suggests just such a cooperative approach.

“A recent report from the Financial Wellness Lab at Western University is calling on companies to help Canadians contribute to emergency savings accounts,” she writes.

“Researchers at the lab say many Canadians are living paycheque to paycheque, with little to fall back on when unexpected expenses hit. The white paper found that more than 60 per cent of working-age Canadians couldn’t cover a $1,000 emergency without borrowing or going into debt,” the article continues.

A possible solution, the article continues, would be “employer-sponsored emergency savings programs,” or ESAs.

With such a program, the report notes, “contributions to ESAs would be automatically deducted from an employee’s pay, much as they are with workplace pension plans. The money would be set aside in small amounts from each paycheque to cover short-term emergencies.”

The white paper envisions a “two-tier” approach for the ESAs. There would be a “rainy day fund” for “small, unexpected expenses” as well as a “larger emergency fund for major financial shocks, such as a job loss or large-scale home repairs.”

“Cash coming in does not always match cash going out, and we need a safety net,” states Chuck Grace, co-founder of Canada’s Financial Wellness Lab, in the Globe article. “When employees are less distracted by financial stress, they are healthier, more focused and more productive, which benefits employers as well,” he tells the Globe.

Interestingly, a couple of firms are already trying this idea out, the article reports.

Ontario’s Mainstreet Credit Union, the article notes, recently rolled an ESA program out to all staff. CI Financial contributed to the white paper, and CI’s Kambiz Vatan-Abadi tells the Globe that an ESA can be a “`win-win solution’ that supports employees’ financial stability while benefiting employers in the process.”

“Employers who are financially healthy and resilient perform better at work,” he tells the Globe.

The article points out, citing figures from The National Payroll Institute’s 2025 Annual Survey of Working Canadians, that “financial stress costs Canadian businesses nearly $70-billion a year in lost productivity.”

ESAs are common in the U.S. and “gaining traction” in the U.K., but are few are far between in Canada so far, the article reports.

The article suggests “auto-enrollment” as a way to get people into such programs. This means you are automatically enrolled unless you choose to opt out.

“A British study found that less than one per cent of workers opted in when they had to self-enroll, but participation jumped to 50 per cent once enrolment was automatic,” the article notes.

It will be interesting to see if this idea gains traction here in Canada.

Did you know that the average Canada Pension Plan payment in 2025 is, according to the federal government’s figures just $848.37 per month? And the Old Age Security adds – on average – a maximum of $740.09?

If you aren’t supplementing these modest amounts with your own savings, or via a retirement program at work, it might be prudent to begin putting money away for your retired life now.

A fine partner in this effort is the Saskatchewan Pension Plan. With SPP, you can make annual contributions of any amount, up to a maximum of your personal registered retirement savings plan (RRSP) limit. You can also transfer any amount into SPP from non-locked-in RRSPs you may have.

SPP then does the heavy lifting – investing those savings in a low-cost, professionally managed, pooled fund. When it’s time to retire, your choices include receiving a monthly annuity payment for life, or the more flexible Variable Benefit.

Check out SPP today!

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Ways to put an end to procrastinating – and getting things done

Where there’s a will, there’s a way, they say.

However, procrastination – putting things off until later – seems to get in the way of getting things done. A recent article by Preet Banerjea of The Globe and Mail suggests that financial procrastination “is like paying another tax,” because you are enjoying fun things in the now instead of saving for the future.

Save with SPP decided to scout around the Interweb to see how others have liberated themselves from the clutches of procrastination.

The writers at Psychology Today offer up a few tips.

First, they suggest, why not break the task up into little bite-sized pieces?

“When you break a task into smaller steps, it becomes much more manageable, and taking the first step can build momentum,” the article explains.

“For example, if you’re avoiding cleaning your garage, don’t aim to finish it in one day. Instead, focus on sorting just one corner or organizing a single shelf,” the article adds.

Another trick is to “tackle your most dreaded task first,” the magazine notes. “Say you need to call customer service to resolve a complex billing issue. This kind of task can feel exhausting before you even begin. However, if you do it first thing in the morning, you’ll free up mental space to handle the rest of your day more smoothly,” the article recommends.

An interesting one is the Two-Minute Rule, the magazine continues.

“Popularized by productivity expert David Allen, the Two-Minute Rule suggests that if a task can be done in two minutes or less, do it immediately.This rule helps eliminate small tasks that pile up,” and can feel overwhelming, the magazine notes.

The Coursera website provides a few more ideas.

Got a to-do list? Trim it down, the site suggests.

“If you begin to work with a to-do list, it’s crucial to trim where you can. There are only so many hours in the day, and if you find yourself with long lists, then some things will have to be shifted around—or dropped altogether. For starters, go through and remove anything that doesn’t need to be done that day or that week,” the site tells us.

Next, Coursera suggests, you should minimize distractions.

“Turn off your phone, stay away from social media, and make sure you’re setting yourself up to stay on-task rather than deviating to something new,” the site notes.

Be sure, the site adds, to reward yourself for completing a task.

“You can use… personal rewards as motivation, such as a break for a snack or an activity. Or, if you’re working on a more involved project, maybe your reward is something bigger, like a nice dinner when you turn in the finished product,” the site suggests.

A few more ideas come to us via the Calm blog.

Techniques “like mindful breathing and meditation” can help you manage stress and anxiety, which the blog suggest fuel procrastination.

Consider, the blog advises, getting an “accountability buddy” to help you keep yourself on track.

“Don’t hesitate to ask friends, family, or professionals to be your accountability buddy if procrastination significantly impacts your life. Getting this support and encouragement from other people may help you to stop procrastinating and can give you ideas or coping tools,” the blog notes.

Review your success with anti-procrastination tools and reflect on what worked and what didn’t, the blog concludes.

Is procrastination holding back your retirement savings efforts?

Start small, with an amount you won’t really miss, and then ramp up over time.

The Saskatchewan Pension Plan does not have a required contribution rate. That means you can decide how much you want to contribute. Contributions can be received in many ways, including through pre-authorized transfers from your bank account or credit card, or via online banking, where SPP can be set up as a bill.

No matter how your savings dollars travel to SPP, once here they are invested in a professionally managed, low-cost pooled fund. When the time comes to withdraw your contributions as income, options include a lifetime annuity or the more flexible Variable Benefit.

Check out SPP today!

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Should wealthier seniors get less Old Age Security?

Writing in The Globe and Mail, Robyn Urback wonders if the federal government will consider taking the politically risky step of reforming Old Age Security – specifically, to tweak the system so that wealthier seniors get less.

Today, she notes, the OAS system is “an $80-billion-and-growing” program “that currently rewards couples who earn up to $182,000 with the full $18,000 annually.”

By comparison, she adds, Child Tax Benefit clawbacks begin at a level that’s $100,000 lower than the OAS clawback limit.

“The combined cost of both OAS and Guaranteed Income Supplement (GIS) payments is both the largest and the fastest-growing expenditure for the federal government, and it will become even greater if the government adopts the proposal from the Bloc Québécois to hike OAS payments by 10 per cent for seniors aged 65 to 74,” she continues.

Previous attempts to reform OAS have not worked out well, she writes.

Many may remember what happened when former Prime Minister Brian Mulroney tried to de-index OAS benefits (reducing payout adjustments for inflation), Urback notes. Political opponents called the decision breaking “a sacred trust,” and a protester outside Parliament, Solange Denis, told Mulroney “You lied to us. You made promises that you wouldn’t touch (OAS). It’s goodbye, Charlie Brown!”

Former Prime Minister Jean Chretien tried to roll the OAS and GIS programs into a new entity, the Seniors Benefit, which would have been based on “household income, not individual income.” He too backed down under political heat, Urback reports.

Finally, a third former Prime Minister, Stephen Harper, made an effort to “gradually” lift the age of eligibility for OAS from 65 to 67. This idea also became a political hot potato, the article continues, and was reversed by the government of former Prime Minister Justin Trudeau.

Will Prime Minister Mark Carney’s government look at changes to OAS?

“Mr. Carney’s pitch to voters was that he was not a lifelong politician in pursuit of a legacy, but a guy who would come in, try to fix things, and then, one could reasonably infer, get out. Who better, then, to make the politically tough but economically necessary decision to rein in OAS benefits?,” she writes.

The article notes that Generation Squeeze, “an advocacy group for young adults, has proposed lowering the threshold for OAS clawbacks to couples earning $100,000, which it estimates will save Canada’s coffers $7 billion per year.” Some of those savings, the group suggests, could be “redirected to low-income seniors,” low-income families and families with kids, or simply be used to pay down the national debt.

Reviving the Harper plan, and moving eligibility to age 67 gradually, would save $10 billion in federal spending per year, the article adds.

Urback concludes by calling OAS reform “a necessary move” that will have political consequences for the government, but will stop the “insane” practice of “handing out billions of dollars to wealthy seniors in this economic environment.”

It’s worth noting that the OAS payments that people receive are actually quite modest. According to the Art of Retirement blog the maximum OAS for those aged 65 to 74 is $706.7 per month “if your net annual income is less than $148,451.” For those 75 and over, it’s $880.40 a month if your net income is less than $154.196, the blog reports.

Once you pass those income milestones, the OAS recovery tax starts to kick in and reduces your payments.

If you don’t have a pension or retirement program through your work, you might want to augment your retirement income from government programs with your own savings.

A tremendous partner in this effort is the Saskatchewan Pension Plan. All you have to do is make contributions – and you can transfer in any amount from a non-locked-in registered retirement savings plan.

SPP invests your savings in a professionally managed, low-cost pooled fund, growing them for your future retirement income. Among your options at retirement is a lifetime monthly annuity payment from SPP, or the more flexible Variable Benefit option.

Check out SPP today!

Join the Wealthcare Revolution – follow SPP on Facebook!

Retired financial writer reviews his first retirement moments

Any of us who have retired will remember, perhaps, the “I wonder what retirement will be like” moments we felt as the time clock for the last day at work wound down. We remember our last coffee run for the team, the last train ride home, and so on.

Rob Carrick of The Globe and Mail, a well-read personal finance columnist for many years, is now taking his first steps in the world of retirement.

“You have instant community when you retire – just go to a mall, diner or blood donation clinic early in the morning on a weekday,” he observes.

“Retiring is stepping into a different life with different rules. Let me tell you about a few of them based on personal experience,” he adds.

First, he writes, “regardless of your financial status, you are rich in time” once you are retired. “You can do what you want, when you want. And so, you go to the mall when it’s emptiest,” he adds.

Next, he adds, is the shift away from weekly or bi-weekly paycheques to monthly pension payments.

“Getting paid monthly means new thinking on how to save for big expenses. Right now, I’m carving off some of those monthly payments as soon as they’re received to cover recurring costs such as property taxes, insurance premiums and utilities. We have separate savings accounts for these, each labelled specifically. I find this really helps with organization,” he suggests.

Similarly, you must think a little harder about income taxes.

“Another expense to be covered is income tax, which brings us to one more way retirement differs from your working life. If you have an employer, the correct amount of taxes for your income is taken off the top of your paycheque. You may have a balance owing to Canada Revenue Agency when you file your annual income tax return, but it shouldn’t be anything unmanageable,” he notes.

Now, he continues, “my wife and I both have a 15-per-cent withholding tax applied to our pension payments. I set up yet another high-interest savings account to hold the additional amount of tax we expect to owe after we file our 2025 tax return next spring. With each pension payment, money is automatically transferred to that account.”

Carrick has an interesting take on the term “retirement” itself.

“One more life adjustment when you leave the full-time workforce is how the word `retirement’ sounds to your ears. Telling people you’re retired earns you all kinds of reactions – some envy, some surprise and some disapproval from those who can’t imagine their lives without the fulfilment and status of a job,” he notes.

He concludes with the good news that he’ll continue writing for the Globe on the topic of retirement and other personal financial subjects. We wish him the best in his new role.

While it is possible to self-fund a retirement through disciplined personal saving and a strong investment program, not all of us have the ability to stick with the program or the investment savvy to get started.

That’s where the Saskatchewan Pension Plan comes in. All you need to do is send us contributions, by pre-authorized contribution from a bank account or credit card, via online banking as a “bill,” by cheque – SPP is flexible. What we do is invest those hard-saved dollars in our low-cost, professionally managed pooled fund. You can ramp up contributions as you earn more, and transfer in any amount from registered retirement savings plans you may have.

At retirement, you can choose the security of a monthly annuity payment for life, or the more flexible Variable Benefit.

Check out SPP today!

Join the Wealthcare Revolution – follow SPP on Facebook!

Who wants to be a millionaire, but not feel rich?

Years ago, we joked that while we might never be millionaires, we could at least claim to be thousandaires.

But these days, reports The Globe and Mail, there are way more millionaires than ever before. Why, the article asks, do so many of them not feel rich?

Take the example, the article begins, of Martin Alderwick, 76, of Guelph. “The couple brings in about $7,500 a month in retirement income and own a townhouse that makes up nearly 40 per cent of their total assets. Their net worth crosses the seven-figure threshold,” the article notes.

All good, then?

“Mr. Alderwick doesn’t identify with the millionaire title. `I live comfortably,’ he said. `But I still look for bargains and where I can save,’” the article notes.

“His unease reflects a growing reality in Canada: A rising number of people technically qualify as millionaires, but don’t feel, or function, like it,” the Globe reports.

The article, citing the UBS 2025 Globe Wealth Report, notes that the number of millionaires globally has quadrupled since the start of the century. The report suggests there are 52 million people worldwide with wealth between “$1 and $5 million, U.S.”

Much of the growth in personal assets comes via real estate, the Globe reports. “As home values surged in major cities and even mid-sized markets, many middle-class homeowners became millionaires without doing anything beyond staying put,” the article explains.

However, having a million in assets these days may not be as big a deal as it used to be, the article continues.

“Many of these individuals are likely confronting an uncomfortable truth that having a million-dollar net worth doesn’t necessarily mean you are financially ready for retirement,” the article adds.

“We still have this notion of a millionaire as someone on a yacht or a private jet,” said Brenda O’Connor Juanas, a financial adviser at UBS, tells the Globe. “The makeup of what this millionaire looks like is quite different,” she states in the article.

Incredibly, by last year, the “average Canadian household net worth reached $1,026,205, a 30 per cent jump from 2019, according to Statistics Canada,” the article notes. Gen Xers had the “greatest average real-estate wealth, at $666,146 per household,” the Globe adds, followed by Boomers, at $550,994 per household.

The article makes the point that your real estate holdings – i.e., the family home – isn’t really something that counts towards retirement savings.

“If your $1-million net worth includes a $900,000 house and just $100,000 in liquid savings, you’re likely well short of the mark of what you may feel like you need in order to comfortably retire,” the Globe tells us, citing data from Fidelity Canada’s 2025 Retirement Report.

Fidelity’s Michelle Munro tells the Globe that while “the sale of a home can be a way to fund long-term care, it’s a good idea to have assets that are more easily accessible.” She recommends “having a portion of liquid assets in accounts such as a high-interest savings account for short-term goals,” and “investing in the stock market can offer growth over a longer period” for longer-term goals. She stresses the importance of having a savings plan, “not just a number,” the Globe article concludes.

Lots to digest here, but the takeaway seems to be that even a valuable home may not be enough to fund a long period of retirement, particularly if you or your partner needs long-term care.

If you are saving for the long term – to generate income when you are no longer working – be sure to join your workplace retirement program and contribute to the max. If there is no such program, or you want to augment the one you have, consider the Saskatchewan Pension Plan. Open to any Canadian with registered retirement savings plan room, SPP will take your contributions (you decide how much to save) and grow them in a professionally managed, low-cost pooled fund.

At retirement, your SPP income options include a lifetime monthly annuity payment, or the more flexible Variable Benefit.

Check out SPP today!

Join the Wealthcare Revolution – follow SPP on Facebook!

“Buy low, sell high.” As well, there’s “sell in May and go away.” There’s “buy and hold.”

These are among the investment tips Save with SPP has heard about over three decades writing about pensions. But what other gems are out there – what “one best tip” exists, or is at least spoken about, in the great Interweb universe?

Well, let’s start with well-known personal growth guru (and financial author) Tony Robbins.

In a GoBankingRates piece, he offers us three ideas to put us on the path to being millionaires.

“Capitalize on compound interest,” he suggests. “Compound interest is the key to long-term investment success with mutual funds, individual stocks and bonds. It takes a long time to reap the full benefits of compound interest, so as Robbins endorses, the earlier you can start on your time horizon, the better.”

OK, start investing early, and leave the investments alone so that the growth and interest compounds. What else?

Robbins also tells us we have to diversify – “you can’t put it all in one place.” And finally, your savings approach needs to be automated, a “set it and forget it” strategy.

“If you set up your accounts to automatically transfer money into savings and investments, you won’t have the opportunity to talk yourself out of socking it away. It then becomes a habit that you don’t even have to think about — you’ll just be automatically building your wealth without even lifting a finger.”

Let’s turn to the Oracle of Omaha, newly retired Warren Buffett, for some more key investing strategies, in an article from The Globe and Mail.

“Be greedy when others are fearful, and be fearful when others are greedy,” the article quotes Buffett as saying. In other words, if the market takes a downturn, that’s a good time to be “greedy” and buy low.

Other advice from Buffett: “don’t be a stock picker, be a business-picker.”

“[W]e own stocks based upon our expectations about their long-term business performance and not because we view them as vehicles for timely market moves,” he is quoted as saying in the article. “That point is crucial: (We) are not stock-pickers; we are business-pickers.”

Timing the market, or waiting for the perfect moment to wade in, is also not a wise idea per Buffett.

“If you wait for the robins, spring will be over,” he states in the piece. Huh?

“I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month or a year from now,” he is quoted as saying in the article. “What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.”

Last word goes to the Get Smarter About Money blog.

They suggest avoiding “trending” investments, to “consider the type of investment advice you want and the cost,” and to “commit to a plan rather than be guided by emotions.”

It’s a wise step to get some professional investment advice before you venture into investing on your own.

There is a way to get professional investing at a low cost for your retirement savings – joining the Saskatchewan Pension Plan either as an individual, or as an organization. SPP invests savings dollars in a pooled fund that is professionally managed at a fee of less than one per cent. When it’s time to retire, your grown savings can be received as income in retirement – options include a lifetime monthly annuity payment, or the more flexible Variable Benefit.

Check out SPP today!

Join the Wealthcare Revolution – follow SPP on Facebook!

Are retirement parties becoming a thing of the past?

We remember it well. After a little over 20 years at work, we turned in our security pass and headed for retirement. And to cap it all off there was a nice party in Toronto with work colleagues and friends. A great memory.

But, according to The Globe and Mail that retirement party in 2014 may well be a relic from a bygone era.

Take the example of B.C.’s Linda Lawrence, the newspaper suggests.

“The former marketing and communications professional planned to retire in June, but her role was suddenly eliminated last year when her employer was purchased by investors in the United States. She found out on an online call,” the Globe reports.

“After briefly considering finding a new job, Ms. Lawrence decided to retire early,” the article continues.

“Months later, the B.C. resident, now 60, says she has struggled with reconciling how her 30-year career ended with zero fanfare. She had long looked forward to celebrating her retirement in the company of loved ones and colleagues like her parents had, but that didn’t happen,” the Globe notes.

“I couldn’t wrap my head around it,” she tells the Globe. “I felt cheated.”

It’s not an uncommon feeling, the article continues.

“While a workplace retirement party was once seen as a rite of passage marking the end of one’s career and the start of a new chapter, many departing employees are leaving without sheet cakes and novelty-sized farewell cards – and with a lack of closure,” the article explains.

Retirement coach Marilyn Hintsa tells the Globe the retirement party “is a tradition that appears to be waning.”

“People retiring now have lower expectations about what happens when they retire. I think it’s unfortunate that it’s happening, especially if you put in a lot of years with that employer,” she tells the Globe.

“If Wednesday is your last day at work, Thursday is your first day of retirement, and there’s not some line that’s drawn between that, the first day will be tough,” she states in the article.

Why is the tradition changing?

The Globe cites a number of factors, such as “shorter average job tenures” and the rise of remote and hybrid work. Shrinking company budgets, where the onus is on employees to pay for gifts and parties rather than the company, is another factor.

A smaller party is better than no party, the article suggests.

Last word to B.C.’s Linda Lawrence, who believes “organizations should play a role in recognizing retirees’ contributions and wishing them well in their new chapter.”

“What does it cost to send an email,” she asks.

Whether or not you get a gold watch or a slice of cake, retirement is still something to look forward to, particularly if you have retirement savings.

If you don’t have a workplace pension, fear not. The Saskatchewan Pension Plan has a do-it-yourself, voluntary defined contribution program ideal for individuals or organizations. You determine how much you want to contribute, and SPP does the rest, investing your savings dollars in a low-cost, professionally managed pooled fund. And when it’s time to start life after work, your SPP options include the chance of a lifetime monthly annuity payment, or the more flexible Variable Benefit.

Check out SPP today!

Join the Wealthcare Revolution – follow SPP on Facebook!

“The man from the bank was very nice,” said Grandma over the phone one Monday evening. “He said he just wanted to run a security check, so I ran and got my card.”

Oh no, we thought. We were quickly able to contact the bank to verify that all was OK with her account. She hadn’t been able to see all the numbers (she’s 92) and began to think something was up when the “bank man” started yelling at her.

When we got her on the phone with her actual bank, they reassured her that the bank would never make a “security check” call like that; it was a scam.

Save with SPP took a look around to see what other scams are out there that we – particularly the older and more vulnerable among us – should watch out for.

According to the Toronto.com website, “Canadians have lost a staggering $447 million through various scams and fraud through the first nine months of 2024.”

Of that total, the article continues, $228 million was lost in “investment fraud alone from January to September of 2024.”

An investment scam, the article notes, occurs when “the scammer may try to get you to buy digital currencies, stocks, bonds, or real estate, or to invest in a business directly,” the Competition Bureau Canada states in the article.

“Fraudsters often use social media, dating apps, online ads or websites telling investors to act now while promising high returns,” the article adds.

The Globe and Mail notes that $45 million has been lost “to phone-initiated fraud” like Grandma experienced. That figure “captures only a fraction of the suspected financial carnage,” the Globe notes. “The Canadian Anti-Fraud Centre estimates that a mere five to 10 per cent of victims actually report” the fraud.

In addition to investment scams and phone fraud, the Asterisk blog warns about “social media scams” which often consist of “false advertisements… that promise job opportunities, discounted merchandise, or free trials.” Clicking on these could lead to “identity theft and stolen passwords,” the blog warns.

Another category is called “spear fishing,” Asterisk reports. “Be aware of texts and email messages, which appear to be from a legitimate source, that say someone is trying to access your account. Never respond to the text or email, and do not click on any links.”

These messages may purport to be from someone you do business with – the bank, the post office, Amazon, or the government.

“The golden rule is that if you’re unsure, don’t click. Opening a fraudulent link can potentially infect your device or compromise your data. Instead, reach out to the government agency directly by looking up their official contact information,” the blog advises. “If you’re concerned about these messages, especially if they are ongoing, call your financial institution directly to find out if they’re trying to get in touch with you.”

Another category is employment scams, Asterisk continues.

For example, the blog reports, “Instagram direct messages that claim someone received your resume through a job posting site and is interested in hiring you. It is common for scammers to ask for personal details, financial information and even pretend to send you an advance ‘digital payment.’ However, after you deposit the money, you’ll get a call from your financial institution that the cheque was counterfeit,” the blog warns.

Similar scams involve “car wrapping,” being hired as a “financial agent” to help process invoices or offers for you to be a mystery shopper or personal assistant, the blog cautions.

We’ve all heard (and friends have experienced) the “grandparent scam,” where someone calls saying it is your grandson and that he needs bail money quick to get out of jail. Or the Canada Revenue Scam where a recorded voice says you are about to be arrested for tax evasion unless you contact a random number first. Artificial Intelligence can make any scam sound plausible.

The takeaway is to be skeptical about the reality of any unsolicited call. It costs you nothing to hang up – it might cost you plenty to stay on the line. As our parents used to say, “if it sounds too good to be true, it probably isn’t true.”

Are you among the millions of Canadians who does not have a retirement program through work? There’s a handy resource you should be aware of – the Saskatchewan Pension Plan. SPP is an open, voluntary defined contribution plan that any Canadian with available registered retirement savings plan room can join.

Sign up and start contributing, and SPP will do all the rest, investing your savings in a professionally managed, low fee pooled fund. At retirement, you’ll have options, including the possibility of a lifetime monthly annuity payment or the more flexible Variable Benefit.

Check out SPP today!

Join the Wealthcare Revolution – follow SPP on Facebook!

Should RRIF rules be modernized?

Is it time to revisit the rules regarding converting registered retirement savings plans (RRSPs) to registered retirement income funds (RRIFs)?

Commenting in The Globe and Mail, Tim Cestnick is of the opinion that modernization of the rules is in order.

Cestnick’s neighbour has reached the age when he has to begin taking money out of his RRIF.

“Thousands of Canadians are worried about outliving their RRIFs and the rules that require withdrawals starting in the year they reach 72. The government is aware of the concerns,” writes Cestnick.

Right now, you must stop contributing to an RRSP by the end of the year in which you reach age 71, he explains. “The most common strategy is to convert the RRSP to a RRIF by that date, with mandatory withdrawals from the RRIF starting the following year,” he continues.

Ah, those mandatory withdrawals.

“The withdrawals required from a RRIF are calculated as a percentage of the assets in the RRIF on Jan. 1 each year. The older you get, the higher the percentage you’ve got to withdraw. These percentages were set by the government to allow you to preserve enough savings to provide a constant income stream, indexed to inflation, from age 72 to 100. The rules also assume that you can earn a three per cent real (after inflation) rate of return on your portfolio each year, and that inflation is an average of two per cent annually.”

There are some flaws with the status quo, Cestnick explains.

“One key issue is that folks are living longer, and longer. In the early 1990s, when registered plan reform took place, life expectancy at age 71 was 13.7 years. This has increased to 16.2 years as of 2020 (the most recent data available). The 2020 data shows that 14 per cent of the population will live to age 95 (the figure for women is 18 per cent), which has increased from 5.6 per cent in the early 1980s. And the proportion of people making it to 100 has nearly doubled over that time,” he writes.

The idea that you must make three per cent annually on your investments is also a bit of an issue for Cestnick.

“The government report shows that, in order to achieve this return, based on average historical data, you’d have to invest about 30 per cent of your portfolio in equities for 25 years (basically, from 70 to 95 years) – or perhaps invest more in equities to begin with, reducing this percentage as you age,” he explains. That’s a high exposure to risk and volatility for older people, as “the more equities they hold in a portfolio, the more nervous they get.”

He also notes that “there’s no shortage of experts who would suggest” the target inflation rate of two per cent for 28 years is not reasonable.

He concludes with three suggested reforms to the RRIF system to make things more sustainable.

• “There should be an increase in the age at which RRIF withdrawals must start – perhaps to age 75;
• The minimum required RRIF withdrawal schedule should be reduced; and
• RRIFs under a certain amount should be exempt from minimum withdrawals.”

Another less popular option when you reach end of life for your RRSP is to use some or all of the funds to purchase an annuity. The annuity option is best suited for times when interest rates are higher, so it is now beginning to be mentioned as an option again.

Are you saving on your own for retirement? Why not partner up with the Saskatchewan Pension Plan. All you need to do is direct some savings into your SPP account, and we will do the heavy lifting of investing your money in a low-cost, professionally managed, pooled fund. At retirement, your options include a lifetime monthly annuity or the more flexible Variable Benefit.

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“Overlooked” annuities can play a key part in delivering retirement income

While most people are relieved that interest rates are starting to head back down, there’s another group – savers – who are less pleased.

So writes Rob Carrick of The Globe and Mail.

“Declining interest rates are great for borrowers, but they take an axe to returns for people who want to avoid putting their money at risk,” he notes, observing that guaranteed income certificate (GIC) rates have fallen to about five per cent these days from a high of six per cent a year ago.

But interest rates are still higher than they have been for decades, and that’s good for those thinking about investing in an annuity, he notes.

“Annuities have also been affected by lower rates, but you could still get a lifetime yield of five per cent as of recently,” he writes.

Hold up. A yield on an annuity? An annuity is where you hand the provider a lump sum of money, and they guarantee you a monthly lifetime payment. It’s not like a bond or GIC that matures at a key date – it’s paid for life.

Carrick explains.

“What’s lifetime (annuity) yield? It’s a way of looking at annuity returns that was used recently by Clay Gillespie of RGF Integrated Wealth Management to make a point,” he writes. “A life annuity is an insurance contract where you exchange a lump sum of money for a guaranteed stream of lifetime income that is usually paid monthly. Basically, you’re buying your own pension,” he continues.

“It’s hard to say what the actual return is from an annuity because you don’t know how long you’ll live. What Mr. Gillespie did was calculate returns based on life expectancy,” Carrick explains.

In the article, a 65-year-old male converting $100,000 to an annuity would receive $582 a month, and has a life expectancy of 21 years. That’s a yield of 5.3 per cent, the article explains.

For a woman of the same age and same $100,000 annuity, the income is $544 a month for 24 years, a yield of 5.5 per cent.

These calculations assume the people will live an average lifespan. If they live longer than 21 or 24 years respectively, they still receive a monthly payment. If they live less than the average lifespan, their payments stop when they pass away.

“This brings us to a legitimate reason why annuities remain a fringe retirement product. If you die in the years shortly after buying one, you end up having sacrificed a chunk of your savings to buy a short-term flow of income,” Carrick writes.

However, there are even some remedies for those who die younger than expected, the article continues. Some annuities have guarantee periods, say five years. “If you die during (the guarantee period), your beneficiary or your estate will get” the balance of the money left over, the article explains. Other types of annuities provide for some or all of the payment to continue to your surviving spouse.

On the plus side, an annuity means you will never run out of money during your lifetime, the article observes. The article suggests putting some of your money – enough to cover everyday costs – into an annuity and continuing to invest the rest.

Did you know that the Saskatchewan Pension Plan offers its retiring members the option of converting some or all of their account balance to an annuity? Options include annuities with a guarantee period, and annuities that continue to a surviving spouse. The SPP Pension Guide provides complete details on available annuity options.

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