Tag Archives: Yahoo! Finance Canada

May 6: Best from the blogosphere

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

Tax-free pension plans may offer a new pathway to retirement security: NIA

With workplace pensions becoming more and more rare, and Canadians generally not finding ways to save on their own for retirement, it may be time for fresh thinking.

Why not, asks Dr. Bonnie-Jeanne MacDonald of the National Institute on Ageing, introduce a new savings vehicle – a tax-free pension plan?

Interviewed by Yahoo! Finance Canada, Dr. MacDonald says the workplace pension plan model can work well. “Workplace pension plans are a key element to retirement income security due to features like automatic savings, employer contributions, substantial fee reductions via economies of scale, potentially higher risk-adjusted investment returns, and possible pooling of longevity and other risks,” she states in the article.

Dr. MacDonald and her NIA colleagues are calling for something that builds on those principles but in a different, tax-free way, the article explains. The new Tax-Free Pension Plan would, like an RRSP or RPP, allow pension contributions to grow tax-free, the article says. But because it would be structured like a TFSA, no taxes would need to be deducted when the savings are pulled out as retirement income, the article reports.

“TFSAs have been very popular for personal savings, and the same option could be provided to workplace pension plans. It would open the pension plan world to many more Canadians, particularly those at risk of becoming Canada’s more financially vulnerable seniors in the future,” she explains.

And because the money within the Tax-Free Pension Plan is not taxable on withdrawal, it would not negatively impact the individual’s eligibility for benefits like OAS and GIS, the article states.

It’s an interesting concept, and Save with SPP will watch to see if it gets adopted anywhere. Save with SPP earlier did an interview with Dr. MacDonald on income security for seniors and her work with NIA continues to seek ways to ensure the golden years are indeed the best of our lives.

Cutting bad habits can build retirement security

Writing in the Greater Fool blog Doug Rowat provides an insightful breakdown of some “regular” expenses most of us could trim to free up money for retirement savings.

Citing data from Turner Investments and Statistics Canada, Rowat notes that Canadians spend a whopping $2,593 on restaurants and $3,430 on clothing every year, on average. Canadians also spend, on average, $1,497 each year on cigarettes and alcohol.

“Could you eat out less often,” asks Rowat. “Go less to expensive restaurants? Substitute lunches instead of dinners? Skip desserts and alcohol?” Saving even $500 a year on each of these categories can really add up, he notes.

“If you implemented all of these cost reductions at once across all of these categories, you’d have more than $186,000 in additional retirement savings. That’s meaningful and could result in a more fulfilling or much earlier retirement,” suggests Rowat. He’s right – shedding a bad habit or two can really fatten the wallet.

If you don’t have a retirement plan at work, the Saskatchewan Pension Plan is ready and waiting to help you start your own. The plan offers professional investing at a low cost, a great track record of returns, and best of all, a way to convert your savings to retirement income at the finish line. You can set up automatic contributions easily, a “set it and forget it” approach – and by cutting out a few bad habits, you can free up some cash today for retirement income tomorrow. It’s win-win.

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

Mar 11: Best from the blogosphere

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

House as bank machine – or, how to pay your mortgage forever

Our parents bought houses, paid off their mortgages (and had a mortgage-burning ceremony), and then retired.

Those of us who are not yet retired, on the other hand, seem to want to continue paying for our houses long into retirement. What’s going on?

An article by Bloomberg printed in the Financial Post lets us in on the dirty little secret most of us share – we are using the equity in our homes to pay for our lives.

The article warns that Canadians “are ramping up borrowing against their homes even as the real estate market slumps,” a practice that could put our financial system at risk.

According to rating company DBRS, the article notes, home equity lines of credit, or HELOCs, “reached a record $243 billion as of Oct. 31,” an astounding 11.3 per cent of all household debt.

“In the event of a correction, borrowers could find themselves with a debt load that exceeds the value of their home, which is often referred to as negative equity,” the article notes.

An obvious reason for this particular problem is the high cost of owning a home. Houses today can be 10 or 20 times more expensive that what our parents and grandparents paid back in the 1950s and 1960s.

So getting into the housing market is a difficult yet high priority for younger Canadians, reports Yahoo! Finance Canada. One in five younger Canucks admits to not saving for retirement, and instead saving “to afford their property,” the article reports, citing research by Sotheby’s International Realty Canada.

Another eye-opening stat from this story is that 31 per cent of those surveyed dipped into RRSPs for their down payments. That move, possible via the Home Buyers’ Plan, allows one to withdraw up to $25,000 to put towards a down payment if they are a first-time home buyer; the HBP expects the money to be repaid within 15 years. If the money withdrawn is not repaid, the borrower has to pay income tax on it – and the RRSP doesn’t grow back to where it was.

“The dream of home ownership remains compelling for today’s young families, but the reality is that many are facing serious obstacles to achieving this given rising costs of living, rising costs of housing, and other financial needs, such as saving for retirement,” states Brad Henderson, president and CEO of Sotheby’s International Realty Canada, in the article. The piece goes on to report that the number of RRSP contributors “between 25 and 54 years old fell 16 per cent between 2000 and 2013.”

So, let’s arrange these three thoughts together. Those with homes are using them as bank machines. Those without them are making ownership a high priority, over paying off debt and saving for retirement. As a result, retirement savings rates are dipping, and the new home owners may also decide to dip into their home equity to help with cashflow.

Our grandparents succeeded because they kept the concepts of home ownership, debt repayment, and retirement savings separate. They paid off the mortgages, they paid down their debts, and they used the proceeds to save towards retirement.

If, as they say, everything old is new again, it is time these old school concepts were re-introduced.

If you lack a retirement plan at work, and are looking for a way to set aside some of your hard-earned dollars for your retirement future, the Saskatchewan Pension Plan offers all the tools you need to get the job done. Check them out today at www.saskpension.com.

Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Shelties, Duncan and Phoebe, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22