If there’s one thing that working Canadians can’t quite grasp with their imagination, it’s what things will be like when they step away from full-time work.

David Aston’s The Sleep-Easy Retirement Guide is a great and refreshingly Canadian-focused look at what lies ahead – and what you need to think about to ensure you make the best of it.

The book begins by noting that the old days of “full-stop” retirement at 65 are gone. “You can retire much earlier than 65 or much later. You can leave work full-stop, or you can work in a second career, or you can work as little or as much as you want or need to with part-time employment or on contract,” he writes. You can also start a business or just go for “the traditional retirement of leisure.”

So saving, Aston writes, is a bit tricky, because you normally start saving “many years ahead of when you will have a clear picture of what your financial demands will be in retirement.”

Aston sees three “paths” for retirement savings. The “Steady Eddie” approach involves saving “at a constant rate throughout your working life.” If a 25-year-old put 10 per cent of his or her salary into retirement savings annually for 40 years, there would be $1 million in the nest egg at age 65.

Other approaches give you the same result – a “gradual ramp up” means you start at six per cent per year and increase to 30 per cent for the 25 years before age 65. Or, there’s the “mortgage first, save later” approach where, after mortgage is done, you save 35 per cent of income for the 13 years left to retirement.

If working part-time, or at something different, is part of your “life after full-time work” plans, Aston provides a handy list of tips for older job-hunters, who may not have looked for work for a while. Among the tips are getting familiar with today’s more tech-focused approach to human resources, such as the use of Skype or FaceTime for interviews, and LinkedIn for shopping your resume around.

The book has many great chapters focused on decision points. Maybe you’re at age 65 with a reasonable stash of money in your RRSP. Aston’s detailed charts show how retiring at 68 instead can boost your annual cash flow by an impressive $11,360, thanks in part from holding off on withdrawals from savings and taking Canada Pension Plan and Old Age Security benefits later.

Another set of tables looks at what couples and singles spend in retirement. For an average couple, here’s what goes out: $44,000 a year for shelter, mortgage, vehicles, groceries, health and dental, home and garden, clothing, communication, financial services and transportation. But wait, there’s more – they’ll spend a further $16,400 on “the extras,” which include recreation and entertainment, restaurants and alcohol, a second home, travel, pets, gifts and charities, and miscellaneous perks.

Aston says an important concept is to have a “sustainable withdrawal rate” from savings, so that you don’t run out. He recommends taking four per cent out of your savings each year, if you start at age 65. The four per cent figure assumes “a blend of both investment returns and drawdown of principal.”

If you don’t want to risk running out of savings, Aston says an annuity may be for you. “An annuity gives you the opportunity to purchase your own defined-benefit pension plan,” he explains. They “are an ideal product for many middle-class Canadians who are concerned about outliving their wealth,” Aston adds.

This well-written, thorough and very informative book ends with some very good advice. “Behind the goal of a life well lived,” writes Aston, “it helps to have the support of finances well-managed.”

Did you know that Saskatchewan Pension Plan members have the option of receiving their savings in the form of a lifetime annuity? The annuity delivers you a payment that stays the same, and lands in your bank account every month for the rest of your life. And, depending on what annuity option you pick, it can continue on to your surviving spouse. Not an SPP member yet? Check their website and find out how you can sign up!

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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 35^th year of operations in 2021. Check out their website today!

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How will the pandemic affect your retirement?

As we prepare to start a new year, it appears that there is a faint light visible at the end of the tunnel that is the pandemic. Vaccines have been developed that appear promising and hopefully they’ll start to be in distribution by the time you are reading this.

That said, the pandemic has had a serious impact on all of us, and especially on our plans for retirement. An interesting article in Espresso covers the topic in detail. Here are some of their key findings.

Those relying on their own savings, rather than a pension plan from work, for retirement may have to postpone their retirement “by up to five years,” the article reports. This is because of the shellacking our economy – and our savings – took due to the COVID-19 outbreak.

But in an unusual twist, the article continues, “some people in their 50s and 60s are being forced to retire early.” Many of these folks are people who lost their jobs due to the pandemic, the article notes.

Many of us with adult children are having to help them out more than usual due to the crisis, Espresso reports. “If you want to help your kids out,” states financial planner Lawrence Sprung, speaking to U.S. network CNBC, “make sure you don’t give them an amount that is greater than, or outside the scope of your normal excesses.” The implication is that if you raid your retirement cookie jar to help the kids, it will mean you’ll retire later or with less.

And, Espresso reveals, the opposite situation – kids helping parents – has also become more common. Research from the American Association for Retired People “found that roughly a third of adults in their 40s to 60s had offered financial support to their parents in the last year.”

While Espresso warns that some of us will retire with less, others will retire with more savings than planned. “A significant number of Americans – including more than half between the ages of 55 and 64 – are spending less money during the pandemic,” the article tells us.

One thing that’s become popular as we all sit around at home more is renovating the old home office. Be careful, advises Espresso. South of the border, the average kitchen renovation costs $56,000, but tends to add only $38,000 (on average) to resale prices.

The article advises older people to consider part-time work, launch a business, or to delay government retirement benefits for as long as possible. “It’s worth it to wait until (you can) receive full benefits,” Espresso suggests.

Finally, the article says, if your savings have taken a hit in the short term, “focus on the long-term plan.” Markets can rebound so don’t let short-term bumps in the road cause you to “act irrationally,” Espresso says.

Members of the Saskatchewan Pension Plan have flexibility when it comes to retirement savings. If you’re out of work and can’t contribute, you can take a pause. If you’re one of the lucky ones who is finding they have more money to save these days, consider adding a few extra dollars to your SPP account. The experts running SPP’s finances always focus on long-term investing, and that’s allowed SPP – which celebrates its 35^th year of operations in 2021 – to have an average rate of return since inception of over 8 per cent. That’s quite an achievement when you consider that the last 35 years includes Black Friday in 1987, the “tech wreck” of 2001-2, the Global Financial Crisis of 2008-9 and our current pandemic! Be sure to check out SPP today!

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If there’s one word that sums up the soon to be departed 2020, it’s “pandemic,” which according to a CityNews, is not unsurprisingly the “word of the year” from the folks at Merriam-Webster, the dictionary people.

Save with SPP decided to find out what other trappings and trimmings of the pandemic may live on in 2021, and the years following it.

Let’s start with masks – hard to find in February and March, everywhere today. Will we still wear masks when the pandemic is over? Quoted in a Yahoo! Life article, Dr. Amesh Adalja of John Hopkins university in the U.S. thinks it is quite possible.

“A COVID-19 vaccine is likely not going to provide sterilizing immunity the way the measles vaccine does,” he tells Yahoo! Life. “We’re going to still need to take protective measures for some time period, potentially until a second-generation vaccine is developed.”

Research shows that mask wearing in winter helps prevent flu, the article says – so maybe we’ll think about masking up even after the pandemic is completely over.

Next, what about working from home – could it be here to stay?

Writing in Canadian Facility Management & Design magazine Annie Bergeron suggests that “as a result of COVID-19, the workplace will be forever changed.”

She predicts a “hybrid” future, where people will be able to spend “extended time working from home.” She cites a recent Gensler survey in the U.S. which found that while many workers want to return to the office, they “also want a future in which they have more choice and agency that they did before the pandemic.”

Bergeron doesn’t think everyone will work from home forever, though. “There are many indicators that work-from-home arrangements are not sustainable for culture, innovation and talent development,” she writes.

HRMorning says productivity isn’t as good in a work-from-home environment. “Just half of employees who’ve worked from home since the pandemic started are as least 80 per cent as efficient as they were on site,” the article notes, citing research from Stanford.

Another feature of the pandemic has been online videoconference via Zoom, GoToMeeting, Teams, and other applications. Will in-person meetings go the way of the dodo bird?

Perhaps not. Zoom’s share price has fallen exponentially as vaccine progress rises, reports CNBC. Other “stay at home” stocks like Netflix and Amazon are also declining, suggesting the need for these services may dwindle once people start going back to the office again.

There are plenty of other changes on the way. Office towers will eventually bustle with people, benefitting the many struggling businesses that serve them. We’ll pack hockey rinks and football stadiums once again. There will be concerts, parades, and big family gatherings. Let’s hope, as 2021 starts, that this better future is not too far away.

While online meetings and tapping away for work from your kitchen may soon be memories, there’s still important work you can do for your future from the comfort of home. Saskatchewan Pension Plan members should check out MySPP. This online resource isn’t about work, but your life AFTER work. You can keep track of your account, watching it grow, and can get your various tax slips and statements. You can even use SPP’s website to contribute to your pension. Check it out – and if you’re not a member, take a look and consider joining today!

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Could we see a change in RRIF withdrawal rules?

An interesting idea that’s apparently being discussed in political circles is one of high interest to retirees – it’s the thought of doing away with minimum withdrawal rules from Registered Retirement Income Funds (RRIFs).

According to an article on the Sudbury.com site, this idea seems to be focusing on the fact that retirees may not want to withdraw funds – or at least, less funds than the usual minimum – from their RRIFs during a time when the markets have been volatile due to the worldwide pandemic.

“Each year, seniors with registered retirement income funds have to withdraw a minimum amount from their savings, which is considered taxable income,” the article explains.

“The Liberals shifted the marker this year, dropping the minimum for each senior by 25 per cent to ease concerns raised by the effect of the COVID-19 pandemic. That let those who could afford it leave more money in their tax-sheltered investments, hoping to recoup losses from the pounding the pandemic delivered to the markets,” the article continues.

The article notes that 2.1 million Canadians had RRIFs in 2018, with an average balance of $114,019. That average withdrawal, again according to the article, was $10,645 in 2018, with 41 per cent of RRIF owners withdrawing more than that.

When you’re too old to put money into a Registered Retirement Savings Plan (RRSP), one of your options is to transfer the funds into a RRIF. There, your funds continue to grow tax-free, but you are taxed on a minimum amount you have to take out each year – at least under the present rules.

Your other options for the RRSP, when it ends, are to buy a life annuity (more on that later) or to withdraw it all in cash and pay taxes on the entire amount.

So what’s the deal with this new RRIF idea?

It could be a good option for those of us with RRIF savings who don’t want to “sell low,” and take money out when markets aren’t strong. But, as the Sudbury.com article tells us, if this option ever comes to pass, it carries a price tag – for Ottawa.

The Parliamentary Budget Office, the article notes, says “cutting the minimum withdrawal all the way to zero would end up costing the federal treasury $940 million next year, rising each year until hitting just over $1 billion in 2025.”  That said, presumably – even if there is no minimum withdrawal amount – some seniors will still need to withdraw money from their RRIFs and would pay some of those “waived” taxes.

RRIFs aren’t perfect. As mentioned, you (currently) have to take money out even if markets tank, a set amount each year. As well, your income from a RRIF tends to fluctuate; you generally don’t get the same amount each year because you are withdrawing funds from a declining account balance. And, you could run out of RRIF money before you run out of life.

If you’re a Saskatchewan Pension Plan member, you have an additional option when you retire. You can convert your SPP savings to a life annuity. You’ll get the same income every month – for life – regardless of whether the markets go up or down, and the longer you live the more payments you get. SPP also has options for your spouse and beneficiary to receive income upon your death. Check this important SPP benefit out today!

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If there’s one thing almost everyone can agree on, it was great to celebrate – in a limited, socially distanced way – the end of the brutal year 2020, when the pandemic slammed the world.

It’s been a particularly frightening year for those of us struggling to save a few bucks for our retirement.

Back in February, when the COVID-19 crisis was beginning to take effect, stock markets dropped sharply, erasing “four years of gains,” reports Maclean’s . The market’s crash was based on fear – “not knowing how severe COVID was going to be in terms of morbidity,” the magazine explains.

In addition to the shocking numbers of deaths and sickness COVID-19 delivered, it also walloped our economy. According to Wealth Professional, quoting Bank of Canada Governor Tiff Macklem, Canada’s economy “is expected to shrink by 5.5 per cent for the whole of 2020, with the initial rebound following the First Wave of the pandemic having eased.”

We all know what he’s talking about here – the First Wave led to lockdowns and business closures, and high unemployment. There was a break in the summer as much of the shuttered economy reopened, but now the Second Wave is causing lockdowns and job losses once again.

The usual safe harbour for savers when the economy (and stock markets) are volatile is in fixed income, investments that pay us interest. However, in order to reboot the economy, the Bank of Canada is planning to keep interest rates low “until 2023,” Macklem states in the Wealth Professional article.

Those “low for long” interest rates mean it is not the best time to buy bonds or guaranteed investment certificates (GICs). Some savers looked to the real estate investment trust (REIT) market to replace the income their fixed income was providing, notes The Motley Fool. While some REITs, notably industrial ones, and those involved with warehousing and data centres did well, “retail and hospitality REITs… had lost 80 per cent of their value at the market’s bottom.” The Motley Fool article wonders how investments in commercial office and retail space will fare in a world where most people are working from home.

Now that 2020 is behind us, there are signs of better days ahead.

The markets in Canada and around the world are now recovering due to late-year news that effective vaccines are nearly ready for distribution.

Dave Randall of Reuters, writing in the Chronicle-Herald, notes that November was “a record-breaking month as the prospect of a vaccine-driven economic recovery next year and further central bank stimulus measures eclipsed immediate concerns about the spiking coronavirus pandemic.”

Let’s review all this. The pandemic hit us hard, sending markets down, throwing people out of work, shrinking the economy. Central banks had to cut interest rates to reduce borrowing costs. That’s great for borrowing but less great for saving. Those looking to replace the interest they weren’t getting had to navigate a market that dropped by 40-50 per cent in the late winter and is recovering, and they had to face the reality that some sectors were doing far better than others.

2021, however, looks like a better year. Market optimism is returning, and once the vaccines start to get distributed around the country, we will (hopefully) start to see a return to more normal times, with no lockdowns and business restrictions.

The point of retirement saving is putting money away for the future, which may be quite soon or decades away. If you’re worried about saving on your own for retirement during these volatile days, you might consider teaming up with the Saskatchewan Pension Plan. With SPP, experts run the money at an extremely low cost. We all have enough to worry about these days – let SPP take the worry of pandemic-era retirement saving off of your plate!

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Pension expert Vettese warns that fixed-income retirement is challenging; stocks can be risky

In a recent interview with the Globe and Mail, pension expert, actuary and financial writer Fred Vettese has a few words of caution for those of us who like to avoid the risks of the markets by finding safe harbour in the world of fixed income.

Vettese has written a number of books on the subject of retirement planning; Save with SPP reviewed his book The Essential Retirement Guide and found it packed with great advice.

He tells the Globe that due to the economic uncertainty the pandemic has brought, “if you have enough assets now and can live with a less risky portfolio to achieve your lifestyle, then do it.” His message, the article notes, is specifically directed at those age 65 plus.

Noting that interest rates are the lowest they’ve ever been, Vettese states in the article that “we can’t say that we’ll put some money in bonds and it will stabilize the overall portfolio and we’ll still get a pretty good return. COVID has pretty much squeezed out any kind of risk-free income.”

So, he warns, “if you’re going to keep risk-free investments in your portfolio like bonds and guaranteed investment certificates (GICs), then you’re going to have to find a rational way to actually draw down the principal over your lifetime. You can’t live off interest from bonds and GICs.”

This last statement is a bit of a gobsmacker for those of us who have ardently believed in a balanced, bond/equity view of retirement saving! But he’s right, of course – bond yields, as he points out in the article, will deliver negative returns over the long haul at today’s interest rates.

What’s a retirement saver to do?

If you’re looking to replace the income that bonds used to provide you with high-dividend stocks, be careful, Vettese advises.

“Implicit in holding dividend stocks is the idea that those stocks are not going to suffer capital losses, that they’re not going to go down 20 or 30 per cent. And what if these companies start struggling and can’t keep up their earnings and have to cut their dividends? There’s a lot of risk in dividend stocks, even if we haven’t seen that risk showing its teeth yet,” he states in the Globe article.

Vettese says it is a tough time for savers – especially young ones – to try and invest on their own. He suggests that they get professional advice, and says most people would be better off in a low-cost market-based exchange traded fund (ETF) than they would be if they picked their own stocks. He’s also a proponent of waiting until age 70 to start your government retirement benefits, such as the Canada Pension Plan and Old Age Security, because you get quite a bit more income each month that way.

There’s a lot of great stuff to recap here. Fixed-income isn’t the solid pillar it once was, at least for now, and stocks paying high dividends can be risky. Advice with retirement saving is well worth it, and delaying your government benefits as long as you can will give you a bigger monthly payout.

There’s no question that investing all by yourself can be risky. You might be paying fees that are too high. You could pick a category that isn’t going up in value – or risky stocks that don’t pan out. If you’re not really ready to go it alone in the euchre hand of retirement investing, the Saskatchewan Pension Plan could be an option for you. SPP looks after the tricky investing part for you, at a very low cost, usually less than 100 basis points. Why not check out SPP today.

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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!

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