High interest rates, falling real estate prices create a nation of savers

Remember the pandemic-era prediction that once things were “back to normal,” we’d all be madly spending through our stash of cash — built on years of being locked down with nothing to spend on?

Well, not so fast, reports the Sarnia Observer. We’re no longer facing COVID lockdowns and travel restrictions, perhaps, but the saving trend started a few years ago is continuing.

Canadians (particularly the top 40 per cent of earners) have now amassed $350 billion in savings as of the third quarter of 2022, compared to “$300 billion at the outset of the pandemic,” the Observer reports.

That’s a 28 per cent jump in the savings rate for the group, the newspaper adds.

And the trend towards saving is likely to continue, the Observer notes, because “consumer confidence has been shaken… (that) typically leads to more saving, not less.”

What’s got people gun shy, the newspaper explains, is the fact that “more than $1 trillion in assets were wiped out over the second and third quarters of last year as financial markets and housing retrenched.” Rising interest rates “pushed the average home price down by 12 per cent,” the Observer reports, and the S&P/TSX Composite Index was down by 8.7 per cent in 2022.

In plainer terms, both housing prices and stock markets took a bit of a haircut at around the same time.

Paradoxically, the newspaper adds, the top 40 per cent of earners now have more money — many are putting their dollars in safe, high-interest savings accounts and term deposits — but are feeling less wealthy, as the value of their real estate and financial holdings falls.

The news is not all bad, the Observer continues.

Even though savings increased, there was a bit of an uptick in discretionary spending when COVID restrictions wound down, the article notes. That led to the creation of 381,000 new jobs in 2022, and wages are up by about 5.1 per cent, the Observer reports. The article concludes by warning of a continued decline in spending growth if cash keeps getting hoarded.

It’s not surprising to see a return to Canada being a “nation of savers,” as it once was years ago when interest rates were even higher than they are now. Let’s not forget that after double-digit inflation and mortgage rates at the end of the ‘80s and into the ‘90s, we had decades of very low interest rates. Low rates are bad for savers, and great for borrowers. Now the teeter-totter has tipped the other way.

If you’re in saving mode, don’t forget about the need to put aside some cash today for your future self to spend in retirement. If you don’t have a retirement program at work, and are worried about retirement investing, the Saskatchewan Pension Plan (SPP) may offer the solution. SPP invests your contribution, at a very low cost, in a pooled fund managed by experts who are focused on the long-term. SPP will grow your savings into future retirement income — check them out today!

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In Longevity Lifestyle by Design, author Mike Drak and a team of co-authors make the case that there’s much more to retirement than simply saving cash.

Few people, notes the preface, prepare for “the crucial part” of retirement — “how they’ll spend their days, how they’ll find meaning and purpose, how they’ll avoid feeling isolated or lonely, and whether they’ll either work part-time or volunteer, or do both.”

“If you think that by retiring all your problems will magically go away, I hate to tell you — they won’t,” writes Drak. He notes that there can be “a big difference between being retired and having a great life,” citing the example of star quarterback Tom Brady, who “unretired” after just 40 days.

He shows, via a graph, that there are three types of retirees — the “Financial Independence Retire Early (FIRE)” and comfort-oriented crowd at one extreme, and the “work till you drop” gang at the other end. Most of us are in the middle — navigating an “unfulfilled life of leisure” or “work(ing) to make ends meet.”

Unlike the super-motivated FIRE and “till you drop” groups the middle group may tend to be “unaware of what drives them, and unsure of what they want.”

The book then sets out to help those without clear goals, purposes or defined values to acquire them. We all have values, he writes, but are our daily actions in retirement aligned with them? Have you added retirement activities that “give your life meaning,” or that you “love to do,” or are a passion for you? If not, writes Drak, you may experience “retirement stress,” a life that is out of whack with what truly motivates you.

He cites research by Dan Buettner that found that “happiness/longevity = relationships, plus health + financial security + spirituality + positive attitude + purpose.”

In a section that links work to “the fountain of youth,” Drak writes that continuing to work — perhaps at something more aligned to your values and passions — should not be ruled out in retirement. Work, he writes, “keeps you young,” as well as mentally sharp. It gets you “off the couch and helps you interact with others, he adds. It also helps you avoid running out of money in retirement, he notes.

The last section of the book outlines some wise words from a variety of authors. Susan Williams writes that women need to boost their financial literacy about such things as retirement income. Citing CNN research she notes that “nearly 60 per cent of widows and divorcees wish they had been more involved in financial planning decisions” and “56 per cent discovered hidden debt, inadequate savings… or (investment choices) that affected their lifestyle and retirement savings goals.”

Drak concludes by noting that while retirement isn’t only about money, you do need “sufficient” money in retirement. People are living much longer, so don’t think of yourself as being “old” at 65, he continues. Have something good to do in retirement, work on improving relationships with spouse and family, and remember that “happy, positive, optimistic retirees are heathier and live longer.”

This is a well-written, fun-to-read and exceptionally helpful book. To paraphrase Aerosmith, retirement is a journey rather than a destination. Drak’s thoughtful work here will help you ensure that your future self doesn’t spend retirement on the couch, watching the news.

As the book suggests, while saving money is only one part of a long and happy retirement, it’s still an important one. If you don’t have any retirement savings program at work, or are self-employed, the Saskatchewan Pension Plan may be just what you’ve been looking for. SPP will invest your contributions in a pooled fund at a low management cost, and grow them into future retirement income. Check out how SPP can work for you.

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“Greyer” workforce retirements rise, creating skills gap: TD

If you think you’ve noticed more grey heads around the office of late, you’re not wrong — but things may be about to change.

According to a new report by TD Economics, cited in an article in Wealth Professional, while more older workers than usual are currently employed, their pending mass retirement “is a risk to the economy if it is not addressed.”

James Orlando of TD tells Wealth Professional that the problem is that “many Canadians who would have been eying retirement have chosen (or perhaps been forced) to work longer than expected. But older workers will not stay in the labour market en masse for ever.”

It’s a bit of a good news, bad news situation, the magazine reports. Older workers who have delayed retirement have “provided an important buffer for those businesses that would otherwise be struggling to fill skills gaps,” the article points out.

In fact, the article continues, this “greying effect” on the workforce, where workers aged 55 and over stay in their jobs, has been happening since 2020.

Had older workers been retiring at the same rate they did 20 years ago, Wealth Professional reports, there would be an eye-popping one million fewer older people in today’s workforce.

It’s felt, the article tells us, that “lower asset values and rising housing and energy costs” are reasons the older gang is still at their desks — concerns about inadequate “pension pots” is another, the article adds.

Now for the bad news.

Figures show a “17 per cent increase in the number of retirements in 2022 compared to the prior two years, with 266,000 people retiring through the end of last year,” the article reports.

This trend, the article continues, is expected to continue “and with a projected one million over-65s by 2025, this could mean 900,000 retiring based on current participation rates.”

Put another way, that’s a 50 per cent jump in the retirement rate.

Orlando tells Wealth Professional that “businesses cannot ignore the likelihood of losing both the headcount and the knowledge that is in those heads.” He states that there is a need to address the skills gap through greater training of young people and through finding room for people with “foreign credentials and experience.”

“The aging of Canada’s existing population is opening the door to make the structural changes necessary to bring in, integrate, and support all current and future Canadians. Therein lies a huge opportunity for Canada,” Orlando tells Wealth Professional.

We’ve seen similar stories that talk about mass retirements in certain key sectors, such as healthcare and in skilled trades. If there is a positive side to this story, it’s that a once-in-a-generation time of opportunity is presenting itself to younger workers willing to up their skill sets.

Changing jobs often means changes to your workplace pension and benefits. But a job change is no biggie if you’re a member of the Saskatchewan Pension Plan (SPP). Because your SPP isn’t tied to your employer but to you, you can continue contributing at your new job, even if it’s in a different province or territory. This level of portability makes SPP a pension benefit that travels well!

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Saving for retirement sounds like building wealth, but there’s a twist. After the saving is done, you’ll be wanting to convert that piggy bank into income for your golden years.

Do you bet it all on black, or is there a more sensible approach to investing for retirement? Save with SPP scouted the Interweb for some thoughts on the principles behind retirement investing.

Forbes magazine suggests retirement investors should take advantage of “tax advantaged accounts” available to them. In Canada, this would be things like a registered retirement savings plan (RRSP) or tax free savings account (TFSA).

The article suggests an “asset allocation” approach makes sense for retirement investing, with a portion of your investments targeting growth, through exposure to equities (stocks), and the rest to income, via fixed income investments, such as bonds.

You can either buy stocks and bonds directly, or via exchange-traded funds (ETFs) or mutual funds, the article adds.

Forbes believes that your age should help dictate the portion of your holdings that is in equities versus that in fixed income. In your 20s, the article notes, you should invest “90 to 100 per cent” in equities. By your 50s, you should be around 65 per cent equities and 35 per cent bonds, and once over 70, “30 to 50 per cent in stocks, 40 to 60 per cent bonds,” with the rest in cash.

At The Motley Fool Canada, dividend stocks are seen as one of the best investments in a retirement portfolio.

“You pay lower income taxes on dividend income from dividend stocks than your job’s income, interest income, and foreign income. Therefore, it is one of the best incomes to build up and grow as soon as you can. This low-taxed income will benefit you through retirement,” writes The Motley Fool’s Kay Ng.

She also notes that even if you have paid off your mortgage when you retire, you are still going to need income “to pay for home insurance, property taxes, and potentially utilities, condo, or home repair fees during retirement.”

Her article suggests real estate income trusts (REITs) are an investment well suited for your retirement portfolio. Owning REITs, she explains, is like owning shares in a property that is being rented out — you’ll get regular monthly income (like rent) and the value of the properties held by the REIT tend to go up over the long term.

The folks at MoneySense note the RRSP, now more than six decades old, is still a “go-to” for Canadian retirement investors.

The article begins by noting that the RRSP allows investments to grow on a “tax deferred basis,” meaning no taxes are owed until you take the money out in retirement. The Saskatchewan Pension Plan (SPP) operates very similarly, for tax purposes.

MoneySense agrees with the idea that Canadian dividend stocks make sense in your retirement investment portfolio, as they are taxed at a lower rate than foreign stocks in a non-registered account and aren’t taxed in a registered account.

Since the end game of retirement investing is converting savings to income, MoneySense notes the annuity — “which pays a fixed income for life” — is a good idea for some or all of your savings once you have retired.

So, let’s recap. You want to build your retirement portfolio with a mixture of dividend-producing stocks, and interest-producing (and lower risk) fixed-income investments. Real estate income is seen as beneficial both before and after retirement. When retirement begins, these sources will provide regular income, and if you want to guarantee the level of income, you can convert some or all of your holdings to an annuity.

If you’re hesitant about wading into this somewhat complex topic, another way to go is to join the SPP. SPP’s Balanced Fund is invested in Canadian, U.S. and international equities, but also bonds, mortgages, real estate, infrastructure and money market funds. The savings of SPP members are invested, at a very low cost, in a large pooled fund. And when it’s time to collect your SPP benefit, you can choose from a variety of annuity options for some or all of your account. Check out SPP today!

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Do pension protests in France send a message about retirement saving?

As protesters fill the streets of Paris, demanding that a plan to start government pensions two years later be dropped, some observers are saying the situation underscores the need for us all to be more self-reliant with retirement saving.

A report by Global News states that “retirement as a concept is changing, with people in Canada and elsewhere having to rely on themselves more than they ever have.”

First, the article notes, the fact that France is moving the retirement age forward (two years later) is a bit of a red flag.

“A lot of times a country will move those ages forward because they feel they don’t have the resources to pay the pension obligations that they’ve set the system up for. And the idea that your country can’t afford to pay you is something that makes people very nervous and understandably so,” certified financial planner Millie Gormely tells Global News.

Even Canada’s “wonderful” government retirement system can see benefits changed, Gormely warns in the article.

“I think retirement as a general concept is changing a lot. The idea of leaving school when you’re 19 or 20 years old, you go work in a factory, you stay there for 30 years, they give you a gold watch and a pension, and then you sit on the front porch whittling for a few years until you die. That’s just not the norm,” Gormely states in the article.

Workplace pensions, according to Statistics Canada aren’t available to every worker. Stats Can notes that as of 2019, 4.3 million Canadians were covered by defined benefit plans (where the payout amount is pre-determined), 1.2 million were in defined contribution plans (where what you pay in is pre-determined), and 9.6 million belong to “other” arrangements. Since there are 39 million Canadians, these stats suggest that there are millions of us without any workplace pension arrangements.

Retiring and getting the Canada Pension Plan (CPP) and Old Age Security (OAS) is great, but those government benefits don’t pay a whole lot. As of 2021, reports The Motley Fool Canada the CPP pays a maximum of $1203.75 monthly — but the average payment is $635.26. The OAS as of that date was $635.26 per month.

“It’s not that much money. And if that’s the only money that you have, you’re going to have a hard time, so, if anything, that underscores how important it is for people to be preparing for their retirement outside of what they can expect from the government,” Gormely states in the article.

“Saving up your own money to take care of yourself in the future is going to be very important for those of us who don’t have company pensions. And for younger people, especially, the sooner you start, the better off you’ll be,” she concludes.

If you don’t have a workplace retirement savings program, and are saving on your own for retirement, the Saskatchewan Pension Plan is a resource you should be aware of. SPP lets you contribute up to $7,200 a year towards your retirement — and best of all, the funds you set aside are locked-in, meaning you can’t raid that piggy bank until it’s time to retire. Find out why thousands of Canadians have made SPP their go-to for retirement saving!

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It’s inevitable for most of us to bail on our New Year’s resolutions early in the year — say, February.

But there must be some folks who succeed, right? With that in mind Save with SPP took a look around to find a few New Year’s Resolution success stories.

An article from a while ago in Canadian Living found a few.

34-year-old Steven of Saint John’s, NL resolved to “get a training plan together, and try to do it.” The “it” he was referring to was running a marathon — and by the fall, he had succeeded, the article reports.

“I just created a very long-range plan, which built up my running times bit by bit, so that it seemed more manageable,” he tells Canadian Living.

A second testimonial in the same article comes from Jenn, 27, of Kitsilano. She had long resolved to start saving, aiming to get a condo one day.

“Last January I made a resolution to actually set up automatic withdrawal from my paycheque straight to a savings account each month. I don’t have enough yet for a down payment, but I’m doing OK. I think I have been successful because the money comes out as soon as I get paid so I don’t really see it or feel it,” she tells Canadian Living.

An article in the New Hampshire Bulletin offers up a couple more successes.

Ann Patchett, the article notes, successfully gave up shopping for an entire year.

“Patchett’s resolution was actually an effort to understand what was driving her to buy things she didn’t need. By the end of the year, after a thousand little decisions not to buy this or that, she had fundamentally changed,” the article notes.

It’s not easy to find a lot of “kept resolution” success stories, and perhaps some stats courtesy of the Discover Happy Habits blog explain why.

A 2016 study, the blog reveals, of Americans found that of the 41 per cent who made New Year’s Resolutions, only “nine per cent feel they are successful in keeping them.” And an earlier 2007 research project found only “12 per cent of participants who set resolutions were successful,” despite the fact that 52 per cent were “confident of success at the beginning.”

The three little successes covered off in this post are interesting. The marathon runner “had a long-range plan” broken up into easy little steps. Our Kitsilano saver made her savings plan automatic — removing temptation to spend from the equation. Our New Hampshire non-shopper found her willpower increased the longer she stuck to her plan.

Taken together, these steps should work whatever your resolution is — a long-term plan, made automatic, that you stick with.

If saving for retirement is your objective, the Saskatchewan Pension Plan can make it automatic for you. Members can have regular deposits made to their bank accounts through SPP’s pre-authorized contribution program. That way, your contributions are made regularly, perhaps each payday, meaning you’re filling your nest egg before you have a chance to spend the coins at the mall. Check out SPP today!

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Article warns of five “myths” about retirement

Writing for Kelowna’s Castanet blog, Brett Millard examines what he describes as five top “myths” about retirement.

The first such myth, he writes, is the belief that “the cost of living will be lower in retirement.”

Canadians may think “their income needs will be much lower once they stop working. After all, they won’t have those commuting costs or need to make mortgage payments,” he writes. But, the article notes, travel costs are likely to increase for the newly retired, and “plenty of Canadians have debt in retirement.”

Those of us retiring with debt are facing rising interest rates, which will “have an impact on your disposable income,” the article continues. We may also have to help struggling adult children, the article points out.

Finally, longevity — living longer — can impact your bottom line, the article notes. The longer you live, the more you’ll need to pay towards “in-home care, a care home, or renovations to make your home more accessible.”

The next myth, Millard writes, is that “registered retirement savings plans (RRSPs) are a complete retirement plan.” The article points out that RRSP income is not usually sufficient for all one’s needs, noting that most Canadians will be counting on other sources, such as “the Canada Pension Plan (CPP), Old Age Security (OAS), company pension plans, Tax Free Savings Accounts,” and such sources as non-registered investments or income from rental properties.

“RRSPs are one part of an investment plan, but a real retirement plan also includes estate planning, life insurance and tax efficiencies,” Millard’s article advises.

The next myth is that “one million dollars is enough for retirement.”

Millard writes that for a variety of reasons — such as when you start your retirement, and what other sources of retirement income you have — setting a target of $1 million might not be right for you. “The amount that any investor will need when they retire will depend on a whole array of variables, with the target amount being unique to each person,” the article notes.

Lifestyle, the activity level of your retirement, possible inheritances — these all factor into determining how much you actually need to save for retirement, the article explains.

The final two myths are that “retirement plan portfolios should be conservative,” and that you should “never carry debt into retirement.”

On the first point, the older “conservative” investment idea was based on assuming a shortish retirement, the article says.

“Now, Canadians could realistically expect their retirement to last 25 years or longer. Retirement portfolios that need to support you for this many years aren’t going to experience significant growth if they’re made up exclusively of fixed income. A conservative retirement portfolio runs the risk of running out of money,” the article notes.

The “no debt” rule, the article contends, “is not realistic or practical” these days, as “close to half of Canadians carry some sort of debt.” Instead, the article suggests, work on paying down high-interest debt from credit cards, which the article describes as bad debt.

The overall message in this well-written piece is that there’s a lot of factors to consider when thinking of retirement, so rather than going by “myths,” you may want to consult a financial planner.

The government benefits most of us receive in retirement — CPP, OAS, and even the Guaranteed Income Supplement — are paid for life, and therefore cannot “run out.”

Yet many people who have RRSPs choose to continue investing them in retirement via a registered retirement income fund (RRIF), rather than choosing to convert any of their savings into income via a lifetime annuity.

If you’re a member of the Saskatchewan Pension Plan, you have the option, at retirement, to convert some or all of your account into an annuity. That way, you’ll never run out of retirement savings in the future. Check out SPP today!

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One of the few things that cost less when interest rates go up are annuities, long a key piece of the puzzle when turning retirement savings into income. 

Save with SPP reached out to the Canadian Life and Health Insurance Association (CLHIA) to find out if this recent higher-interest environment is making Canadians think harder about annuities. 

According to the CLHIA, Canadians purchased over $1 billion in individual pay-out annuities in 2021. This includes both life and term-certain annuities from registered and non-registered funds.

You can buy an annuity from a provider, usually an insurance company. In exchange for a lump sum, the provider will pay you a monthly income for life or for a selected period of time. We contacted Noeline Simon, Vice President of Taxation, Pensions and Reporting for CLHIA, to ask a few other questions about annuities. 

Q. With higher interest rates of late are CLHIA’s members seeing more interest in annuities? 

A. All else being equal, higher interest rates should result in higher annuity benefit payouts. This should have a favourable impact on demand for the product, however, there may be some time before we see the full evidence of this in the market.

Q. Do you see one benefit of annuities being insurance against volatility? (If markets go down, your annuity payments stay the same.) 

A. Yes. A significant benefit of guaranteed life annuities comes from the down-side protection against adverse market conditions and the annuitant out-living their anticipated savings. 

Q. Did the last 20 years or so of low interest rates sort of deaden interest in the idea of annuities versus registered retirement income fund (RRIF) conversions? 

A. The prolonged low interest rate environment did contribute to dampening annuity sales, even with increasing interest rates it will take time to change retirees’ demand for annuities.

Q. What do you see as the pros and the cons of annuities? 

A. Canadians who are retiring or nearing retirement should consider guaranteed life annuities as a part of their plan, since they provide downside protection against adverse market conditions and reduce the risk of outliving one’s savings. Life and health insurers believe that retirees really can benefit from having a range of choices in terms of products and solutions that can help them optimize their income in retirement. To this end, the CLHIA and others have advocated for a variety of decumulation tools, such as Advanced Life Deferred Life Annuities (ALDAs) and Variable Payment Life Annuities (VPLAs) and will continue to so into the future. 

We thank Noeline Simon for taking the time to answer our questions! 

Did you know that the Saskatchewan Pension Plan is also an annuity provider, and offers a variety of annuity options for its retiring members? According to SPP’s Pension Guide, SPP offers a life only annuity (no survivor or death benefits, but highest payment to you), a refund life annuity (provides a benefit to survivors on your death), joint and last survivor annuity (provides a lifetime pension on your death to a surviving spouse or common-law partner). The joint and last option allows you to choose, for your survivor, a pension equal to 60, 75 or 100 per cent of what you were getting. Contact SPP for more information about the annuity option at retirement. 

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