Things seniors need to be aware of to avoid senior poverty: Janet Gray

While the Conference Board of Canada reports that only 6.7 per cent of Canadian seniors live in poverty, it’s still a concern giving the rising cost of housing and the relative modesty of government retirement benefits.

We asked Janet Gray, an advice-only Certified Financial Planner with MoneyCoachesCanada, for her thoughts on this issue. She believes that most people aren’t aware of what they are getting into when they retire.

She began our conversation by saying that she wished there was some sort of mandatory retirement coaching for people prior to them leaving the workforce, to help deal with the “fear of the unknown” that many face. It’s important, she says, for people to have “at least some awareness of their situation.”

As an example, many seniors living in expensive homes worry that they only have $5,000 in the bank, even though the home may be worth a million or two.

Senior females tend to be the people who have lower incomes, and for a variety of reasons, she explains.

First, women tend to be paid less throughout their working careers, she says.

Second, because Canada is so “home ownership focused,” older women are very reluctant to give up the family home even after their partners have passed away. “People are almost declaring bankruptcy to stay in the house,” she explains. “They’d rather cut off their leg than lose the house.”

But, if the cost of owning and maintaining a house becomes more expensive over time, there are still things that can be done, she says.

“Here in Ottawa you can defer property taxes until you pass away (or sell the home), and let them be settled through your estate/time of sale,” she explains.

Older women living alone face safety issues – getting up on a ladder to change a light bulb can be risky. She says some of her clients have gone the “co-housing” route, having a friend or family member move in with them and share the costs of running the place.

Another option is a reverse mortgage, where you access some of the equity in your home now.

She recommends that clients open a home equity line of credit while they can before retirement, because these are harder to get once have less income in retirement. “That way, if one day you might need to access that money, it’s there for you,” she notes.

People also don’t seem to realize that the Canada Pension Plan doesn’t offer a full survivor benefit to the surviving spouse. Sometimes, she says, all that happens is that the surviving spouse gets their CPP topped up to the maximum individual benefit amount from what their late partner was getting (even if the partner was getting more). The partner’s Old Age Security  payments end upon the partner’s death, she explains.

That, she says, can be a big hit, as the survivor “loses most of the CPP their partner was getting and also all of the OAS.” She says these rules “are not well understood by people,” but they should be, particularly by women who tend to “live longer generally.”

She thinks it is unlikely any future government will try to improve CPP benefits.

And for that reason, it’s important for people to personally save for retirement, even if they have some sort of retirement savings arrangement at work. “People often remark on how government workers get better pensions, but they are putting away 10 per cent of their earnings into the pension every year,” she explains. “If everyone tried to put away 10 per cent of their earnings each year, we would have less problems” with retirement income, she says.

Low income seniors can get subsidized accommodation in places like a long-term care residence, she says. She also says the Disability Tax Credit is worth applying for seniors, as it could lead to a significant tax refund.

For having cars in one’s senior years, Gray says that while older, lower income people are less likely to qualify for car loans, they can still get around with ride-sharing services, or by leasing a car. While age might stand in the way of a car loan, it’s not usually an issue with a car lease, she explains.

We thank Janet Gray for taking the time to speak with us.

If you are saving on your own for retirement, take a look at the Saskatchewan Pension Plan. You provide the savings, and we’ll invest your hard-saved dollars in a low-cost, professionally managed pooled fund. At retirement, your options include the possibility of a lifetime monthly annuity payment or the more flexible Variable Benefit.

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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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Why saving is so hard – and ways to move forward on it

Over the decades, based on countless conversations with friends, family and work colleagues, it’s safe to say that most people find saving difficult, if not impossible.

Save with SPP decided to try and pin down why some folks find it so tough to direct a few bucks into a piggy bank.

An article in the Lemonade blog says science is to blame.

First, the article points out that the majority of Americans “save between zero to five per cent of their money each month,” compared to the recommended rate of 15 per cent.

Most people get their paycheque and spend all their money immediately, the article continues. “Studies show that poor financial choices are associated with high levels of in-the-moment living,” the Lemonade article suggests, citing research from the American Psychological Association.

“It’s hard for us to save up because we tend to value the ‘now’ over the ‘later.’ In behavioral economics speak, this is called ‘present bias,’” the article explains.

The Opportun blog cites a few other reasons besides the “living in the now” theory.

“Thinking is hard, and takes effort,” the blog suggests. Rather than “figuring out the perfect amount to save, or how much extra we can afford to pay on our credit card debt, we might do nothing.” Doing nothing is easier, the article suggests.

Putting money away (by making it harder to access) also requires a lot of willpower, the article says, which not everyone has. Procrastination – not even starting a savings plan – is seen as another culprit, the article adds.

The Finance over Fifty blog lists a number of “barriers to saving money,” which include “living beyond your means, (not) having a budget, (having) too much credit card debt and “not making enough money,” among others.

“If your expenses exceed your monthly income, there’s nothing to left to save,” the blog explains. “Plus, living beyond your means only sets you up to get deeper in debt because you don’t have any cash savings to cover a financial emergency.”

You’ll need to track your expenses, develop a budget, and then reduce spending until there is money left over each month, the blog recommends.

“A budget will help you be more intentional with your money. When you give every dollar a purpose, you maximize your income,” the blog notes. “One way to be purposeful with saving more money is to include it in your budget. Assign your monthly savings goal as a regular expense, and pay it like it’s any other bill.”

Let’s boil all this down. Basically, we are not naturally wired to set money aside for the future. We do what’s easy – spending money – rather the harder ideas of budgeting, living within our means, and being able to save. And that’s the problem – unconscious spending.

Our late Uncle Joe recommended that we put away 10 per cent of what we earn, and live on the rest. “You’ll never have any problems if you do that,” he advised. We are doing that now, but only because we are retired and without a mortgage. But when we were paying down the mortgage and other debt, we always put something away, even one or two per cent.

So, if saving looks impossible, start with a small, affordable amount, and ratchet it up.

If you are saving on your own for retirement, consider joining the Saskatchewan Pension Plan. With SPP, individual members decide how much they want to contribute – so you can start small. You can have money automatically deposited in SPP from your own bank account, and as you work to free up money, you can increase that amount when possible. SPP will invest your hard-saved dollars in a low-cost, pooled investment fund, and when you are ready to retire, you’ll have options like a monthly lifetime annuity payment or the more flexible Variable Benefit.

Check out SPP today!

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Four tips to help avoid running out of money in retirement

An alarming stat from south of the border – 45 per cent, or just under half of Americans retiring at age 65 “risk running out of money.”

That grim fact was recently reported by Markets Insider through the MSN network. Markets Insider was reporting on research from Morningstar.

Morningstar also found out that single women are even more likely to run out of money in retirement, at a rate of 55 per cent.

Who’s at the biggest risk for running out?

“The group most susceptible to ending up in this situation are those who didn’t save toward a retirement plan,” states Spencer Look, associate director of the Morningstar Center for Retirement and Policy Studies, in the article. But, the piece continues, “retirement advisors say even those who think they’re prepared aren’t.”

While the article talks about a U.S. experience, the concepts seem to apply here. A top risk is – not surprisingly – spending too much of your savings too quickly.

“After retiring, most people’s spending habits either remain the same or go up. When you have more leisure time on your hands, more money goes toward entertainment and travel, especially in the first few years of retirement. The outcome is a higher withdrawal rate, which can push you into a higher tax bracket,” states JoePat Roop of Belmont Capital Advisors in the article.

Money saved in a tax-free vehicle (in Canada, this would be a Tax Free Savings Account) is not taxed as income when withdrawn, and is a way around the problem, the article notes.

Using registered funds to pay off big debts, like a car loan or the remainder of a mortgage, is also a bad idea and a way to run out of money early, the article notes. Consider the tax consequences of using registered funds to pay down debt, the article suggests.

A third problem is what the article calls “sequence risk.” That’s the risk of withdrawing money when the market is down, effectively creating a “sell low” problem. Diversification is the antidote here – be sure some of your investments are in “principal-protected” investments such as (we will Canadianize here) guaranteed investment certificates (GICs), annuities, or government bonds.

The final problem is “lack of appropriate risk-taking” in investments, the article notes.

“People don’t take into account how expensive things get over time, not realizing that they can live another 40 years in retirement. You can’t get rich investing your money at five per cent,” Gil Baumgarten of Segment Wealth Management tells Markets Insider.

So, let’s sum up what we’ve learned here.

• First, understand the tax consequences before withdrawing from your savings.
• Don’t withdraw large sums from registered accounts to pay debts (tax consequences).
• Diversify, so you won’t only have stocks to sell when you have to withdraw savings.
• Don’t try to avoid investment risk entirely by going all-in on GICs and interest-bearing accounts.

Now that we are seniors, we can attest to the fact that you have to worry way more about taxes than you ever did at work. That’s because you are getting income from multiple sources instead of one paycheque. If you are having trouble managing all this, consider getting professional help.

Did you know that the Saskatchewan Pension Plan is open to both individuals and companies? SPP is scalable, so it works for businesses both large and small as your company pension plan. Here’s a more detailed look at how SPP can help you deliver retirement security for your employees.

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Christine Benz uses an interview approach in her fine book, How to Retire, to really dig into some retirement-related dos and don’t.

And while there are a few sections that focus chiefly on U.S. tax rules, the bulk of the book is still very helpful for a Canadian reader.

The book begins by asking Michael Finke about what people should be thinking about when it’s time to contemplate retirement. Being happy, he explains, is crucial – it’s not just a math problem. “Of course that’s a very important part of living well in retirement – not feeling like money is a barrier to doing the kind of things that actually make us happy,” he begins. “But you also have to develop the skills to figure out how to be happy in a time of leisure, if that’s what you’re doing. And that’s a big question. Is this just a long weekend? Is this just a big vacation? And are you set up to be able to live?”

On how to pick a retirement date, Fritz Gilbert tells Benz “what I encourage people to do is take that last year (of work) and think about all the non-financial aspects of retirement, to make sure you’re emotionally and mentally ready for the transition as well. If you get the financial piece in order, and you’ve spent some time thinking about the non-financial piece, the “when” is going to become fairly obvious between the two of those combined.”

Laura Carstensen talks about the important of keeping up social connections – different than those you had at work. Recalling vacations when she was constantly in touch with the office via her mobile phone, she said you can’t completely disconnect when you retire.

“Going from that to a complete sense of `Nobody wants me. I’m not obliged to do anything,” is just as bad. People think about retirement as a way to break out of that pressure. What we really need is to change the way we work throughout our working lives. But certainly, as you get older and you start to have some ability to work less and to be more flexible in your work, keep in mind that doing some work is good for most people.”

David Blanchett talks about buying annuities, the “a” word. “If you want more guaranteed income, you want to first exhaust your options with respect to (government benefits).” He suggests claiming your government benefits as late as possible so that you get more. “After that, it might be worth considering annuities, given the potential economic benefits, which is something I’ve focused on for most of my career.”

Another important thing for retirees to think about is “spending money meaningfully” suggests financial author Ramit Sethi. You also need to talk about death benefits. “So many of us are afraid to talk about death. I told my wife, “Here are the conditions under which I don’t want to live anymore. Here’s what going to happen one day if I get hit by a bus. Let’s talk about it.

“There’s no virtue in hiding from something that’s going to happen to all of us. We might as well be open about it, When we acknowledge that eh average person like us lives to X age, suddenly we get very honest with ourselves. `Wow, I have a limited time window to actually use this money. What am I going to do with it?’”

Wade Pfau talks about investing strategies for retirees, including the “4 per cent” withdrawal rule, and the danger of “sequence of returns risks,” which is the danger of taking out investment money before the big returns start to hit.

He suggests four steps to mitigate sequence risk – “the first is to spend conservatively. That’s the logic of the four per cent rule.” Alternatively, spend flexibly. “If I can adjust spending along with market performance, that manages the sequence of returns risk because I’m not having to sell as much from a declining portfolio.” Other tactics include mitigating volatility by diversifying into less risky assets, like bonds, and having “buffer assets,” something outside the portfolio that you treat as a temporary spending resource to spend from after market downturns, to help avoid selling from the portfolio at a loss.”

In a chapter on choosing where to live after retirement, Mark Miller notes that “most people don’t move when they retire. That’s a media myth. And when people do move, they generally don’t move very far.” But if you are considering a bigger move, he recommends that you see what the healthcare services in your new area are like, as well as “transportation, walkability, and the like.”

Carolyn McClanahan suggests you need to “make certain your home is aging friendly. If it’s not, then figure out how you’re going to make it aging friendly, or where you’re going to move so you can live at home.”

This is a very well-thought-out book that covers off most aspect of retirement in a factual, friendly way. It’s well worth being an addition to your retirement library.

Annuities are a way to turn some of your retirement savings into a lifetime income stream. The Saskatchewan Pension Plan offers a full range of annuities. Be sure to check out this option when the day comes to convert your savings into retirement income. There’s also the flexibility of the Variable Benefit option to look at!

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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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The idea behind savings has always been to put a little money away today, and in the future, you’ll be covered for any little emergency that arises.

But these days, people are raiding their savings to pay for day-to-day, non-emergency expenses. Is there anything we can all do to prevent that? Save with SPP took a look around to see what others think.

The GoBankingRates website offers up a number of interesting strategies.

One idea is to put your savings in “a separate, online savings account” that “is not directly linked to your chequing or overdraft, or that can be used with a debit card,” the article suggests. We have an account with Alterna Bank that isn’t hooked up to any card, and yes, it’s a piggy bank that’s sort of hard to get at.

A similar idea is to “make savings inaccessible,” perhaps by putting them into a registered savings account (such as a registered retirement savings account) or brokerage account where you can’t get the money out immediately, or without a penalty or tax consequences, the article explains.

At the How To Money blog, one thought is to “focus on your goals,” and to remember why you opened the savings account before dipping into it.

“Do you want to own a home? Become financially independent? Finally go on that big trip you’ve always dreamed of,” the blog asks. “Having a bigger goal to weigh your purchases against can help you think twice before transferring money out of your savings, or making an impulse buy. Once you have a solidified goal, you can think about just how much you could accomplish if you cut out mindless spending,” the blog continues.

A second idea recommended by the blog is creating “sinking funds,” or essentially pre-paying, for things you know you have to spend on.

“A sinking fund for gifts is a common example. We all know we need to buy gifts at the end of the year for the holiday season. But if we don’t plan ahead, we won’t have the money to buy anything. That leads to dipping into savings. Instead, if we create a sinking fund and contribute $50 per month into it starting each January, we’ll have $550 by the end of November for gifts,” the blog explains.

Okay – make the money hard to get at, remember why you’re saving before dipping in, and create little dedicated “sinking funds” to prepay for known, upcoming expenses (again, instead of dipping in.) Are there other ways to work this?

The Balance blog suggests an oldie-but-goodie – using cash.

“Set up auto debit for all your bills and savings contributions, then see how much money you have left over. That’s how much you have to spend. Take out that amount each week or month, and when it’s gone, it’s gone. When you are using cash only for your spending, it takes a lot more work to overspend since you have to actually take the money out of the bank,” the blog suggests.

Another good idea, the blog adds, is to set up an emergency fund – for real emergencies – rather than dipping into your long-term savings.

“If you have a separate emergency fund to handle unexpected expenses, then you will no longer need to dip into your savings account to cover unexpected expenses like car repairs or medical bills,” the blog explains. “Although using your emergency fund may seem like you are dipping into savings, you really are not because you have earmarked these funds ahead of time to cover these expenses.”

The takeaway for all this is that your savings cookie jar should be as hard to get to as possible, so you can’t dip into them for an impulse purchase.

Members of the Saskatchewan Pension Plan can’t dip into their accounts for non-retirement purposes, because SPP is a “locked-in” pension plan. You can’t access the funds until you are age 55 or older, when you are deciding what you are going to do to turn your SPP savings into income. Options include receiving a monthly lifetime annuity or the more flexible Variable Benefit.

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New RetireMint platform helps with both money and non-money sides of retirement

Writing for MoneySense, Jonathan Chevreau explores a new Canadian retirement platform that covers both the financial and non-financial aspects of retirement.

The Canadian platform, he writes, “isn’t just another retirement app that tells you how much money you need to be able to retire in comfort. It spends as much or more time on the softer aspects of retirement in Canada: what you’re going to do with all that leisure time—travelling, part-time work, keeping your social networks intact and so on.”

In fact, adds the well-known financial writer, the advice in the app reminds him of previous books he has authored and co-authored, including Victory Lap Retirement and Findependence Day.

Chevreau notes that the platform’s “mission statement is: `Helping Canadians retire better, faster and more prepared.’ It also bills itself as `Your guide to the modern retirement.’”

RetireMint’s CEO Ryan Donavan tells MoneySense that “retirement has become so synonymous with financial planning, and so associated with ‘old age,’ that they’re practically inseparable. Yet, in reality, retirement is a stage of life, not a date on the calendar, an amount in your bank account, and is certainly not a death sentence.”

As well, he continues, while financial planning for retirement is key, since “you won’t even be able to flirt with the idea of retirement without it,” life after work is much broader than just money.

Okay – so what can the app do to help with the “non-money” side of retirement?

There are 14 topics on the platform “ranging from the obvious ones, like estate planning and insurance, to less apparent matters, like hobbies and the psychological shift into retired life,” MoneySense reports. Donovan tells MoneySense that an eye-popping 8,000 Canadians per week will reach retirement age over the next 15 years, but “more than 60 per cent do not know their retirement date one year in advance, and more than a third will delay their retirement because they don’t yet have a plan in place.”

The idea of having something to do with one’s time post-work is very key, the article notes.

There’s a very high suicide rate amongst those of us age 50-64, 65-84, and 85 plus, the article warns. Those of us over 65 have “a divorce rate three times the national average,” and with 25 per cent of our seniors in social isolation, there’s a 50 per cent increase in the chance of them developing dementia, the article continues. Seventy-seven per cent of seniors, the article concludes, “live with at least two chronic illnesses or conditions.”

Having a plan for your time, and not just your money, can make a positive difference, the article contends.

The average retirement, Donovan tells MoneySense, lasts for 22 years. “In each of those years, you will have more than 2,000 hours of new-found free time that would have been spent working throughout the majority of your life.” 

We agree with these thoughts. You need to be sure to have something to do, and people to do it with. And retirement can be the best time of life.

Many Canadians don’t have a retirement program through the workplace. If you’re in that group, there’s a retirement savings ally you need to be aware of. The Saskatchewan Pension Plan has the investment expertise and experience that you lack. They’ll take your hard-saved retirement dollars and will invest them in a low-cost, professionally managed pooled fund. At retirement, you’ll be able to choose from options like a lifetime monthly annuity payment, or the more flexible Variable Benefit. Check out SPP today!

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