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

Millennials need to boost their savings discipline

A story from CNBC, citing research from U.S. bank Wells Fargo, suggests younger folks, “those who grew up… listening to Bon Jovi” have a harder road to retirement than their Beatles-fan parents.

The Wells Fargo report, called Reimagining Retirement, looks at the savings needs of all the different generations, and reaches some interesting conclusions.

Assuming, the article notes, that you will need to save $1 million to self-fund your retirement, younger people will have to be more self-reliant. “Millennials, less likely to have a traditional pension than baby boomers, need to develop financial discipline. Members of Generation X, finding themselves in their peak earning years, need to ramp up their savings right now,” the article notes.

The report itself shows some of the barriers younger people have to face when it comes to saving (remember, this is U.S. data, but it probably paints a similar picture to what is going on here). The report notes that “65 per cent of GenXers’ monthly income goes towards meeting monthly expenses,” and that only “48 per cent of GenXers agree that they are saving enough for retirement.” The GenXers are advised to avoid dipping into their retirement accounts for non-retirement purposes, to sign up for any retirement savings plans available at work, and to “invest for growth.”

Millennials, the report says, find basic financial skills to be “intimidating.” A surprising 32 per cent of this age group don’t “believe the stock market is a good place to grow their retirement savings,” the report notes. For this group, the advice is to sign up for any retirement programs work may offer, and to try to move any work-related savings with you when changing jobs. They are advised to avoid being too conservative when investing (avoiding risk) and avoid getting caught up in “the latest investment craze.”

Retirement can last a really long time!

Writing in Benefits Canada, Simon Deschenes, a partner at  Eckler Limited, notes that when he was growing up in the 1980s, people living to age 100 “made the news,” it was that rare and unlikely.

These days, he writes, actuaries assume that males age 65 “will live to about age 88 and females age 65 will live to age 90 – and that’s for the average Canadian pensioner.” He notes that he recently “came across two statistics that blew my ‘80s childhood mind – the chance of one half of a retired couple, both age 65, reaching 94 is about 50 per cent.” The chances of one member of that couple reaching age 100 is a surprisingly high 10 per cent, he adds.

He concludes by saying the “risk” of living a really long life (known in the industry as longevity risk) should be a major consideration for retirees in how they draw down their savings; he also suggests the new advanced-life deferred annuities are a new tool worth looking at that can bolster your retirement income if you live a really long time.

The Saskatchewan Pension Plan has you covered if you are worried about outliving your savings. SPP has a wide variety of annuity options, check out the SPP Retirement Guide for full details.

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

Retirement is a strange thing, in that you can’t really imagine what it is like until it happens – and when it does, you find it hard to believe you spent so long working.

But for many of us, leaving work and our colleagues behind might limit our social connections. What to do when work is in the rearview mirror? A great book, 101 Fun Things To Do in Retirement, has the answers.

Author Stella Rheingold begins by defining retirement as “entering a new, self-determined phase of life, leaving the employer or oversight of others to exercise greater choice and freedom in the use of one’s time.” In her view, that freedom is akin to “a lottery win.”

The book’s chapters then look in detail at various retirement pursuits, ranging from arts and crafts, the outdoors, sports, charitable work, and many more.  Some interesting hobbies in the “Head to Your Shed” chapter include blacksmithing and glassblowing, which “could be your passport to making some truly stunning artistic creations.” In “The Great Outdoors” chapter, she suggests picnicking – “if you are on a budget, but still want million-dollar views with your lunch, there is no better way than packing a picnic lunch.”

Under “Social,” a suggestion is to start or join a film club, ideal for “genre nuts” or those who love “films of a particular era.” Often such events can be hosted at a fun venue, such as a local pub, she writes.

The “Musical” category suggests learning to play an instrument, joining a choir, and later, checking out an “open mike” night. The “Educational” chapter talks of going back to school to further your education, or sitting in on university lectures, or joining a debating club.

Ideas for you to think about in the “Sporty” pages include lawn bowling, 10-pin or duckpin bowling, croquet and archery.

What’s great about this book is that Rheingold not only describes the various activities that are out there, but she gives you suggestions on how to reach out and join up. Trying out new things can be a bit daunting, but the warm, witty and wisdom-packed writing here makes it seem like getting going on all these great things will be worth the effort. As well, the activities are mainly, for the most part, quite affordable and thus, doable on most budgets.

Among her concluding thoughts is this gem – “life is short and may not have any meaning beyond the meaning we give it. The one thing we can do to truly honour life is to live it to the fullest for as many days as we are able.”

This is a great addition to any library.

Whatever you decide to do with your freedom after work, having a little income security will never be a bad thing. Consider opening a Saskatchewan Pension Plan account. Your contributions will be professionally invested over time, and at retirement, you’ll be able to choose from a wide variety of options that turn those savings into a lifetime income.

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 and classic rock. He and his wife live with their Shelties, Duncan and Phoebe, and cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

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

When working becomes the new saving

The boomers are often blamed for having had an easy time of things versus the younger generations – lower costs for education and housing, better employment opportunities, and so on.

Despite this apparent rosy and opportunity-ridden life path, however, new research shows that boomers – even the youngest tier – haven’t been savers.

According to a study by Franklin Templeton Investments Canada, reported on via Benefits Canada, a stunning 21 per cent of “younger baby boomers” haven’t saved anything for retirement.

Young boomers, “defined as those between the age of 55 and 64,” have a simple solution to their lack of saving, the article notes. Forty-six per cent of them, the report states, “said they would consider postponing retirement.” In plainer terms, they are extending their careers.

How long will the extension be? “Fifteen per cent of Canadians said they expect to work until the end of their life and 22 per cent said they don’t ever plan to retire,” the article states. However, paradoxically, about half of the young boomer group (54 per cent) “retired earlier than expected,” the article explains.

It’s sort of hard to imagine people working on into their 70s and 80s. Even if there is work to be had, will people’s health be good enough for them to keep at it? At best it seems like an iffy option.

“With life expectancy increasing and retirement savings becoming ever more challenging, due to the high costs of living, we are seeing increased concern over having enough money for retirement across all generations,” states Franklin Templeton’s Matthew Williams in the Benefits Canada article.  “Although it’s never too late to start saving, the best time to start contributing to retirement savings vehicles is when a person starts out in their career and may not have big financial commitments like a mortgage or childcare costs, and to find a way to maintain healthy savings habits as they age.”

Saving for retirement gives you options. You may be able to work less, and ultimately, not at all if your own savings augment your government retirement benefits. Your savings will also provide extra income, over and above that of any workplace pension you may be able to join.

If you haven’t started down the saving path, the Saskatchewan Pension Plan is worth a hard look. It’s open to any Canadian citizen, it’s been professionally run since the 1980s, has a strong record of good investment returns (at a low management expense) and has many options to turn your savings into an income stream when you retire.

Don’t let working be your savings plan – sign up for SPP today.

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

Recent research conducted for Aon has found that Canadian workers in capital accumulation plans (CAPs), such as defined contribution (DC ) pension plans or group RRSPs, while confident about these plans and their own finances, “find it hard to save for retirement and are worried about having enough money to retire.”

The global actuarial and HR firm’s report, Global DC and Financial Wellbeing Employee Survey, also found that “fewer than half” of those surveyed have a particular goal for retirement savings, and that “depending on other sources of income, many find their current plan contribution levels are inadequate to ensure their total income needs in retirement,” according to an Aon release.

Among the other findings of the report:

• Of the 1,003 respondents, only 27 per cent saw their financial condition as poor
• Almost half of those surveyed say outstanding debts are preventing them from saving for retirement
• Two of five who are in employer-matching plans (where the employer matches the contributions made by the employee) are not taking full advantage of the match
• Of those who expect to fully retire from work, two-thirds expect to do so by age 66; 30 per cent expect to keep working forever in some capacity.

Save with SPP reached out to one of the authors of the research, Rosalind Gilbert, Associate Partner in Aon’s Vancouver office, to get a little more detail on what she made of the key findings of the research. 

Do you have a sense of what people think adequate contributions would be – maybe a higher percentage of their earnings?

“I don’t believe most respondents actually know what is ‘adequate’ for them from a savings rate perspective.  The responses are more reflective of their fears that that they don’t have enough saved to provide themselves a secure retirement.  Some may be relating this to the results of an online modeller of some kind, or feedback from financial advisors.

“I also think that many employees don’t have a clear picture of the annual income they will be receiving from Canada Pension Plan/Old Age Security to carve that out from the income they need to produce through workplace savings.  Some of this comes back to not having a retirement plan in terms of what age they might retire and, separately, what age they might start their CPP and OAS (since both of those drive the level of those benefits quite significantly).”

Is debt, for things like mortgages and credit cards, restricting savings, in that after paying off debt there is no money left for retirement savings?

“We were surprised to see the number of individuals who cited credit card debt as a barrier to saving for retirement. Some of this is the servicing (interest) cost, which is directly related to the amount of debt (and which will increase materially if interest rates do start to rise, which many are predicting).

“I think that the cost of living, primarily the cost of housing and daycare, is currently quite high for many individuals (particularly in certain areas like Vancouver), and that, combined with very high levels of student loans, means younger employees are just not able to put any additional money away for retirement.  There is also a growing generation of employees who are managing child care and parent care at the same time which is further impeding retirement savings.”

We keep hearing that workplace pensions are not common, but it appears from your research that participation rates are high (when a plan is available).

“This survey only included employees who were participating in their employers’ workplace retirement savings program.  So you are correct that industry stats show that overall coverage of Canadian employees by workplace savings programs is low, but our survey showed that where workplace savings programs are available, participation rates are high.”

What could be done to improve retirement savings outcomes – you mention many don’t take advantage of retirement programs and matching; any other areas for improvement?

“In Canada, DC pension plans and other CAPs are not as mature as they are in other countries such as the UK and US.  That said, we are now seeing the first generation of Canadians retiring with a full career of DC (rather than DB) retirement savings.  Appropriately, there has been a definite swing towards focusing on decumulation (outcomes) versus accumulation in such CAPs.

“From service providers like the insurance companies that do recordkeeping for workplace CAPs, this includes enhanced tools supporting financial literacy and retirement and financial planning.  Also, many firms who provide consulting services to employers for their workplace plans encourage those employers to focus on educating members and encouraging them to use the available tools and resources.

“However, if members are required to transfer funds out of group employer programs into individual savings and income vehicles (with associated higher fees and no risk pooling) when they leave employment, they will see material erosion of their retirement savings. Variable benefit income arrangements (LIF and RRIF type plans) within registered DC plans are able to be provided in most jurisdictions in Canada, but there are still many DC plans which still do not offer these.

“It is more difficult to provide variable benefits when the base plan is a group RRSP or RRSP/deferred profit sharing plan (DPSP) combination, but the insurance company recordkeepers all offer group programs which members can transition into after retirement to facilitate variable lifetime benefits.  The most recent Federal Budget was really encouraging with its announcement of legislation to support the availability of Advanced Life Deferred Annuities (ALDAs) and Variable Pay Life Annuities (VPLAs) from certain types of capital accumulation plans.

“There is still more work to be done to implement these and to ensure that they are more broadly available and affordable, but it is a definite step in the right direction.  A key benefit of the VPLAs is the pooling of mortality risk while maintaining low fees and professionally managed investment options within a group plan.  The cost to an individual of paying retail fees and managing investments and their own longevity risk can have a crippling impact on that member’s ultimate retirement income.”

We thank Rosalind Gilbert for taking the time to connect with us.

If you don’t have access to a workplace pension plan, or do but want to contribute more towards your retirement, the Saskatchewan Pension Plan may be of interest. It’s a voluntary pension plan. You decide how much to contribute (up to $6,200 per year), and your contributions are then invested for your retirement. When it’s time to turn savings into income, SPP offers a variety of annuity options that can turn your savings into a lifetime income stream.

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 and classic rock. He and his wife live with their Shelties, Duncan and Phoebe, and cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

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

The road to retirement begins with a first, small step

Let’s face it – with workplace pensions becoming as scarce as nice weather in a Canadian spring, the high cost of housing and living and stagnant wage growth, saving for retirement is not an easy thing to get going on.

The MoneyCoach.ca blog offers some great ideas on how to get into that important savings habit, even if money is tight.

Author Debra Pangestu calls saving for retirement “a growing concern among Canadians,” adding “if we’re struggling to make ends meet now, how are we going to take care of our expenses in the future when we’re no longer earning the same income we used to?”

Her sage advice is to begin retirement planning early. “Start squirrelling away money the soonest you can, even if it’s just $25 a week,” she writes. This small amount of money, she explains, can really add up. A saver starting at age 25 would have – assuming six per cent interest – a whopping $190,000 in retirement savings by age 65.

Even small amounts can really add up, and, notes Pangestu, “if you get a raise at work or transition to a better-paying job, it’s a good idea to bump up your monthly retirement savings amount.”

Her other tips include making a realistic budget, one that includes retirement savings, and sticking to it. “If your expenses are less than what you earn, you’re in good shape. But if your expenses exceed your income, it’s time to look for holes in your budget,” she writes. A budget shows where your money is going, she says, and that knowledge can help you “identify areas you can cut back on.”

Her other tips including automating your retirement savings, cutting back on expenses so that you can “check for opportunities to save money,” and look for new ways to make money. She suggests looking for jobs that offer good retirement benefits and generally cutting back on credit card spending.

Following the steps that she suggests sounds like a solid way to get into the retirement savings habit.

Some surprises you’ll experience in retirement

Writing in the GoBankingRates.com blog, author Cameron Huddleston discusses 13 surprising things about early retirement.

Among the highlights is looking forward to Mondays. After retirement, “the start of the workweek now means… five days of relative peace and quiet (for) errands or (to) go to the gym,” the article notes.

You’ll feel less stressed than you did at work, the blog promises, and that in turn should help improve your health. You’ll be more social, the blog says, given that there’s more time for friends and family. Travel is cheaper because you can leave at any time (no need to book time off work), and you’ll find you have become a morning person.

Putting it all together, setting up a regular retirement savings program for yourself is an essential step you can take today to ensure you’re not stressed financially in retirement. The land of retirement is hard to imagine when you’re still punching the clock, but it’s there waiting for you. A great way to set up your own pension plan is to sign up for the Saskatchewan Pension Plan. You can start small, and you can automate your savings via direct deposit to SPP from your bank account. After SPP expertly invests your money, you’ll have options at retirement for how you want to receive your lifetime stream of income. Think about starting your own “set it and forget it” retirement savings plan today.

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

There’s mounting evidence that shows Canadians have to work longer than they planned, due to the combination of high personal debt and low retirement savings.

Save with SPP took a look around to see if this “new normal” is a good or bad thing, health wise.

Interviewed in Forbes magazine, Heller Sahlgren, author of Work Longer, Live Healthier, sees working longer as a positive, health-wise.

His book makes the point that healthy people in their 60s should have no problem working, and that the work is good for them. “Continuing some form of paid work in old age is one way to ensure a healthier population,” he states in the article.

How is working healthy? The article notes that “studies have found that the mental demands of a job can be a force for staving off cognitive decline, an insight summarized by the catchphrase `use it or lose it.’”

An article in the New York Times makes a similar argument. “What is the benefit of work? Activation of the brain and activation of social networks may be critical,” states Nicole Maestas, associate professor of healthcare policy at Harvard, in a Times interview.

There is a potential downside to working later in life, reports the Money Ning blog. If you’re “not passionate” about your work, or “are working in a job that is physically demanding or extremely stressful,” the idea of keeping your job “may not be a pleasant one,” the blog states.

A paper by the Canadian Centre for Policy Alternatives, Working After Age 65: What is at Stake provides a great overview of this issue. One section deals with the health of older workers, and notes that “more than 50 per cent of retired workers over 65 have three or more chronic health conditions (such as high blood pressure, diabetes, or arthritis.”

As well, the paper notes, “one in four fully retired workers over 55 list poor health as their reason for retirement,” adding that “many older workers will have difficulty remaining in the workforce due to poor health, even if they are not financially ready to retire.”

To recap, then, working past 65 can be good for your mind – keeping it in gear, so to speak – and the social connections from work are helpful, preventing isolation. But these benefits assume your health is good, and that seems to be the delineator – older folks do tend to have more health issues than younger ones, and if your job wore you out emotionally and physically, keeping at it may not be a great idea. So you’ll need to weigh all these factors should you consider working for the longer term.

A hedge against becoming a long-serving worker is retirement savings. Those savings give you options, such as scaling back on the amount of time you put in at work, or even moving to something that’s more fun but pays less. Be sure to make retirement savings a priority, and consider the Saskatchewan Pension Plan as part of your savings toolkit. They offer an end-to-end retirement plan for you, investing your savings and turning it into a lifetime stream of income.

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 and classic rock. He and his wife live with their Shelties, Duncan and Phoebe, and cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

If you’re looking for a thoughtful, fact-filled and interesting guide to planning for your golden years, then Retirement in Canada by Thomas R. Klassen is a wise addition to your retirement reading collection.

Retirement, writes Klassen, is a complex issue both financially and demographically. He notes that the huge wave of retiring baby boomers is unprecedented. “Two-thirds of those 65 and over who have ever lived are alive today,” he writes.

For this huge group, he asks, will traditional definitions of retirement still work? “Retirement typically involves a substantial and sustained reduction in the amount of time spent in paid employment,” he explains. “Yet such a definition fails to include the many Canadians who spend decades in unpaid labour, such as working at home to care for children or other relatives.” What, he asks, does retirement look like for that group, “those who have not worked for money for an extended period of time?”

The old idea of retirement was ending employment at age 65 and never working again. However, Klassen notes, “it is relatively rare for retirement to mean the complete and irrevocable stoppage of work.” There is, he continues, “nothing magical about 65,” and Canada’s very first old-age pension program started at 70. Women, he writes, can still give birth after age 65 through in vitro, a 100-year-old completed a marathon in 2011, students graduate university in their 80s and 90s, and “workers in a range of occupations remain employed years, and in a few cases, decades past age 65.”

Canadians are now living longer. In the 1920s, life expectancy for Canadian men was 59 and for women, 61. These days, most Canadians will live to at least 85.

Will the burden of paying for all these retirees fall upon younger Canadians?

Klassen takes issue with the old-age dependency argument, the “impression of a future world in which a relatively few younger workers will have to support a multitude of retired people.” First, the retirees depend “on savings, such as pensions, accumulated during decades of employment,” rather than on younger workers. Second, such thinking assumes that everyone 15-64 “is employed – that is, they are workers – and that everyone 65 and over is retired and not employed. This is clearly not the case.”

In fact, he writes, older Canadians work past age 65 in ever-larger numbers, either because “they have no choice but to continue earning employment income,” or because “they live to work, rather than work to live.”

The idea behind mandatory retirement at 65 was “to press for adequate pensions from employers and for state programs for older citizens,” he writes. A related idea was to clear the decks for younger people to take the jobs vacated by retirees. When mandatory retirement was ended, Klassen notes, this thinking was revealed as “a fallacy,” based incorrectly on the assumption that the number of jobs in the economy is finite.

While government retirement income programs generally work well, the other main savings vehicles – RRSPs and workplace pensions – aren’t running at maximum efficiency. Klassen notes that only 39 per cent of workers had access to a workplace pension plan in 2010, and that only 25 per cent of those eligible for a private pension joined.

An issue, he suggests, might be affordability. Families in their 30s have significantly less wealth than those in their 60s, who are living in mortgage-free homes and are experiencing their highest levels of income.

So, given all this, will retirement be a good thing for most of us?

Klassen concludes by noting that “most Canadians can expect satisfaction with, and in, retirement after an initial period of adjustment.” He adds that “there is no magic transformation that occurs upon retirement,” so “those with higher levels of satisfaction with life before retirement will likely continue to be fortunate and fulfilled in retirement.”

If you are someone who has not joined a workplace pension plan, or don’t have access to one, the Saskatchewan Pension is well worth checking out. You can start small, and make contributions when you can, and then ramp it up as your income improves over time. It’s a flexible plan that is a sensible retirement savings ally.

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 and classic rock. He and his wife live with their Shelties, Duncan and Phoebe, and cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

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

Making ends meet with a “work optional” retirement

Writing in MoneySense, Jonathan Chevreau has a new take on how we should approach retirement. Rather than planning to put down the tool box forever and live off pensions and savings, he writes about a “work optional” retirement.

Chevreau says he learned of the phrase “when it was uttered by financial planner Doug Dahmer, founder of Burlington, ON-based Retirement Navigator.” He asked Dahmer to define it, and his reply was “it’s working because you want to, not because you have to… It relates to those who purposely choose to continue to work, despite already having achieved a financially feasible retirement.”

This optional work, Dahmer states in the MoneySense article, should be doing something you love on your own time schedule for someone you want to do it for. The money, the article notes, should be money “that at the end of the day, is not needed: it’s simply an added bonus.”

“In practice, then, achieving the status of ‘work optional’ is almost exclusively limited to those who are self-employed,” notes Chevreau. “The self-employed are not accountable to the bidding of bosses or shareholders, can choose to limit their customers only to those with whom they love to work, and they can choose to either outsource or delegate to others the aspects of the job they don’t enjoy. They can pick and choose their own schedules.”

This is very good thinking. Save with SPP knows a number of people who retired from their 9 to 5 jobs, and are now doing things like teaching line dancing, consulting (one friend is a consulting agronomist), starting home businesses embroidering things, and so on. They are either continuing to do things they loved to do, or learning new things.

Chevreau’s article goes on to note that for those saving on their own, without a workplace pension, it’s pretty expensive to save enough money so that you never need to work again.

Quoting U.S. author Tanja Hester’s published work on the subject, Chevreau notes that “full early retirement – ‘in which you never need to work again [for money]’—means if you are an investor that you will need to save between 25 and 35 times your annual expenses by the time you leave active employment.”

And Hester, notes Chevreau, has a “magic number” for full early retirement – “annual spending times 30 + 10 per cent contingency. Then there is the safe annual withdrawal rate, which ranges between three and four per cent per annum.”

When you are on a fixed income in retirement, unexpected repairs are a bane of your existence. A “work optional” retirement might allow you to have that contingency fund set aside to help you out when something out-of-the-ordinary occurs.

If you don’t have a workplace pension plan, or you want to augment the plan you have, take a hard look at the Saskatchewan Pension Plan. It’s unique, in that it not only offers low-cost professional investing and the benefits of pooling, but there’s a full array of lifetime annuity options available to turn your savings into lifetime income.

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

Would people be better off if they worked a little longer, and collected their retirement benefits a little later?

A new study from the Canadian Institute of Actuaries (CIA) called Retire Later for Greater Benefits explores this idea, and proposes a number of changes, including moving the “target eligibility age” for the Canada Pension Plan and Quebec Pension Plan to 67 from 65, while moving the earliest age for receiving these benefits from 60 to 62. As well, the CIA’s research recommends that the latest date for starting these benefits move from 70 to 75.

Old Age Security (OAS) would see its target age move to 67 from 65. For registered pension plans (RPPs), the CIA similarly recommends moving the target retirement age to 67 from 65, and the latest retirement date to 75 from 71.

Why make such changes? An infographic from the CIA notes that we are living longer – a 65-year-old man in 2016 can expect to live for 19.9 years, while a woman can expect 22.5 more years of living. This is an approximately six-year improvement versus 1966.

So we are living longer, the study notes, but face challenges, such as “continuing low interest rates, rising retirement costs, the erosion of private pensions and labour force shortages.”

Save with SPP reached out to the CIA President John Dark via email to ask a few questions about these ideas.

Is, we asked, a goal of this proposal to save the government money on benefits? Dark says no, the aim “is not about lowering costs to the government. The programs as they are currently formulated are sustainable for at least 40 to 75 years, and we believe this proposal will have minimal if any implications on the government’s costs.

“We are suggesting using the current increments available in the CPP/QPP and OAS to increase the benefits at the later age.” On the idea of government savings, Dark notes that while CPP/QPP are paid for by employers and employees, OAS is paid directly through government revenue.

Our next question was about employment – if full government pension benefits begin later, could there be an impact on employment opportunities for younger people, as older folks work longer, say until age 75?

“We’re not recommending 75 as the normal retirement age,” explains Dark. “We are recommending that over a phase-in period of about 10 years we move from a system where people think of ‘normal’ retirement age as 65 to one where 67 (with higher benefits) is the norm.

“The lifting of the end limit from 71 to 75 is at the back end; there are currently those who continue to work past normal retirement and can continue to do so even later if they choose,” he explains. “Current legislation forces retirees to start taking money out of RRSPs and RPPs at age 71 – we think this should increase to 75 to support the increasing number of Canadians who are working longer.”

As for the idea of younger workers being blocked from employment opportunities, Dark says “if we had a very static workforce this might as you suggest cause a bit of blockage for new entrants, but as we say in the paper, Canada has the opposite problem.

“Many areas are having a difficult time finding workers,” he explains, adding that “in the very near future a great many baby boomers will begin to retire. We think allowing people who want to remain in the work force can help with that.

“It’s important to remember that if you have planned retirement at 65 this proposal won’t prevent you from doing that except that OAS wouldn’t be available until 67 instead of 65 (and we expect the government would explore other options for supporting vulnerable populations who need OAS-type support at earlier ages).” Dark explains.

Would starting benefits later mean a bigger lifetime benefit, and could it help with the finnicky problem of “decumulation,” where retirement savings are turned into an income stream?

“Under our proposal,” Dark explains, “people could work just a little longer and get higher benefits for life. By itself that doesn’t make decumulation any less tricky – but perhaps a little more secure.

“For many people in defined contribution (DC) plans who have no inflation protection, longevity guarantees, or investment performance guarantees from an employer, using your own funds earlier and leaving the start of CPP and OAS to as late as possible can help provide some of the best protection against inflation for at least part of your retirement income,” he adds. And, he notes, because you waited, you will get a bigger benefit than you would have got at 65.

Finally, we asked if having a longer runway to retirement age might help Canadians save more for their golden years.

“Clearly by having a longer period of work you have more opportunity to accumulate funds, and by providing more security of retirement income it will help as well,” Dark notes. “We also know that Canadians are already starting their careers later in life – getting established in their 30s rather than their 20s, for example – and need that longer runway anyway.

“Overall, to me the most important word in the report is `nudge.’ If we can get people to think about retirement sooner and get governments to act on a number of areas that we and others have outlined we hope to improve retirement security for Canadians. This is just the start of a journey that will have lots of chapters.”

We thank John Dark, as well as Sandra Caya, CIA’s Associate Director, Communications and Public Affairs, for taking the time to speak with Save with SPP. Some additional research of the CIA’s can be found on Global News Radio, BNN Bloomberg and the Globe and Mail.

Even if the runway towards retirement age is lengthened, it’s never too early to start saving for retirement. If you don’t have a workplace pension plan, or do but want to augment it, the Saskatchewan Pension Plan may be a vehicle whose tires you should consider kicking. It’s an open DC plan with a good track record of low-cost investment success, and many options at retirement for converting your savings to a lifetime income stream.

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 and classic rock. He and his wife live with their Shelties, Duncan and Phoebe, and cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

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