Many observers are worried about the return of higher interest rates. It will cost more, they warn, to renew a mortgage, or get a car loan. It may create a stock market downturn because the cost of borrowing (for corporations) will increase.

But is there any sort of silver lining to watch for in a higher-interest rate environment? Save with SPP took a quick look-see.

Noted Globe and Mail columnist Rob Carrick sees a couple of good things about higher rates.

First, he writes, “one thing higher rates can do is tamp down inflation, which lately hit a 30-year high at 4.8 per cent.” A higher rate, the article continues, may “encourage saving and discourage borrowing, and in turn spending,” all factors that slow the growth of inflation.  In fact, those of us with greyer hair remember a time when the federal government tried to wrestle inflation to the ground by limiting wage and price increases to six per cent in year one, and five per cent in year two! Those rates now look sky-high, but at the time, you could get a Canada Savings Bond that paid interest in the teens.

Carrick notes that higher interest rates may stop the runaway growth of housing prices, and feels might prompt more of us to pay off our record-high household debts. “Higher rates should be a prompt to reduce debt levels and thereby put households in stronger shape for financial challenges ahead,” he writes.

Finally, Carrick reports, higher interest rates will be a boost to savers. “Rates for savers have been suppressed by the Bank of Canada as part of its efforts to support the economy. When the central bank starts raising rates, savers will gradually receive a better return on their money,” he notes.

Over at Sapling, writer Victoria Duff makes a similar argument.  She notes that higher interest rates actually make things easier for large pension funds and insurance companies.  “Retirement funds, insurance companies and educational endowments benefit from higher interest rates, as does anyone who depends on bond investments for his income. These funds, as well as banks and other lending institutions, can meet their target investment returns through more conservative credit quality portfolios,” she explains.

Also important, she writes, is that countries with higher government-set interest rates “attract investment from other countries,” which can strengthen their currency. Similarly, governments that issue bonds to pay down debt will get a better return, which ought to help them retire debts more quickly, she notes.

Finally, higher interest rates are great for anyone shopping around for an annuity. According to the Get Smarter About Money blog, “if interest rates are high when you buy your annuity, your annuity payments will be higher than if interest rates were low. That’s because the financial institution predicts it can earn more (through higher rates) by investing your money.”  This is a complicated thought, but an important thing to know. If you are thinking of buying an annuity when you retire, your monthly income from it will be higher if interest rates are high at the time of purchase. Monthly income is lower if interests are low at the time of purchase.

Members of the Saskatchewan Pension Plan can, at retirement, choose to convert some or all of their savings into one of many annuity options. All of them are designed to provide you with monthly income for life, and there’s also an option that provides lifetime income for your spouse should you die before they do. Annuities are a great way to ensure you don’t run out of money before you run out of time to spend it! Check out SPP today!

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Financial planner Jonathan Kestle of the Ian C. Moyer Insurance Agency in Ingersoll, Ont. sees annuities as a great way to strengthen the core of your retirement income strategy.

Talking to Save with SPP by phone, Kestle says he sees annuities as “one of our core planning philosophies.” He notes that while the Canada Pension Plan (CPP) and Old Age Security (OAS) may provide a “foundation for retirement,” people should look at their fixed expenses in retirement.

If CPP and OAS don’t cover off those month-to-month expenses like housing, heat, telephone, and utilities, then a good strategy would be to annuitize some of your personal savings to top that up.  CPP, OAS and an annuity will offer a “cash for life” core income amount that will cover off your basic expenses, he explains. Your other savings provide you with liquidity for “non-core” expenses.

Asked if an annuity offers any tax advantages over withdrawing money from a registered retirement income fund (RRIF), Kestle said not really, since both will have tax withheld at source. On the other hand, a non-registered annuity (an annuity purchased with non-registered funds) can offer significant tax advantages, since tax is set at a fixed rate over many years, he says.

The advantages of an annuity include the fact that “longevity risk,” or the fear of outliving your savings in retirement, is covered off, since an annuity is a “cash for life” product.

Put in perspective, Kestle explains that with a RRIF, you can arrange to have a set amount of money withdrawn each month, like an annuity. The difference is that with the RRIF, if investment returns don’t support the rate of withdrawal over time, you can run out of money while you are still alive. With an annuity, you can’t outlive your savings, he explains.

It’s important to realize, he says, that once you purchase an annuity, you lose control over that money in exchange for receiving guaranteed monthly payments. If you die at an early age, and don’t select an annuity that offers a survivor benefit, your “foregone” payments are used to help provide payments to other annuitants by the insurer via a “pooled risk” approach, he says.

This fear of dying early keeps some people on the sidelines with annuities, but statistically it is quite a rare thing, with most people living into their 80s and beyond, he says.

But if you are concerned about leaving benefits to your survivors, Kestle says, annuities offer a lot of options. You can choose one that offers a joint and survivor pension to your spouse, some will offer a guaranteed payment for a number of years, others will offer a return of premium if you die at a young age. “The more bells and whistles, the less the monthly payment is,” Kestle explains.

Kestle does not believe people should annuitize all their retirement savings. He reiterates that his firm advises reviewing core expenses, seeing if there is a shortfall between what your government benefits provide and what you need for core, fixed expenses, and then annuitizing some of your savings to cover the shortfall.

“You should consider annuitizing a portion of your savings; it shouldn’t be an `all or none’ decision,” he explains. You will need “pools of liquidity” in your savings for emergencies, such as having to put on a new roof. Kestle concludes by saying annuities “play a very important role” in a diversified retirement income portfolio.

We thank Jonathan Kestle for taking the time to talk with us.

Did you know that the Saskatchewan Pension Plan offers a number of annuity options? According to the SPP Retirement Guide, members can choose from these options – a life only annuity, which offers no survivor benefits; a refund life annuity which guarantees a refund to your beneficiary if you have not received the full balance of your SPP account as retirement income; and a joint and last survivor annuity where your beneficiary gets a lifetime pension upon your death equal to 60, 75 or 100 per cent of what you were receiving. Check out SPP, celebrating 35 years of delivering retirement security, today!

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If you’re nest-egg is getting a short-term pinch, it’s time to make do with less for a while

Those of us who are living on income from our retirement savings – drawing down from a big nest egg – are probably feeling like they are a GPS system in a car these days. Thanks to volatile investment conditions, the route has changed – and it’s time to recalculate.

An article on the Toronto.com site offers some interesting tips on how to cope with unpredictable income from volatile markets.

Those who “have seen that your stocks have been hit hard,” and who “realize they could fall further,” need “to act cautiously to bolster your finances without necessarily doing anything drastic, at least for now,” the article suggests.

“One simple but smart strategy is to find sensible ways to trim your spending once day-to-day living conditions return closer to normal. The comparison point is your expenditures before the (pandemic) struck,” the article explains. Don’t, the folks at Toronto.com add, base your “back to normal” spending on what you were doing during the pandemic, as “that doesn’t provide a useful model for spending prudently in normal times,” the article advises.

“A planned trim to spending is something you can do quickly; you can cut just what you feel you need to, then loosen the purse strings later when your portfolio eventually recovers. If conditions get worse, you can cut further, but only when and if required,” the article states.

The article points out that at age 65, the rule of thumb is that you need $25 of invested income for every dollar you want to take out and spend. If you expect your income will be depleted due to poor markets, it’s a time to take out less, not more, the article notes.

“While the relationship between spending and the current size of your portfolio will usually vary in subsequent years after you retire, you get the picture that you need a pretty sizable chunk of money in your nest egg to support each $1 of spending. So if you can cut a chunk out of spending without hurting your lifestyle too much, you can take a lot of pressure off a stressed portfolio and increase the odds your savings will last as long as you need it to.”

This great advice is worth heeding.

Members of the Saskatchewan Pension Plan can choose a different approach to managing their retirement income. An option they can choose is the life annuity – with this approach, SPP converts some or all of your account balance at retirement to a guaranteed, monthly payment that you’ll receive every month for the rest of your life. It can continue to a spouse or other beneficiary depending on what annuity option you select. Annuity recipients don’t have to worry about market conditions – however threatening the financial weather may be, they get the same amount every month.

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

The pros and cons of annuities

Annuities are usually insurance against something bad – but there’s a kind of insurance that you can look forward to, explains Moshe Milevsky, Professor of Finance at York University’s Schulich School of Business.

In his YouTube video, Why Annuities Now?, Prof. Milevsky talks about how annuities are really insurance “against something that is a blessing, longevity.” Longevity insurance is “the insurance you buy to protect you against the cost of living for a very long time.”

An annuity is certainly something to think about when converting your SPP savings into retirement income. It’s a way to set up your savings to provide you with a fixed monthly income for your life – and there are ways to also provide for your survivors. Check SPP’s retirement guide for an overview of the annuity options the plan provides.

The retirement spending “smile”

Writing in the Financial Post, Jason Heath talks about the “retirement spending smile” that seems to occur for most of us. What is the smile? We generally spend more money in our early retired years, see a decline in the middle, and then see spending increase in the end – on a chart, it looks like a smile.

Research, the article notes, finds that “spending tends to rise by more than the rate of inflation in later years, on average.” This, the article notes, is likely due to the fact that in extreme old age, “few 95-year-olds cut their own grass, live independently in their homes, or avoid prescription drugs.”

The article warns us that spending may rise modestly if we are fortunate enough to live into our late 80s, and advises that idea to be part of our financial planning.

Written by Martin Biefer

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

By Sheryl Smolkin

If you are a member of the Saskatchewan Pension Plan you can elect to retire any time between the age of 55 and 71. You can purchase an annuity from the plan which will pay you an income for the rest of your life.

You can also transfer your SPP account into a locked-in retirement account (LIRA) or a prescribed registered retirement investment account (prescribed RRIF). Both options are subject to a transfer fee.

LIRA

The LIRA is a locked-in RRSP. It acts as a holding account so there is no immediate income paid from the account. You direct the investments and funds in this option and funds remain tax sheltered until converted to a life annuity or transferred to a prescribed RRIF. You choose where the funds are invested.

The LIRA is only available until the end of the year in which you turn 71. One advantage of a LIRA is that it allows you to defer purchase of an annuity with all or part of your account balance until rates are more favourable.

Prescribed RRIF

You must be eligible to commence your pension (55 for SPP) to transfer locked-in pension money to a prescribed RRIF. If you are transferring money directly from a pension plan, the earliest age at which your pension can commence is established by the rules of the plan.

You may transfer money from a LIRA at the earlier of age 55 (SPP) or the early retirement age established by the plan where the money originated. Funds in your SPP account or your LIRA at age 71 that have not been used to purchase an annuity must be transferred into a prescribed RRIF.

Unlike an annuity, a prescribed RRIF does not pay you a regular amount every month. However, the Canada Revenue Agency requires you to start withdrawing a minimum amount, beginning in the year after the plan is set up.

The Income Tax Act permits you to use your age or the age of your spouse in determining the minimum withdrawal. This is a one-time decision made with the prescribed RRIF is established. Using the age of the younger person will reduce the minimum required withdrawal.

To determine the minimum annual withdrawal required, multiply the value of your prescribed RRIF as at January 1 by the rate that corresponds to your age:

Table 1: Prescribed RRIF + RRIF minimum Withdrawals

Age at January 1	Rate (%)	Age at January 1	Rate (%)
50	2.50	73	7.59
51	2.56	74	7.71
52	2.63	75	7.85
53	2.70	76	7.99
54	2.78	77	8.15
55	2.86	78	8.33
56	2.94	79	8.53
57	3.03	80	8.75
58	3.13	81	8.99
59	3.23	82	9.27
60	3.33	83	9.58
61	3.45	84	9.93
62	3.57	85	10.33
63	3.70	86	10.79
64	3.85	87	11.33
65	4.00	88	11.96
66	4.17	89	12.71
67	4.35	90	13.62
68	4.55	91	14.73
69	4.76	92	16.12
70	5.00	93	17.92
71	7.38	94 and beyond	20.00
72	7.48
For revised RRIF withdrawal schedule based on 2015 Federal Budget, see Minimum Withdrawal Factors for Registered Retirement Income Funds.

There is no maximum annual withdrawal and you can withdraw all the funds in one lump sum. This is in contrast to other pension benefits jurisdictions such as Ontario and British Columbia where locked-in funds not used to purchase an annuity must be transferred to a Life Income Fund at age 71 that has both minimum (federal) and maximum (provincial) withdrawal rules.

The same LIRA and prescribed RRIF transfer options apply to Saskatchewan residents who are members of any other registered pension plan (DC or defined benefit) where funds are locked in.

RRSP/RRIF transfers

If you have saved in a personal or group registered retirement savings plan (RRSP) your account balance can be transferred into a RRIF (as opposed to a prescribed RRIF) at any time and must be transferred into a RRIF no later than the end of the year you turn 71 if you do not take the balance in cash or purchase an annuity.

The minimum withdrawal rules are the same as those of a prescribed RRIF (see Table 1). However, even in provinces like Ontario and British Columbia where provincial pension standards legislation establishes a maximum amount that can be withdrawn from RRIF-like transfer vehicles for locked in pension funds (LIFs), there is no cap on the annual amount that can be taken out of a RRIF.

Also read: RRIF Rules Need Updating: C.D. Howe