Younger Canadians doing better than you’d think on finances: RBC poll

New research from RBC, reported on by Wealth Professional, suggests that young people are taking their finances – including saving for retirement – quite seriously.

A whopping 83 per cent of young adults aged 18 to 24 say “financial stability is key to overall happiness,” while 59 per cent say “they’re very or extremely engaged with their finances, compared to just 47 per cent of parents who think they are,” Wealth Professional reports.

“Canada’s young adults are planning and saving for their future,” Jason Storsley, senior vice-president of Everyday Banking and Client Growth at RBC, tells Wealth Professional. “The survey results showed about 32 per cent of young adults are saving for a house, and about a fifth of them (19 per cent) are already saving for retirement as well,” he states in the article.

Chief concerns among young adults, the magazine continues, are “the high cost of living (70 per cent) and inflation (54 per cent).” Sixty-seven per cent admit feeling “stressed about their finances,” and 58 per cent “worry about having too much debt.”

It sounds to us like the younger generation is being very responsible about money, and that their parents and grandparents may be underestimating that fact.

“It does feel like there is a disconnect between kind of what parents’ perception is and what youth are actually willing to do with respect to side hustles,” Storsley states in the article. “I think we sometimes underestimate the resourcefulness of our youth, and how they are stepping up to meet some of the challenges they are facing today.”

Some good news for younger Canadians is that when they get older, the payout from the Canada Pension Plan (CPP) will be higher.

Writing in the Globe and Mail, noted actuary and financial author Fred Vettese explains that both the contribution rate and benefit payout rate from CPP are on the rise.

“The maximum pension payable will ultimately be 50 per cent greater in real terms than it was in 2019, but the actual increase will be less if one didn’t always contribute the maximum. It will take more than 40 years before the expansion is fully phased in,” he explains.

A chart included in the article shows a steady increase coming for the next 30 years, which is positive news for younger people who will hit age 65 in the late 2040s and 2050s.

If you’re 18 to 24, perhaps still a student or early on in your work career, you may not have access to a pension through the workplace. But the Saskatchewan Pension Plan has you covered.

Any Canadian adult with registered retirement savings plan room can join, and your membership means access to a voluntary defined contribution pension plan that has been delivering retirement security since 1986. With SPP, your contributions are prudently invested at a low cost and grown between today and the long-off future date when you untether yourself from the labyrinth of work. Check out SPP today!

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Should focus change from retirement to making work “age-friendly?”

Writing in the Globe and Mail, columnist Linda Nazareth asks if the days of “looking forward to gold watches, pensions, and rounds of golf” are gone – to be replaced by efforts to make work more “age-friendly.”

“Whether it is to keep themselves active or to make up for the inflation-eroded value of their portfolios, many are not looking to retire early, or perhaps at all,” she continues.

She says the workforce – even after the current post-pandemic job vacancy crisis is over – will likely continue to age, so there are “legitimate reasons to keep (older) employees earning – for their financial well-being, but also because many industries will continue to need their contributions.”

She notes that in the U.S., a study carried out for the National Bureau of Economic Research created an “age-friendly job index” that covered 873 jobs “in terms of their attractiveness to older workers.”

“Examining each job for a host of characteristics including flexibility, telecommuting, physical job demands, pace of work, autonomy at work and paid time off, the NBER study came to the conclusion that over the past three decades, work in general has indeed become more age-friendly,” she writes.

“That varied a bit by industry, with jobs in the finance and retail industries being the most age-friendly and including occupations such as insurance adjusters, financial managers and proofreaders. The least age-friendly jobs tended to be in manufacturing, agricultural and construction and involve a physical component of work.”

Researchers found that while the number of jobs for older workers are rising, it’s not only older workers filling “age-friendly” jobs – “instead… the jobs were disproportionately filled by women and college graduates,” she notes.

Older workers tend to be working in the jobs they had throughout their career (which researchers suggest have become age-friendly jobs), but some continue to work in “old-economy sectors such as manufacturing, and in conditions that in general are physically demanding.”

And that’s the interesting conclusion – there are lots of jobs out there being created that are ideal for older workers – less physical demands, more flexibility for working from home, etc. However, “there are reasons to believe that older workers are not necessarily getting access to those jobs,” she writes.

“If that is happening because they are actually less productive, then that should be addressed in some way by investments in retraining and reskilling whether by employers, government or the workers themselves. If, however, they actually are as productive as younger workers but are simply being shut out of them by ageism, that needs to be remedied,” Nazareth writes.

It’s an interesting sort of chicken-egg argument – should older workers look for “age-suitable” jobs, or should employers tweak existing job descriptions and duties to be more “age-suitable?” Other factors, of course, are the health of the job-seeking senior, and whether or not they need additional employment income to cover living expenses after reaching retirement age. Can they work, and do they need the money?

For those of us who do want to retire, a key condition that needs to be met is having sufficient retirement income to make work unnecessary. If you have a pension or retirement program through work, you’ve got a leg up. If you don’t, consider the Saskatchewan Pension Plan. SPP is like your own, personal defined contribution pension plan. You decide how much to contribute, SPP invests your savings, and at retirement, you have income options to choose from including SPP’s stable of lifetime annuities. Check out SPP today!

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Do old boomer money rules make sense for the young?

Some of the old tried and true money rules us boomers have long lived by may not hold up for younger generations.

An interesting article by Alison MacAlpine in the Globe and Mail casts doubt on the relevance, for today’s young people, of some of the old boomer money beliefs.

“Save 10 per cent of what you earn, invest 70 per cent in stocks and 30 per cent in bonds and keep six months of expenses in an emergency fund. Rules like these worked well for many baby boomers, but don’t necessarily apply to younger generations,” she writes.

Her article quotes Julie Pereira, of Edward Jones, as noting the old boomer “how-to” axioms followed the belief that life would unveil itself in a very specific, predictable order.

“Older generations would have an order of operations on how they wanted to do things – get married, buy a house, have children, save for retirement. Now we’re seeing that be more fluid,” Pereira states in the article.

Home ownership, the article continues, may be less of a priority for younger folks given the “eye-watering prices, rising interest rates and high levels of student debt.” Saving for retirement, the article warns, may also have “dropped down the list” for younger folks, replaced by “saving for a series of sabbaticals or travel breaks from work.”

The article suggests that another old boomer retirement target – having 70 per cent of your pre-retirement income as retirement income once you are 65 – may no longer work, given that many people plan to work longer or have more expensive plans for when they retire.

The article casts doubt on what our Uncle Joe used to say – bank 10 per cent of what you make and live on the rest.

“As for saving 10 per cent from every paycheque, that may not work for people with fluctuating salaries. Sometimes they’ll need to use everything they earn, and at other times they’ll be able to save more than 10 per cent,” the article states.

As for the investing rules of thumb, states Rod Mahrt of Victoria’s Wellington-Altus Private Wealth in the article, “we reached the conclusion that the traditional 70/30 (equity/fixed income) asset allocation that worked so well for past generations is not going to work for today’s generation. It’s not going to work for the next 30 years. It’s not even going to work for the next 10 [years].”

Mahrt tells the Globe that bonds have had a rough patch of late, and that there may be safer investment havens with real estate, infrastructure and “low volatility hedge funds.” Today’s young investors may also be interested in “purpose-driven” investments that benefit society or the environment.

The article concludes by saying that while some elements of the boomer plan – like having an emergency fund – still make sense, it’s important for boomers to share their money experiences with their kids (good and bad) so they can develop their own plans based on their own needs and today’s market and economic conditions.

The key takeaway, at least from a boomer perspective, is that having an individualized plan is better than going by rules of thumb. The article stresses the importance of getting professional help with money management, which is also good advice.

If mom and dad’s money rules don’t work, the article suggests, develop some of your own rules that do.

Putting off retirement saving until later can work, but you’ll have to put away a lot more in the run-up to retirement than you will when it is three or four decades down the road.

If you can’t afford an Uncle Joe 10 per cent rule, try five per cent, or two per cent. Start small and ratchet up when you can. Investing for retirement is a long-term proposition so the earlier you start, the better, even if it is with a relatively small monthly contribution.

Managing the investment of your retirement savings is something that the Saskatchewan Pension Plan can do for you. SPP’s Balanced Fund’s asset mix is frequently adjusted to keep your savings growing regardless of market ups and downs. Check out this made-in-Saskatchewan retirement savings solution today!

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By now, any of us who drive a gas-powered vehicle are experts in what inflation means. It’s when something that cost $60 in the winter costs $100 five months later.

Are there any tactics we can employ to help spending our hard-earned/hard-saved dollars more effectively during this crazy period of runaway prices? Save with SPP took a look around to see.

An article from Global News discusses the plight of mostly retired Mike and Marylou Cyr of Campbell River, B.C.

They are, the article notes, living on a fixed income consisting of workplace pensions and government benefits (the Canada Pension Plan and Old Age Security), Mike is still working a little. The couple looked first at reducing the costs of their insurance premiums, and switching to a cheaper telecom plan, the network reports.

With gas prices jumping $50 a tankful, the couple is now planning to sell off one of their vehicles and sharing the other, Global tells us. The other big jump for their spending is food, which has gone up more than $100 a month already, the article reports.  “I am very concerned with the inflation, the rising food costs, as well as the rising gas costs. I think those are two main things,” states Marylou Cyr in the article.

So to fight that, the Cyrs are growing their own veggies and have four laying hens to supply their own eggs, the article says.  “Maybe I’ll start canning again like our parents and grandparents did and store everything for the winter,” she tells Global. “If I could get a cow in the yard, I might do that, but I can’t.”

OK – trim insurance, telecom, go to one car, and grow your own food. Run some cattle if you can. What else can a person do?

According to CTV News, there are other ways to save on food. The network says folks are trying to buy grocery items that are on sale, buying items you use regularly in bulk, and targeting the groceries you use up rather than those you often throw out are good approaches.

Another way to save is through pooling costs, states University of Saskatchewan associate professor Stuart Smyth in the CTV report. “For example, (if) you’re buying 20 pounds of meat, but you’re splitting that up between three to four households, you’re saving some money that way,” he tells CTV. He underlines the importance of being a little more selective in shopping – target items that you tend to fully consume, rather than those you wind up throwing out. (An example in the Save with SPP home is yogurt; we always buy some because it is supposed to be good for us, and then almost never eat any before it expires.)

In addition to gas and food, other categories of consumer goods have been affected mightily by inflation, reports the Globe and Mail.

Meat is up 10.5 per cent versus 2021, and surprisingly, meat alternatives “like faux burger patties or plant-based ‘chicken’ nuggets” are 38 per cent more expensive than meat, the Globe notes.

Household appliances are up 23 per cent over the last two years, the article continues, and buying a typical soup and sandwich lunch “costs nearly $18 on average, up 24 per cent.” Other items that are particularly impacted by inflation include the cost of new homes and of housing in general.

We can’t fully protect ourselves from inflation. Following some of the steps outlined in these reports will at least help trim your spending.

Tips from Save with SPP’s own experience include shopping for clothes at consignment stores – you always pay less than at retail stores – and trying to brown bag lunch rather than having that $18 soup and sandwich. Friends like making fun of our $4 sand wedge from Value Village, but it gets us out of the bunkers right enough. All of these steps can help you save a few dollars, perhaps even enough to put away for retirement.

It’s interesting to read associate professor Smyth’s description of pooling purchases of meat. The same concept of “pooling” is a key way that the Saskatchewan Pension Plan reduces investment costs for its members. If you buy a stock on your own, there’s a fee for buying it and later, a fee for selling it. There might also have been annual fees to maintain your account. With SPP, you pool your savings with those of others in one big fund. That lowers the management costs to less than one per cent. It’s a great way to save on the cost of investment management, and SPP has an outstanding track record of steady investment returns. Check out SPP – available to all Canadians with RRSP room – today!

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End RRIF mandatory withdrawals, RRSP end dates, and create national RRSP: Pape

Well-known financial author Gordon Pape has been observing the Canadian investment and retirement savings system for many decades, and has come up with a four-point plan to make retirement more effective for Canada’s greying population.

Writing in the Globe and Mail, Pape observes that there are now seven million Canadians aged 65 and over.

“This has the makings of a massive demographic crisis,” he writes. “Where are the future workers going to come from? Who is going to support our rapidly aging population? What will happen to the tax base as people leave the work force and reduce their spending?”

He then suggests that one way to address the problem would be to encourage more Canadians to work past age 65, a plan that would “require a massive overhaul of our retirement system,” but that is “doable.”

As a starting point, he notes that the trend towards more working at home, born from our experiences with the pandemic, may be a good “carrot” for encouraging older Canadians to keep working. Working from home is preferable for most, he says.

But other carrots are needed as well, he writes.

Eliminate mandatory RRIF withdrawals: Currently, he writes, registered retirement savings plans (RRSPs) must be “wound up by Dec. 31 of the year in which you turn 71,” and are then mostly converted into registered retirement income funds (RRIFs). With RRIFs, he explains, you are required to withdraw a minimum amount annually, an amount that grows until you are 94 and must withdraw 20 per cent of the RRIF.

“RRIF withdrawals are a huge disincentive to work after age 71. Added to regular income, the extra RRIF money can quickly push you into a high tax bracket,” Pape writes.

“The solution is legislation to end mandatory withdrawals entirely. Let the individual decide when it’s time to tap into retirement savings and how much is needed. The government will still get its tax revenue. It will just be delayed a few years,” he posits.

End RRSP wind up at 71: A second “carrot,” he writes, would be to change the age that RRSPs must be closed, currently age 71. Why, asks Pape?

“RRSP contributions are tax deductible. Making RRSPs open-ended would therefore create an incentive to continue saving in later years, when people may have more disposable income (no mortgage, kids moved out). That would result in more personal savings, which should result in fewer people requiring government support in later years,” he writes.

Create a national RRSP: Pape proposes that a national RRSP – to be run by the Canada Pension Plan Investment Board – be created. “It would provide Canadians with first-rate management expertise, at minimal cost,” Pape writes.

This idea is needed, Pape says, because many people don’t know how to invest in their RRSPs and lack the advice they need to do so.

Allow CPP and OAS to be deferred longer: His final idea would be to allow people to start their Canada Pension Plan and Old Age Security later than the current latest age, 70. Again, this is to accommodate folks who want to work longer and don’t need the money as “early” as 70.

These ideas all make a lot of sense if the goal is to help people working longer. The idea of being able to withdraw RRIF funds as needed rather than based on a government mandatory withdrawal table is sensible. After all, who wants to withdraw money – effectively selling low – when markets are down? And if one is working into one’s 70s, why take away the effective tax reduction lever of RRSP contributions?

Let’s hope policy makers listen to some of Pape’s ideas. Gordon Pape spoke to Save with SPP a while ago, and he knows his stuff. He also spoke with our friend Sheryl Smolkin in an earlier Save with SPP column.

If you don’t have a workplace pension plan, investing on your own for retirement can be quite daunting, especially in times like these where interest rates are rising and markets are falling. Fortunately, there is a way to have your money professionally invested at a low cost by money managers who know their way around topsy-turvy conditions – the Saskatchewan Pension Plan. You’ll get professional investing at a low cost, and over time, your precious retirement nest egg will grow and be converted to an income stream when the bonds of work are cut off for good. Check them out today!

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Having a withdrawal strategy should help your savings withstand inflation: McGugan

Reporting for the Globe and Mail, columnist Ian McGugan says retirees living off a nest egg of money need a strategy to cope with inflation.

“Unlike a truly rare disaster such as a global pandemic, the current inflationary outburst resembles a muted replay of the 1970s – and retirement planners have long used strategies designed to soldier through such episodes,” he writes.

He notes that a key tactic is the “four per cent rule,” developed by financial adviser William Bengen in 1994.

The rule, McGugan explains, “holds that a retiree planning for a 30-year retirement can safely withdraw an inflation-adjusted four per cent of their starting portfolio each year without fear of running out of money.”

Bengen, the article continues, based his formula on a “U.S. retiree with a portfolio split evenly between bonds and stocks,” and his research showed that even during the Great Depression, the Second World War or the “stagflation” period of the 1970s (a long period of very high, stubborn inflation), the four per cent rule would have worked.

Some industry observers, notably Morningstar, advise a lower withdrawal rate of 3.3 per cent, in light of “how bond yields have fallen,” he reports. Others say you could go up to 4.5 per cent.

McGugan notes that economist Karsten Jeske found “no strong relationship between prevailing levels of inflation and future safe withdrawal rates.”

He is more concerned, McGugan reports, about stock valuations as a problem for retirees.

“When stocks are expensive compared with their long-run earnings – as they are now – retirees should be cautious about how much they withdraw from their portfolio because high valuations are usually a sign of lower stock-market returns to come,” the article notes.

When talking about withdrawal rates, we should qualify the discussion by saying that certain retirement savings vehicles, such as registered retirement income funds (RRIFs), set out a minimum amount you must withdraw each year. When you look at the rates, you’ll notice they start out at four per cent when you’re 65, but gradually increase over time. If you make it to 95, the minimum withdrawal rate jumps to 20 per cent.

But if your savings are in a Tax Free Savings Account or any non-registered vehicle, the four per cent is worth consideration. We are all used to getting a steady paycheque, usually every two weeks or twice a month. If you got all your pay in January, you’d have to figure out a way to make it last so you don’t run out with a month or two left in the year. The four per cent rule is a way to make a lump sum of retirement savings last for the long haul.

The way that people used to deal with volatility in stock prices was to invest in bonds and stocks equally, as the article describes. Because interest rates have been low for decades, and bond yields have declined in recent years, modern “balanced” funds tend to add in some bond alternatives that deliver steady, bond-like income, like real estate, infrastructure and mortgages. If stocks pull back, these sources still generate reliable regular income.

A good example is the Saskatchewan Pension Plan’s Balanced Fund. The asset mix of the fund includes not only bonds, but real estate, mortgages, infrastructure and money market exposure, as well as Canadian, U.S. and international equities. This multi-category investment vehicle is a fine place to store your retirement nest egg. Check out SPP today.

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It’s clear that the pandemic – which we all hope is entering its final phase – has made many Canadians rethink the idea of living in a big, crowded, city.

But, as people sell their condos and townhouses and move to larger living spaces in the nation’s smaller towns, cities, and rural areas, experts are predicting this mass migration may cause problems in the labour market.

According to a report by Julie Gordon of Reuters, published via Yahoo! News, “the pandemic-driven exodus… has depleted a core age group of workers from the already tight labour market.” This, her story explains, may drive up wages as companies struggle to replace these “missing” job seekers.

The folks leaving the cities are typically younger people with young children, the report notes. The exodus, she explains “has shifted mid-career workers – a key segment of the labour force – out of big cities, making it difficult to find established talent in sectors where in-person work is essential or preferred.”

The article notes that most people leaving are in their 30s and 40s – Vancouver saw 12,000 people leave the city in 2021, Montreal lost 40,000, and Toronto witnessed an eye-popping 64,000 people moving away.

It’s not just the pandemic that’s prompting people to pack up. The cost of housing is another huge factor. The average Toronto condo costs $1.2 million, while the average price for a detached house in the Ontario suburbs is “just” $800,000, the article notes.

A report in the Globe and Mail notes that nationwide, 3.8 million of us – or about one in 10 Canadians – are living in smaller urban centres.

Smaller centres are benefitting from the urban exodus, the article reports. Over in B.C., the city of Squamish has grown by an amazing 21.8 per cent in one year, and now has more than 24,000 new citizens. Other small centres experiencing big growth are the Ontario towns of Wasaga Beach, Tillsonburg, Collingwood and Woodstock.

“With the pandemic, the capacity of Canadians to do more (remote) work has certainly encouraged some Canadians to really move to these smaller urban centres and leave maybe larger urban centres,” states Laurent Martel of Statistics Canada in the Globe article.

A CTV News report says it’s not just affordability and a healthier, more open space that is attracting Canadians to rural areas.

“We’re seeing small cities, including small cities outside the orbit of large metropolitan areas showing some robust growth,” Tom Urbaniak, political science professor at Cape Breton University, states in the CTV report.

“This signals to me that Canadians are looking for some flexibility, places reputed for their quality of life and are finding it easier to work from different places.” In fact, the article adds, for the first time in more than 40 years, the Maritimes’ population grew at a faster clip than the Canadian Prairie Provinces.

Getting back to the land can breathe new life into smaller communities. Consider the wonderful efforts of Brad and Kendal Parker in restoring a 107-year-old farmhouse in rural Harris, Sask.

The CBC reports the Parkers left Saskatoon and took on the renovation of an old farmhouse that had been boarded up for 70 years.  Descendants of the folks that originally built the house in 1915, the Parkers say, are thrilled the old place is getting a new lease on life.

“It’s really something. One of the grandchildren shared a painting with me of the original homestead,” Kendal Parker tells the CBC. “They tell me it’s so wonderful this house is coming back to life and to have children running around.”

Building a new home is great, and so is building a retirement future. The Saskatchewan Pension Plan can help with the latter goal. It’s a great resource for anyone who doesn’t have a retirement program at work – or does, but wants to augment it. You can contribute up to $7,000 a year towards your retirement future through SPP! Check them out today!

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Few Canadians “defer” their Canada Pension Plan or Old Age Security to a later start date

Writing in the Globe and Mail, Patrick Brethour reports that “only a tiny fraction” of Canadians are deferring public retirement benefits like the Canada Pension Plan (CPP), “a decision that could cost each of them tens of thousands of dollars in foregone payments.”

You can collect CPP as early as age 60, but can defer receiving it until age 70, he explains. While CPP benefits are reduced if you start collecting them while you are age 60 to 64, “CPP benefits increase by 0.7 per cent for each month of deferral past age 65, hitting a maximum increase of 42 per cent at age 70.”

You can also defer your Old Age Security (OAS) payments, he notes.

“Deferring the OAS is slightly less lucrative, with those payments rising by 0.6 per cent for each month of deferral, to a maximum of 36 per cent at age 70. A person who was eligible for the maximum regular payments under CPP and OAS and who opted for a full five years of deferral would receive an additional $10,168 a year excluding clawbacks, based on current rates,” he writes.

Citing data from Employment and Social Development Canada, the Globe report notes that 62 per cent of us start our CPP while age 60 to 64. Twenty-seven per cent start it at age 65. Seven per cent start it while age 66 to 69, and just four per cent start it at 70.

For OAS, “the picture is even more lopsided,” as almost no Canadians defer their payments – 93.6 per cent of us start it at 65.

So why aren’t more people deferring until age 70 (and getting up to $10K more per year), as experts like Dr. Bonnie-Jeanne MacDonald have urged?

The article cites several reasons for not waiting – many “can’t afford the delay,” and start receiving benefits as soon as they can. For poorer Canadians who lack other retirement savings, the federal payments are “a lifeline,” the article notes, adding that senior poverty rates for Canadians “fall as they enter their 60s” due to receiving CPP and OAS.

Next, if you don’t expect a long life, deferring the benefits is a poor idea. Save with SPP has had relatives and friends who passed away before even reaching age 70.

Finally, those of us still working as we hit age 65 tend to opt to receive CPP, because if we don’t, we still have to pay into it without getting any additional benefit from it.

Save with SPP’s circle of friends and family is split on this issue. Those without workplace pensions took CPP as soon as it started. Some who did have a pension started it at 60, asking “why leave money on the table?” Others with workplace pensions that have a “bridge” benefit (which ends at 65) have long planned to start CPP and OAS when the bridge benefit ends. We have one friend who started CPP at 60 and is now about to turn 67 and is still working (and still paying into CPP). We have one relative who plans to take her CPP at 70 to max out the benefit, even though she is not working steadily at the moment.

It would seem it’s a personal choice for most people, based on their unique financial circumstances. The one important takeaway here is simply to know that you do have the option to get a bigger payment if you choose to start it later.

The Saskatchewan Pension Plan allows you to collect your benefits at any time you choose between age 55 and 71. The SPP’s Retirement Guide provides full details on your options for your SPP account when it comes time to retire, including SPP’s range of lifetime annuities. And you don’t have to stop working (as is the case with most company pension plans) to start collecting SPP! Be sure to check out SPP today.

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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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Are you in the market for a mortgage and you’re not sure which one to take out? In this article we’ll look at the difference between collateral and conventional mortgages, so you can decide which one is the right one for you.

Collateral Mortgages

A collateral mortgage lets you borrow more money than your property is worth. A mortgage lender is able to do that because a collateral mortgage re-advances. This allows you to borrow additional funds as needed without needing your break your existing mortgage contract.

This is accomplished by registering a lien against your property. Lenders will register a lien for up to 125% of your property’s value. For example, if your home is valued at $700,000, you could register a lien for a maximum of $875,000.

When the charge is registered, you can leverage the equity as needed. The simplest way to do that is by setting up a Home Equity Line of Credit (HELOC). HELOCs are a lot like mortgages. HELOCs offer a way to borrow money cheaply, but with even more flexible repayment terms. With a HELOC you’re able to make interest-only payments on your mortgage to minimize your cash flow.

You could also set up a readvanceable mortgage whereby the credit limit on the HELOC increases as you pay down your mortgage. You could use the extra equity to finance home renovations or to buy your next investment property.

Conventional Mortgages

A conventional mortgage is the mortgage you probably already know. When you put down at least 20% on a property, you’re eligible for a conventional mortgage. This is different than an insured mortgage when you put down less than 20% on a property.

Since you are putting down at least 20% on the property, you’re able to borrow at least 80% of its value with a conventional mortgage. The value of your property is based on how much it’s appraised for.

If it’s appraised for more than you paid, you can borrow based on the purchase price. However, if it’s appraised for less, you can only borrow based on the appraised value and you have to make up the rest from your own pockets if you want to still put at least 20% down.

If cash flow matters most to you, the 30 year amortization makes the most sense. Otherwise, if rate matters the most, the 25 year amortization is usually the way to go.

This post was written by Sean Cooper, bestselling author of the book, Burn Your Mortgage. Sean is also a mortgage broker at mortgagepal.ca.