When you think of retirement from a woman’s point of view, you see an array of challenges.

Writing in the National Post Christine Ibbotson observes that women “tend to live longer than men, and many divorced women or widows are simply choosing to remain single in retirement.”

This creates a “unique challenge” for them, she continues. “Many retired women receive much less than their male counterparts. Often, women have not worked the same amount of years as men, or have earned less income during their working careers, and therefore do not receive the same pension benefits.”

As well, Ibbotson continues, women may tend to be more “risk averse” with investing. Recent research from BMO found that “men were more likely to hold stocks and mutual funds in their investments whereas women were more likely to hold guaranteed investment certificates (GICs).”

An infographic from Eckler Partners provides more details on these factors.

In 2017, a woman could expect to live to age 83 on average — for men, the number is 79, the article notes. Sixty-two per cent of women were likely to take a break from work to care for their kids, compared to only 22 per cent of men, the Eckler research continues.

Scariest of all — 51 per cent of Canadian woman “haven’t even started to save for retirement or know how much they plan to save,” the article notes. A whopping 92 per cent of women surveyed say they have “minimal or no knowledge of investment.”

So, to sum it up, women — who live the longest — earn, on average, just 69 cents for every dollar men earn in Canada, Eckler reports. That means they have less money to save for a retirement that is almost bound to last longer than a man’s.

An article from the Wealthtender blog expands on the idea about women earning less than men, and its impact on retirement saving.

The article cites Merrill Lynch research in the U.S. as noting that “when a woman reaches retirement age, she may have earned a cumulative $1.05 million less than a man who has stayed continuously in the workforce.”

This necessarily means there is substantially less money to save for retirement by women, the article adds.

An article from Kiplinger suggests that women take a good look at annuities when they retire.

Noting that women earn less, and thus get lower government retirement benefits, the article underlines the idea that “women live longer, so their savings have to last longer.”

While the article is written for a U.S. audience, it makes the point that through an annuity, savings can be turned into “a guaranteed stream of lifetime income, paid monthly, no matter how long that is… in other words, a woman can use it to create a private pension.”

The article quotes University of Pennsylvania economist David Babbel as recommending that lifetime annuities should “comprise 40 to 80 per cent of their retirement assets.”

What can women do to close the retirement savings gap — apart from considering annuities?

Ibbotson recommends they “start by educating” themselves… “when we know more, we make better decisions and feel more empowered to improve our situation.”

“Start to know what your financial picture looks like. Buy a notebook and create a budget — your new financial plan,” she writes. Financial advisers and accountants are recommended, she writes, and your retirement savings portfolio needs to be designed “to grow with products that that offset inflation and taxes.”

The Wealthtender article adds a couple of other good points.

Focus on increasing financial literacy, the article suggests, by reading financial blogs, listening to related podcasts, and watching online videos on the topic of personal finance.

As well, the article concludes, women should focus on the future.

“Acknowledge early on that you may spend a big part of your life on your own, so always make saving one of your biggest priorities. Even if it’s just saving an extra $50 extra per month or increasing… your contribution by one to two per cent, the money can really add up over time.”

If you have a pension plan at work, be sure to join up, and participate to the max. Many plans will allow you to do “buybacks,” and make contributions after you are back at work for periods when you were away. This can really help fatten up your future pension cheque.

If you don’t have a pension plan at work, a great program to know about is the Saskatchewan Pension Plan. It’s open to any Canadian with registered retirement savings plan (RRSP) room. Your contributions are invested in a pooled fund, featuring low-cost expert management. When it’s time to retire, SPP will help you turn your savings into retirement income, including the possibility of a lifetime annuity.

And now, there are no limits from SPP on how much you can contribute each year, or transfer in from an RRSP. You can contribute any amount (up to your available RRSP room) and transfer in any amount from your RRSP. The possibilities are limitless!

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Higher interest rates spell trouble in ’23 for borrowers

A wise colleague once told us that debt was “the slayer of retirement dreams.”

And, according to an article by Pamela Heaven in the Financial Post today’s rising interest rates are giving that slayer even more teeth.

The article notes that at least one more rate hike is expected from the Bank of Canada early this year, which will bring the policy rate to 4.5 per cent. That compares to a rate of 0.25 per cent at the beginning of 2022, the Post reports.

The article quotes a TD Economics report that suggests that the impact of a rising policy rate for Canadian borrowers has “only just begun.” That’s because there is usually a lag between the start of higher rates and the end of a mortgage period or car loan, the article explains.

“Debt service costs rise with a lag as mortgages and loan payments are renewed at current market rates,” state the authors of the TD Economics report in the article.

While household debt levels actually dipped during the lockdown years of the pandemic, they are experiencing a sharp rise today, the article notes.

“Canadians who piled on debt when it was cheap now have to contend with interest payments on debt that is more expensive, and could get even more so,” the article adds.

“Up to 18 per cent of fixed-rate mortgages come up for renewal (this) year and borrowers looking to renew will be facing the highest interest rates in 20 years,” the article says, again quoting the TD Economics report.

“In the third quarter of (2022), a borrower who took out a $500,000 mortgage in 2017 was paying $700 more a month on renewal,” notes the TD report.

Well, one might think, it’s good that we all saved so much money during the pandemic’s lock-downiest days, right?

“One bright spot is the personal savings that Canadians accumulated during the pandemic, which could provide a cushion to rising debt costs. However, with interest rates expected to remain at higher levels over 2023, TD expects much of these savings will go to paying debt costs,” states the article.

If there is any positive news about higher interest rates, it’s the fact that Guaranteed Investment Certificates (GICs) are suddenly looking more attractive.

Writing in The Globe and Mail, noted columnist Rob Carrick asks why people are risking investment dollars in the volatile stock market when GICs and other fixed-income investments are offering interest rates close to five per cent.

“In the low-interest decades of the past, stocks were essential to reach your investing goals. But with 5-per-cent returns available from both bonds and GICs, how much do investors need stocks?” he asks.

It will be interesting to see, as we move along in 2023, whether more investors do begin to shift some of their investments towards less volatile fixed-income. Save with SPP can remember that crazy days of the late 1970s and early 1980s when interest rates were in the teens, and you could expect 18 per cent interest on a car loan. It doesn’t seem (today) like we are anywhere near those bad old days — thank heavens!

A balanced approach is usually a wise one when it comes for investing, and members of the Saskatchewan Pension Plan are aware of the “eggs in different baskets” nature of the SPP Balanced Fund. Looking at the asset mix of this fund, it appears that 40 per cent of investments are in Canadian, American and global equities, and the rest is in bonds, mortgages, private debt, short-term investments, real estate and infrastructure. Keep your retirement savings in balance, and check out SPP today!

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Avoiding the top 10 mistakes in retirement

Writing in the Times-Colonist, wealth advisor/portfolio manager Kevin Greenard highlights 10 things that can go wrong for retirees – and steps you can take to avoid those problems.

It’s critical, his column begins, to “not underestimate” the impact of inflation on retiree purchasing power. With inflation recently running as high as 8.1 per cent, he recommends “determining an appropriate asset mix, an optimal number of holdings and position size, ensuring appropriate diversification to manage concentration risk, taking a disciplined approach to rebalancing, and managing your time horizon for investing.” In other words, account for inflation in the design of your investment portfolio.

Next, he talks about longevity – you need, he writes, to factor in the possibility that you may live as long as, or longer, than your parents. “If you have one, or both, parents who lived well into their 90s, or are alive and in their 90s, then it’s prudent to plan that you too will live into, or past, your 90s,” he writes.

Greenard says his firm always assumes a conservative future return rate of four per cent. If you withdraw funds assuming a rate of return that is too high, you can deplete your money too quickly and have little to no money left 25 years into retirement.

He also talks about the risk of being “too conservative” with investments. Those of us who “store cash under the mattress” or invest only in safe, interest-bearing investments like Guaranteed Investment Certificates can actually lose money over time compared with those who take a little more risk with their asset mix. “The key is to find a happy medium that you are comfortable with, and invest only in good quality, non-speculative investments,” Greenard writes.

It’s a fine line, he adds – those who take on too much risk can also have problems. “We have seen many scenarios where significant sums of money have been lost as a result of investing in speculative, high-risk holdings, or having not managed concentration risk by holding excessive position sizes,” he explains.

Other problems that can be addressed include a lack of communications about retirement goals, failure to map out cashflow needs, and not starting a retirement savings plan early enough.

“If you have put off saving for retirement, we encourage you to start today. To benefit from compounding growth, the sooner you can start, the better off you’ll be for it in the long run,” he advises.

His final points are the importance of having an estate plan and a “total wealth plan,” as understanding your overall wealth goals will make planning the retirement component much easier.

Greenard makes some very good points in this column. We have neighbours and friends who over-decumulated from their retirement savings in the early years of retirement and had to either go back to work or adjust (downward) their lifestyle costs.

The best advice we ever received about retirement income was to do a “net to net” comparison, work income versus retirement income, which ties in to what Greenard writes about knowing your cash flows.

When you factor in the lower taxes you pay when retired (generally), and the fact that you are no longer paying into the Canada Pension Plan, Employment Insurance, a workplace pension or other retirement arrangements, you may find like we did that the income “gap” between working and retiring isn’t as huge as a “gross to gross” comparison might suggest.

If you haven’t started saving for retirement, the Saskatchewan Pension Plan is a resource you need to be aware of. SPP is an open defined contribution pension plan that any Canadian with registered retirement savings plan room can join. Once you are an SPP member, you can contribute any amount annually up to $7,000, and SPP will prudently invest your savings at a low cost. At retirement time, SPP have several income options, including an in-house line of lifetime annuity payments. Check out SPP today!

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Rising interest rates herald the return of annuities, guaranteed investment certificates (GICs)

The prolonged period of low interest rates we have been experiencing up until recently sort of took the bloom off the rose for interest-related investing, such as via GICs and their income-producing cousin, the annuity.

But, writes Rob Carrick in the Globe & Mail, the current rising interest-rate environment may give these old investment friends a new lease on life.

“Annuities are insurance contracts where you turn a lump sum of money over to an insurance company in exchange for a guaranteed stream of monthly income for as long as you live. In a world where a majority of workers do not have pensions, annuities address the fear of running out of money,” he writes.

Higher interest rates are great news for annuity buyers, because the higher rate means your annuity will provide a higher monthly payment.

“The improvements in monthly income from annuities over the past 12 months can be seen in the following examples of $100,000 annuities in a registered account, with payments guaranteed to last 10 years even if you die sooner (the money would go to your estate or beneficiaries),” the article notes. Data, the article tells us, was supplied by “ Rino Racanelli, an insurance adviser who specializes in annuities.”

Improvements for annuity income on $100,000 over just the pay year are quite impressive, the article notes. A 65-year-old woman would now get “$550.88 a month, up 15 per cent from $478.90 12 months ago,” Carrick writes. For men aged 65, it’s a jump to $589.75 a month, “up 15.6 per cent from $510.10 12 months ago.”

Carrick writes that some folks shy away from annuities because you have to give up a large lump sum to get the monthly payment. “Solution,” he writes, is to “use an annuity for just part of your retirement income.”

Racanelli tells the Globe that “interest in annuities has increased lately, but some people are waiting for higher rates to lock money in.”

The GIC was a “go-to” investment for boomer parents back in the 1970s and 1980s, when interest rates were in the teens.

“As of the end of June, GIC rates were as high as 4.15 per cent for a one-year term and five per cent for five years,” he writes.

With a GIC, your money is locked up for the term of the contract, typically, one, two, three, four or five years. You receive regular interest payments which compound, typically monthly, so your GIC can really only go up in value. Few people looked at the GIC when they only offered one or two per cent interest rates, but they are now becoming more popular, the article suggests.

Did you know that the Saskatchewan Pension Plan offers a variety of annuity options for retiring members? According to the Retirement Guide, you can choose either a life only annuity (pays you for life, no survivor or death benefits), a refund life annuity (life income for you, but there can be a payout to survivors if you die before receiving your total annuity purchase amount) and a joint and last survivor annuity – lifetime income for you, and lifetime survivor pension to your surviving spouse upon your death.

Annuities may make sense for some of your money at retirement – you’ll get a lifetime income stream and can choose options to look after your survivors. It’s just another way the SPP provides its members with retirement security.

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Financial author Kelley Keehn thinks women need to be in charge – not unwilling passengers – when it comes to steering their financial ships of state.

Her well-written (and entertaining) book, Rich Girl, Broke Girl provides step-by-step directions to help women gain control over debt, day to day expenses, investing and of course, retirement savings.

As the book opens, Keehn notes that while most women are told they can “financially achieve anything, dream as big as any man, accomplish anything,” they often get blamed if they fail, and are told to leave finances to “someone else in (their life),” or to “marry rich.”

The stats, she writes, show that many women don’t like others being in charge of their money. A full two-thirds of women “whose partners are the primary breadwinners feel trapped,” Keehn writes. “Seven in ten women wish they had more power in their financial futures,” she continues. “Sixty-four per cent of women wish they had their own money set aside just in case.”

She then tells the story of “Mack,” a young woman who tried to strike out on her own, but lacked financial knowledge, didn’t know the cost of things, tried to live an impossibly unaffordable life, blew her credit on a single trip, then got behind and didn’t ask for help, ultimately forcing her to move back home.

An “anti-budget,” Keehn writes, is the solution here. Track every dollar, categorize spending, multiply expenses by 12 to create an annual budget, and then “trim the excess… (and) reallocate.” Fictional Mack could save $3,255 a year, writes Keehn, by saving just 50 per cent on her discretionary expenses.

The book looks at the ins and outs of credit, and then, cohabitation.

“Have the money talk with your partner early,” Keehn advises. If your partner is a saver, and you are a “live for today” spender, that collision of views could harm the relationship, she notes.

There’s a great, detailed overview of investing, which looks at cash, fixed income and equities, as well as other investment vehicles. Keehn recommends a diverse approach to investing. Don’t invest in just one stock, but a diversified portfolio, she explains. Understand the risks of equity investing, but don’t fear them and put all your money in fixed-income, Keehn adds.

She explains the difference between buying stocks and bonds yourself versus buying units in mutual funds – the latter can have high fees, she warns.

Keehn points out how even the modest inflation we’ve experienced in the past five years can “erode your wealth.”

In the section on tax shelters, Keehn says it is best to think of registered retirement savings plans (RRSPs) and Tax Free Savings Accounts (TFSAs) “as an empty garage. You have to put “cars” (investments) into them, and depending on the rules of the tax shelter, there are different perks and penalties.”

With both, you can invest in a “plethora” of different vehicles, from “guaranteed investment certificates (GICs) and savings accounts to stocks, bonds, exchange-traded funds (ETFs), mutual funds and more.” Only the tax treatment of the “cars” is different – you get a tax deduction for funds placed in an RRSP, and they grow tax free, but are taxed when you take money out. There’s no tax deduction for putting funds in a TFSA, but no taxes on growth, and no taxes due on any income taken out of the TFSA.

She talks about the need to maximize your contribution to any company-sponsored retirement savings plan, because otherwise, “you are leaving money on the table.”

Keehn offers some thoughts on the idea of paying off mortgages quickly as a strategy – perhaps, she writes, it’s less of a good idea given the current low mortgage rates – if you have debts at a higher interest rate, perhaps they should be targeted first.

She’s a believer in getting financial advice when you run into problems.

“It’s natural to feel ashamed of our money mistakes. However, our problems compound when we can’t manage on our own and don’t seek help. Think of it this way: Would you formulate a health-improvement plan before going to your doctor to see what’s actually wrong with you? Probably not.”

This is a great, clear, easy-to-follow walk through about a topic that many people don’t like to deal with. If you’re living paycheque to paycheque, with no emergency savings, this book offers you a blueprint for getting out of trouble and building financial independence. It’s a great addition to your financial library.

Kelley Keehn spoke to Save with SPP last year and had great additional insights about the stress Canadians feel over money matters.

Did you know that in-year contributions you make to the Saskatchewan Pension Plan are tax-deductible? In 2022, you can contribute up to $7,000 per calendar year, subject to available RRSP room. As the book suggests, funds within a registered plan like SPP grow tax-free, and are taxed only when you convert your SPP savings to future retirement income. Check out SPP today.

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Inflation: a pain for many, but a plus for savers?

Writing for CBC, Don Pittis notes that the return of higher inflation will be both good and bad news for Canadians.

Observing that inflation in the U.S. is running at 6.2 per cent, and that the Bank of Canada’s Governor Tiff Macklem is predicting five per cent inflation here, Pittis writes that “if history is any guide, inflation can lead to turmoil.”

“Those effects include the pain of shrinking spending power, the prospect of labour conflict as employees struggle to get their spending power back, a potential disruption of Canada’s soaring housing market and a reconsideration for older people about how to make their money last through a long retirement,” writes Pittis.

But there can be an upside to inflation for some of us, he continues. He quotes The Intercept columnist Jon Schwarz as stating “inflation is bad for the one per cent but is good for almost everyone else.”

As an example, those saving for retirement will be pleased by higher interest rates, Pittis contends.

“It is clear that those saving for retirement may take a different view, especially as the boomer bulge exits the labour market. Even before the latest round of pandemic monetary stimulus, people contemplating a long retirement complained about a paltry return on savings. With inflation higher than the rate of interest, cautious savers are now watching with horror as their future spending power shrinks,” writes Pittis.

He notes that even as inflation ticks up, “lenders have been handing out mortgages at rates considerably less than the rate of inflation.”

Inflation, the article concludes, may lead to higher prices but also higher wages for workers; Pittis adds that any rise in the Bank of Canada rate won’t be an instant fix for inflation, but the beginning of a process that might take years.

Save with SPP can attest to some of the things Pittis points out by thinking back to the high-interest days of the ‘70s and ‘80s. He’s right to predict higher rates are a plus for savers – we recall getting Canada Savings Bonds that paid double-digit interest with zero risk. The same was true of Guaranteed Investment Certificates (GICs).

There was a positive effect on wages as well. There was federal legislation on wage and price controls that, among other things, limited wage increases to six per cent the first year, and five per cent the second. Six and Five. In the many decades that have come and gone since the old Six and Five days, it is hard to think of a time when people got routine pay raises that were that large.

So while we gripe about higher gas prices and grocery costs, and the jump in the costs of most things due to supply chain issues, this would be a good time to start stashing away a few bucks every payday for your future retirement.

A great destination for those loonies is the Saskatchewan Pension Plan. The SPP, now celebrating its 35^th year of operations, offers a balanced approach to investing. The SPP’s Balanced Fund invests 26 per cent of its assets in bonds, 7.5 per cent in mortgages and 1.5 per cent in short term investments. You can bet the plan’s investment managers are keeping an eye out for growing opportunities in the fixed income sector – and that’s good news for all of us who have chosen SPP to be a part of our long-term retirement savings plan.

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Interest rates have been so low for so long it is hard to remember the long-ago days when everyone had Canada Savings Bonds and/or guaranteed investment certificates (GICs) in their portfolios.

Save with SPP decided to look around to see what the expected rise in interest rates (and inflation) may do with Canadians’ saving plans.

Writing in the Globe and Mail, columnist Rita Trachur explains that one fear that’s out there right now is that Canadians may risk “aggravating inflation by blowing through their savings” as the pandemic (apparently) winds to a close.

She proposes that Ottawa consider bringing back – temporarily – the old Canada Savings Bond program.

“Many of us who are on the wrong side of 40 fondly remember a time when we could make juicy returns by investing in Canada Savings Bonds. Not only were they easy to purchase and risk-free, those paper certificates were oh so cool. Most importantly, though, they taught generations of Canadians how to save,” she writes.

Back in the 1970s and 1980s, when interest rates reached double-digits, Canadians held $55 billion in savings bonds. But they began to wane in popularity, Trachur writes, due to competing products like “GICs, mutual funds, and low-fee trading accounts.”

But with rising interest rates on the horizon, maybe a modern version of the Canada Savings Bond could be relaunched, writes Trachur.

“The bonds should be tax-free and have short investment terms – perhaps one year and 18 months, as examples – to give consumers real incentives to keep stashing their cash over the near term. That kind of flexibility would also give people the ability to reassess their options once interest rates start to rise,” she writes. This type of product would be a safe investment for regular people, she concludes.

Another reason to look at interest-paying investments may be the link between higher rates and lower stock prices, reports US News & World Report.

“When interest rates are low, companies and consumers can borrower cheaply and tend to spend more money, which can boost corporate profits. When interest rates rise, consumers and companies typically curb their spending, which can result in lower stock prices,” the newspaper explains.

A rise in interest rates is also bad for bond prices, the article adds. “Bonds and interest rates have an inverse relationship, meaning that bond prices fall when interest rates rise,” the article explains. “But don’t liquidate your bond positions yet. Experts say bonds still hold value in an investment portfolio.”

It’s a complicated topic, to be sure. The old rule of thumb used to be that your age was the percentage of your savings that should be in fixed-income (bonds, GICs, etc.), with the rest in equity. So if you are 60, the rule suggests, 60 per cent should be in fixed income – the argument being that this would “safen” your overall holdings from some of the ups and downs the equity markets can provide.

Balance is a good thing in investing. The Saskatchewan Pension Plan’s Balanced Fund currently has this asset mix – 50 per cent Canadian, U.S. and non-North American equity, 26 per cent bonds, 7.5 per cent mortgages, 10 per cent real estate, five per cent infrastructure and 1.5 per cent in short term investments. SPP’s managers can switch up this mix to align with changing market conditions, so that all your eggs are never in just one basket. SPP has been helping Canadians save for retirement for 35 years; check them out today!

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By now, practically all of us have heard about “pay yourself first” as a savings strategy.

The general idea is to put away some percentage of your earnings, and then live on the rest. It sounds simple in theory, but in practice, less so. To that end, Save with SPP took a look around the Interweb to get some ideas about how to actually get going on a “pay yourself first” plan.

The folks at MoneySense see several simple steps you need to take to put your plan into action.

First, they suggest, “zero in on your savings goals.” What are you paying yourself first for – to build an emergency fund, or save up for a down payment, or a wedding or (our favourite) retirement, the article asks.

There has to be a reason why you are directing money away from your normal, bill-paying chequing account, MoneySense tells us.

Next, they recommend, take pen to paper and figure out how much you actually can pay yourself first. Make a list of your monthly “must spends,” like “shelter, food, electricity/heat, phone, transportation, etc.,” the article says. What’s left over is “discretionary” money, which can be spent or saved, the article adds.

If you are saving for more than one thing, you need to figure out how much each month to put away for each category. Then comes the actual “doing” part – automating your savings plan.

MoneySense recommends setting up an automatic transfer each month that moves money from chequing into savings. This amount can be increased when you get a raise, the article notes. Savings should be directed to either a tax-free savings account (TFSA), a registered retirement savings plan (RRSP), or a combination of both, the article concludes.

The Oaken Financial blog notes that guaranteed investment certificates (GICs) can be a good place to stash savings. GICs are locked in for a time, but pay a set amount of interest for a fixed term, the blog notes. High-interest savings accounts pay good interest but allow you to make withdrawals at any time, the blog notes.

The Golden Girl Finance blog says there are apps that take the difficult thinking part out of the saving equation. Wealthsimple, the blog notes, allows you to round up your credit card purchases, so you are actually paying a little extra, with that money being directed to your savings account. So you save a little as you spend, the blog notes.

Save with SPP notes that similar arrangements – where you pay a little extra on debit card purchases, or where a money-back credit card deposits the cashback directly to your savings account – exist at other Canadian banks.

Other ideas that have flashed across the screen of late:

• Banking your raise. You were paying off the bills OK before you got the raise, so why not stick the difference between your former pay and your new pay into savings, and live off the rest? You were the day before the raise!
• Banking your cost of living adjustment. Same concept, but for us lucky pensioners who get cost of living increases, why not direct the increase to savings and continue to live on what you were getting prior to the increase?
• Starting small. You may not stick with a pay yourself first plan if it is overly ambitious. Uncle Joe always said bank 10 per cent and live on the 90 per cent; he did, and he did well, but Joe was a very disciplined spender. Better to start smaller, maybe two or three per cent, and phase it up.

So to recap – you either need to know how much you spend each month to figure out how much you save, or you need to just pick an affordable percentage of your earnings and set it aside. Once you have automated the process, you won’t miss the saved amount, which will grow happily in a savings account, a retirement account, or perhaps the Saskatchewan Pension Plan.

Celebrating 35 years of operations, the SPP permits automatic contributions. They can set it up for you, or you can set up SPP as a bill on your bank website and set up the automation yourself. Either way, the money you direct to SPP will be put away for your future, invested professionally, and – grown – will await you after you get home from the retirement party!

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Retirement income will come from many different buckets – so be aware of tax rules

When we are working full time, taxes are fairly straightforward. Our one source of income is the only one that gets taxed. Very straightforward.

It’s a far different story, writes Dale Jackson for BNN Bloomberg, once you’re retired. Income may come from multiple sources, he explains.

“Think of your retirement savings as several buckets with different tax consequences: registered retirement savings plan (RRSP), spousal RRSP, workplace pension or annuity, part-time work income, tax-free savings account (TFSA), non-registered savings, Canada Pension Plan (CPP) and Old Age Security benefits (OAS), and home equity lines of credit (HELOC),” he explains. 

“The trick is to take money from the buckets with the highest tax implications at the lowest possible tax rate and top it off with money from the buckets with little or no tax consequences.” Jackson points out.

A company pension plan is a great thing, he writes, but income from it is taxable. “If you are fortunate enough to have had a company-sponsored pension plan – whether it is defined contribution or defined benefit – or an annuity, you have the misfortune of being fully taxed on withdrawals in retirement,” he explains.

It’s the same story for your RRSP – it’s fully taxable. Both pension income and RRSP income may be eligible for income splitting if you qualify, Jackson notes.

He explains how a spousal RRSP can save you taxes. “If one spouse contributes much more than the other during their working life, they can split their contributions with the lower-income spouse through a spousal RRSP. The contribution can be claimed by the higher-income spouse and gives the spouse under 65 a bucket of money that will be taxed at their lower rate,” Jackson writes.

CPP and OAS benefits are also fully taxed, and the latter can be clawed back in whole or in part depending on your other income, he notes.

Other buckets to consider include part-time work. “More seniors are working in retirement than ever,” Jackson writes. While income is taxable, he recommends that you talk to your financial adviser – there may be work-related expenses that are tax-deductible. And you can always work less if you find your other sources of income are increasing!

Interest from non-registered investments like Guaranteed Investment Certificates (GICs) or bonds is taxable. Dividends on non-registered investments are also taxable, but dividend tax credits are available. You will be taxed on half of the gains you make on investments like stocks (again, if they are non-registered) when you sell, Jackson explains. There’s no tax on interest, dividends or growth for investments that are in a RRSP, a Registered Retirement Income Fund, or a TFSA, Jackson notes.

Tax-free income can come from TFSAs or reverse mortgages and HELOCs, but Jackson warns that “a HELOC is a loan against your own home… you will pay interest when the house is sold or the owner dies.”

The takeaway from all this great advice is this – be sure you’re aware of all your sources of post-work income and the tax rules for each. That knowledge will making managing the taxes on all these buckets a little less stressful.

The Saskatchewan Pension Plan is celebrating its 35^th year of operations in 2021. Check out their website today!

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Bonds have lost their lustre, says pension expert Keith Ambachtsheer

Bonds have long been considered a key component of our retirement savings strategies. After all, equities are more volatile, right?

Pension expert Keith Ambachtsheer, commenting in the Globe and Mail, says bonds are losing their lustre, and are being crushed by today’s low-interest rate environment.

“Twenty years ago, inflation-indexed bonds offered a real yield of 4 per cent,” Ambachtsheer states in the Globe article. “Today their yield is not just zero, but actually negative.”

He calls them “dead weight investments” that “currently have no role” for institutional investors, such as pension plans.

The article presents a graph showing the yields on 10-year Canadian government bonds since 1960. They ranged from just under six per cent yields in the early ‘60s to an eye-popping 17 per cent in the early 1980s, and have slowly dropped ever since. Yields fell below four per cent in 2004 and are approaching zero today, the article’s graph shows.

So if bonds aren’t getting it done in your investment portfolio, what’s a solution for the average guy or gal?

Ambachtsheer tells the Globe that “solid dividend-paying stocks” provide the answer. A heavier percentage of dividend-paying equities is better than the traditional 60-40 stock/bond mix, he suggests.

The Globe article comments on that idea, saying “there are, to be sure, some objections to this viewpoint. One is whether pension funds and individuals are prepared to deal with the occasional but devastating paper losses that go along with holding an all-equity portfolio.”

It seems that many Canadians who normally would invest are sitting on the fence about it.

As we reported in an earlier blog post, Canadians – again according to the Globe and Mail – are sitting on $127 billion, now lying in chequing, savings and Guaranteed Investment Certificates (GIC) accounts and not being invested in either the stock or bond markets.

Rather than picking a day and putting all the money in, portfolio manager Mary Hagerman tells the Globe that a better approach is to invest some of your money at multiple different times.

She recommends “investing excess cash either in regular intervals, such as a set amount each month (known as dollar-cost averaging), or when there are major stock market drops or corrections,” the article states.

“I’m not suggesting people try to time the market, but sometimes the market talks to you and you have to listen,” Hagerman tells the Globe.

So we’re living through a period when the safe harbour of bonds is a dubious choice due to very low interest rates, and when stock markets are very volatile.

For members of the Saskatchewan Pension Plan, it’s good to know that professional investment managers are on the case – they are the ones guiding your savings through these choppy waters. And if you’re interested in a dollar-cost averaging approach, the SPP can help you set up a regular monthly direct deposit, so that you aren’t having to time the market. Check them out today.

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