Experts call for higher RRSP limits, and a later date for RRIFs

Writing in the Regina Leader-Post, a trio of financial experts is calling on Ottawa to make it easier for Canadians to save more for retirement — and then, on the back end, starting turning savings into income at a later date.

The opinion piece in the Leader-Post was authored by William Robson and Alexandre Laurin of the C.D. Howe Institute, and Don Drummond, a respected economist who now teaches at the School of Policy Studies at Queen’s University in Kingston, Ont.

Their article makes the point that our current registered retirement savings plan (RRSP) limits need to be changed.

“The current limit on saving in defined-contribution pension plans and RRSPs — 18 per cent of a person’s earned income — dates from 1992,” their article notes. While that 18 per cent figure may have been appropriate 30 years ago, “now, with people living longer and with yields on safe investments having fallen, it is badly out of line with reality,” the authors contend.

They recommend gradually raising the limit to 30 per cent of earned income through a four-year series of three per cent increases, the Leader-Post article notes.

While an RRSP is for saving, its close cousin, the registered retirement income fund (RRIF) is the registered vehicle designed for drawing down savings as retirement income. The trio of experts have some thoughts about RRIF rules as well.

The current RRIF rules compel us to “stop contributing to, and start drawing down, tax deferred savings in the year (Canadians) turn 71,” the authors note. This rule was also established in the early 1990s, they note.

“As returns on safe assets fell and longevity increased, these minimum withdrawals exposed ever more Canadians to a risk of outliving their savings,” the authors explain. They are calling for a reduction of the minimum withdrawal amount by “one percentage point, beginning with the 2023 taxation years, and further reduce them in future years until the risk of the average retiree depleting tax-deferred savings is negligible.”

OK, so we would raise RRSP contribution limits, and lower RRIF withdrawal amounts. What else do the three experts recommend?

They’d like to see it made possible for Tax Free Savings Account (TFSA) holders to buy annuities within their TFSAs.

“When an RRSP-holder buys an annuity with savings in an RRSP, the investment-income portion of the annuity continues to benefit from the tax-deferred accumulation that applied to the RRSP. But TFSA-holders cannot buy annuities inside their TFSAs, which means they end up paying tax on money that is intended to be tax-free. This difference disadvantages people who would be better off saving in TFSAs and discourages a much-needed expansion of the market for annuities in Canada,” they write.

Save with SPP has had the opportunity to hear all three of these gentlemen speak out on retirement-related issues over the years. They’ve put some thought into providing possible approaches to encouraging people to save more, making the savings last, and to make the TFSA into a better long-term income provider. Under new rules, you can now make an annual contribution to SPP up to the amount of your available RRSP room! And if you are transferring funds into SPP from an RRSP, there is no longer a limit on how much you can transfer! Check out SPP today — your retirement future with the plan is now limitless!

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CPP benefit seen as modest in an environment where many lack workplace pensions

Writing in The Globe and Mail, David Lawrence provides a reality check for those of us thinking federal retirement benefits will cover our retirement costs.

He notes that the maximum benefit available from the Canada Pension Plan (CPP) for a new recipient in 2022 is $1,253.59 per month. But worse, not everyone gets the maximum — Lawrence writes that the average CPP payment this year is a mere $727.61 per month.

The traditional “three pillars” of Canadian retirement, he writes, are changing. While government pensions like CPP and Old Age Security (OAS) provide one pillar, and personal savings another, the third is pensions, which Lawrence says are not generally accessible to those who are self-employed or working on contract.

In fact, many people just don’t have a workplace pension, the article notes.

“While it used to be that clients were maybe worried that their pension wasn’t going to be enough, over the past 15 years we’ve encountered more clients who simply don’t have a pension [through their employer],” Tom Gilman, senior wealth advisor and senior portfolio manager with Gilman Deters Private Wealth at Harbourfront Wealth Management Inc. in Vancouver, tells the Globe.

Those who do have a pension are “more confident” about their retirement cost of living than those without, Gilman states in the article.

He also tells the Globe that your personal “income tax profile” should help you decide whether a registered retirement savings plan (RRSP) is a better retirement savings vehicle for you than the usual alternative, the Tax Free Savings Account (TFSA). Some people need the tax deductions associated with an RRSP more than others, the article explains.

Those who are going to live off their investments need to think about how best to structure their portfolio, states Laura Barclay of TD Wealth Private Investment Counsel in Markham, Ont., in the Globe article.

“For her, the holdings that best mimic a pension plan with stable, long-term payments are high-quality, blue-chip dividend-paying stocks,” the article notes.

Barclay tells the Globe she advises her clients to look for “high-quality companies… with growing earnings,” and that also pay dividends. Diversification is also important, she states in the article.

Harp Sandhu, financial advisor with the Sandhu Advisory Group at Raymond James Ltd. in Victoria, tells the Globe he takes a “tortoise” approach with his own retirement investments — “slow and steady wins the race,” the article notes.

If you are starting to save for retirement while older, don’t pick risky investments with high returns in the short term to try and catch up, Sandhu tells the Globe. Things can go wrong with such investment choices, he tells the newspaper.

If you ever have an opportunity to join a pension plan or retirement savings arrangement through work, be sure to join, and contribute as much as you can. When retirement savings is a deduction from your paycheque, you’ll quickly forget about it and will be happy, when you retire, that you’re getting more than just standard government retirement benefits.

If there isn’t any retirement program available for you, perhaps because you work on a casual or contract basis, the Saskatchewan Pension Plan may be of interest. Any Canadian with available RRSP room can join. If you have bits of pieces saved in multiple RRSPs, you are allowed to consolidate them within the SPP — you can transfer in up to $10,000 per year. Check out SPP today — it may be the retirement solution you’ve been searching for!

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Writer offers six tips on how to achieve financial independence

Financial independence, writes CTV’s Christopher Liew, “is when an individual has accumulated enough wealth or has a passive income stream capable of covering all of their living expenses for the rest of their natural life without needing a paycheque or salary.”

While the idea of never having to work for a living again sort of sounds like full retirement, Liew’s article suggests that this financial independence can be attained through “hard work, planning, and consistent action.”

First, he writes, you need to increase your savings rate.

“Your savings rate is the percentage of your total after-tax income that you save,” he explains. By doing a thorough audit of what you are actually spending your money on, you may be able to find areas where you can cut back, he continues. “By saving more money, you’ll be increasing your savings rate.”

Next, Liew recommends that we start investing early. “Investing your money is one of the most common ways to achieve financial independence,” he explains, adding that “the earlier you start, the better, due to the magic of compounding returns.”

Make sure, the article continues, that you are taking full advantage of your Tax Free Savings Account (TFSA). “TFSA accounts are best used as investment accounts, and none of the earnings within the account are taxable,” he notes. You should also “maximize the value” of your registered retirement savings plan (RRSP) and/or registered education savings plan (RESP).

Another tip is to look for other sources of income, to boost your overall earnings and free up more money for savings, the article notes. These “extra” streams of income can include dividends from investments, freelancing, rental income, starting a business, negotiating a raise, or finding a higher-paying job.

Another great bit of advice in Liew’s article is to “live below your means.”

“If you spend all the money you make, it will be difficult to achieve financial independence. Living below your means can be one way to spend less. For example, if you get a promotion at work and your salary increases, try to keep your spending at the same level instead of immediately increasing your living costs. The value of delayed gratification will mean reaching your financial independence goals earlier,” he writes.

Finally, you’ll have an easier time of achieving financial independence if you have a “like-minded spouse,” Liew writes. If both of you are on the same page, your drive towards financial independence will be doubled, he concludes.

These are all great tips. When we were working full time we did “live below your means” by simply paying the bills based on the prior year’s salary and earnings, and banking the difference. This indeed boosted our pre-retirement savings.

One of the nice features of the Saskatchewan Pension Plan is its flexibility on contributions. You decide how much you want to contribute (currently, up to $7,000 annually) and SPP contributions can be done through pre-authorized debits, can be paid like bills online, and can even be paid using credit cards (including, as we found out, pre-paid gift credit cards). Check out SPP today!

We’d like to extend our happy retirement wishes to Bonnie Meier, Director of Client Service, who steps down at the end of 2022. We all thank her for her many years of dedicated service to SPP, and wish her all the best in the life after work that awaits her!

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We’ve reached that age — early 60s — where we have as many friends and family retired as working. The age-old question posed to us by our younger contacts is simple: what’s it like to be retired, and to not be working?

Well, first off, the only folks we know who are fully retired — meaning, living off a pension and/or retirement savings — tend to be a little older than us. We have an old friend, Bob, who was able to retire at 55 with a workplace pension and told me he has played lots of guitar, golfed, travelled, and apart from being a course marshal in return for discount rounds, has not worked a lick in retirement. He told me he took his Canada Pension Plan (CPP) the month he turned 60. “Why leave money on the table,” he asks.

A couple of golf buddies, who are around the same age as us, are still working away without plans to retire until their 70s. One has lots of savings so the transition won’t be that big a deal, the other doesn’t have savings but can collect a federal government pension and hopes to continue working as a consultant. So, no specific plan to exit the workforce in the here and now, but a general directional plan for five or six years out.

The eldest great-grandma in our tribe is living happily off her savings in a retirement apartment, and has taken up new hobbies and games, and met new friends, while rolling along in her early ‘90s. She is able to collect Old Age Security.

The folks we know around the ‘hood are largely retired government employees or teachers, either living on their own pension or on a survivor pension. Most are doing well and a number of them (enviably) are wintering in sunnier climes.

Apart from one dog-walking friend who retired, ran out of savings, and went back to work, no one we know complains about having a lack of retirement income. This is interesting, since this writer spent much time doing communications support on research about this particular topic.

We don’t find people complaining about their workplace arrangements or government pensions, other than to occasionally grumble that the inflation increase wasn’t very much.

Things fellow retirees have warned us about are coming true:

1. Understand the rules about CPP survivor benefits — you won’t receive your partner’s full CPP entitlement upon their death, but may get topped up to what they were getting. Factor this reality into your income planning.
2. The trickiest part of having multiple streams of income is taxes, and you won’t always be able to offset your tax bill through contributing to a retirement savings program. Figure out a plan for the taxes on your income, even if it is having more taken off at source.
3. A good trick, if you have a registered retirement income fund and must withdraw from it, is to take any money you don’t need and contribute it to a Tax Free Savings Account. Many of our friends say their kids are using TFSAs as a primary retirement savings tool to avoid having their future retirement income taxed. Good for them!
4. Our late Uncle Joe sold his house and then moved into a condo before his early 70s. He then downsized from the condo to a seniors’ apartment. When he went to his reward, there was no house to sell and the related problems, and all his belongings were relatively easy to pack up and distribute. Joe always lived on 90 per cent of what he made, which is also very good advice.
5. If you aren’t doing something other than watching the news, you will have a short retirement. Join new things, meet new people, try something you haven’t, and good times may follow.

The final thing we’ve learned is that worrying about things doesn’t help anyone. On our local news recently, a 111-year-old veteran said his advice was to be happy, and that “if you have a problem, get it fixed” rather than worrying about it. We’ll take his word for it and try to live his example.

The CPP and OAS programs are great, in that they retire you with a basic retirement income, probably enough for core expenses. If you don’t have a workplace pension to augment that government layer, take a look at the Saskatchewan Pension Plan (SPP). SPP has been building retirement futures since 1986, and can help you start saving for the days when work is a memory. Check them out today!

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Could The Great Retirement be followed by the Great Returnship?

Will high inflation, volatile investment returns and soaring interest rates tempt new and recent retirees into “returnship,” or returning to the workplace?

That’s a view expressed in an article by Brian J. O’Connor, writing for SmartAsset via Yahoo! Finance.

“Retirees who find themselves hit by higher prices, lower stock returns and big health care bills might consider boosting their bank accounts by heading back to work – and employers are waiting to welcome older workers back with open arms,” he writes.

“Big health bills” are more of a U.S. problem than one we Canadians face, although long-term care costs can be eye-opening even here.

The article suggests having the option of returning to work could be a “linchpin” for your retirement plan. That’s because your work experience is more highly valued than ever thanks to the lack of new folks coming up the system to fill your job, the article continues.

“These employees are valuable because they are seasoned, and that’s not always easy to find today,” Charlotte Flores of BH Companies states in the article.

The article goes on to note that of the five million Americans who left the U.S. workforce during the pandemic, “more than two-thirds were over 55.” Now there are five job openings for every three U.S. workers.

“Employers are not only eager to hire experienced older workers, but they’re also open to bringing in retirees who’ve been out of the workforce for several years,” the article continues.

This rehiring of otherwise retired workers is called a “returnship,” the article explains. Large U.S. companies, such as Goldman Sachs, Accenture, Microsoft and Amazon have developed “returnship” programs.

“The programs are designed to give returning workers training, mentoring, a chance to learn or brush up on skills and lessons on how to navigate the current work culture. The trend is so strong that there even are “career-reentry” firms that specialize in connecting employers with returning workers, such as iRelaunch, which works with 70 companies offering returnships, including posting openings,” the article states.

Another benefit of going back to work after retirement, the article says, is that you can either “delay or reduce withdrawals from retirement accounts,” a decision that “stretches out your retirement nest egg to lessen your longevity risk.”

Here in Canada, that certainly would be true of any withdrawals from a Tax Free Savings Account or from a non-registered investment account. We have heard of defined benefit pension plans in Canada that permit you to stop receiving pension payments (temporarily) if you return to work – and let you resume contributions. We haven’t heard of there being ways to temporarily pause withdrawals from a registered retirement income fund (RRIF), however.

Many observers here in Canada have talked about making it possible to delay RRIF withdrawals, and continue to contribute to RRSPs, until later in life. Save with SPP spoke to Prof. Luc Godbout on this topic in the spring.

It sure seems like the old days of full retirement – our dad left work at 62 and never did a single lick of work again for the remaining 27 years of his life – may be gone forever. Not saying that’s a bad thing – a little work keeps your mind sharp and social contacts alive – but the concept of full retirement at 65 does not appear to be as likely in the 2020s as it was 30 or 40 years ago.

Whether or not you plan to fully retire in your 60s, 70s or later, you’ll need some retirement income. Most Canadians lack workplace pension plans and must save on their own for retirement. Fortunately, the Saskatchewan Pension Plan is available to any Canadian with RRSP room. This do-it-yourself pension plan invests the contributions you make, pools them and invests them at a low cost, and at retirement, turns them into an income stream. You can even get a lifetime annuity! Check out this wonderful retirement partner today!

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Some clever ways to tuck away more money in your retirement piggy bank

Writing for the GoBankingRates blog, Jami Farkas comes up with some “clever” ways to save more for our collective retirements.

First, the article suggests, use an online calculator to figure out how much you need to save. There are plenty of these, and the Saskatchewan Pension Plan’s own Wealth Calculator can show you how much your savings can grow.

Next, the article urges, make savings automatic. “Don’t give yourself the option of whether to set aside money each month. Automate your savings so it’s not a choice,” the article suggests, quoting David Brooks Sr., president of Retire SMART. This option is available to SPP members too – you can arrange to make pre-authorized contributions to your account.

If you are in any sort of retirement arrangement at work, be sure you are contributing to the max, the article notes. And if there is no employer match to your retirement savings, “set up your own match” by giving up a cup of coffee daily, the article suggests.

Once you’ve started automatically saving for life after work, be sure to bump up your annual rate of contributions every year, the article tells us. “A 25-year-old earning $40,000 a year who contributes just one per cent more of his salary each year (or $33 more each month) until age 67 would have $3,870 of additional yearly income in retirement, assuming a seven per cent rate of return and a 1.5 per annual pay raise,” the article explains.

It’s the same, the article continues, for raises. If you get one, so should your retirement savings – stash some or all of it into savings. “Since workers are already accustomed to living on their existing salary, they won’t notice money that they never had before is missing,” the article explains.

We’ll Canadianize the next tips – consider putting some or all of your tax refund back into retirement savings, such as your SPP account or a Tax Free Savings Account (TFSA). A few of the ideas for saving in this article, intended for a U.S. audience, aren’t available here, but remember that SPP operates similarly to a registered retirement savings plan, so contributions you make to it are tax-deductible. If you put money in a TFSA, there’s no tax deduction but as is the case with both vehicles, your money grows tax-free. And with a TFSA there’s no tax payable when you take the money out.

Other ideas – don’t downsize after you retire, but before when you can more readily afford to move, the article suggests.

Spare change can power your savings, the article adds. “Tossing spare change in a jar might seem like an old-fashioned approach to saving, but you’d be surprised how quickly your nickels, dimes and quarters can add up,” the article notes. Do the same with any money you save on purchases using coupons or apps, we are told.

We’ll add one more to this list. If you get a gift card that can be spent like cash anywhere, why not add it to your SPP account? SPP permits contributions to be made from credit cards, so it’s a nice way to turn a gift, or a rebate, into retirement income for your future self.

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Most Canadians understand what registered retirement savings plans (RRSPs) are.

What’s perhaps a little less well known is the registered retirement income fund (RRIF), which is where your RRSP funds generally end up once you move from saving for retirement to spending your retirement income.

Save with SPP reached out to James McCreath, a portfolio manager at BMO Wealth’s Calgary office, to get a better understanding of the basics of RRIFs.

We first learned that McCreath has strong connections to Saskatchewan – both his parents are from here, his mom, Grit McCreath, is Chancellor of the University of Saskatchewan, and the family enjoys time at their cottage north of Prince Albert at Waskesiu Lake.

RRIFs are the vehicle used to turn former RRSP savings into retirement income, he explains.

“You have to convert from an RRSP to a RRIF by the end of the year you turn 71, and must start withdrawing from the RRIF by the end of the year you turn 72,” says McCreath. That potential deferral period, he points out, gives you a 24-month window from the point your RRSP is converted to when you take the first dollar out.

While it is possible to convert to a RRIF earlier than age 71, not many people do, McCreath explains. Such a decision, he says, would be based on an individual’s unique circumstances – perhaps they want “certainty for budgeting,” or other reasons. It’s possible, but rare he says.

While there’s no tax on the interest, dividends or growth within a RRIF, the money you take out of it is taxable. McCreath says the tax on RRIF withdrawals is the deferred tax you didn’t pay when you put money into an RRSP in the past.

Asked if there is a correct or best investment strategy for a RRIF, McCreath says that this again depends on “the circumstances of the individual.”

Generally, a RRIF investment strategy should consider the cash flow needs of the individual, and their tolerance for risk, explains McCreath.

Someone who needs the RRIF income for day-to-day expenses might, for instance, be less interested in risky investments, and would focus on fixed income investments, he says. “These days we are starting to see five-year GICs (guaranteed income certificates) that pay four per cent interest; we haven’t seen them at that rate for years, so that might be a consideration” for risk-averse RRIF investors.

Others with less cash flow needs for the RRIF – perhaps those who retired with workplace pensions – might be able to handle a riskier investment strategy. “They might want to hold equities under the hope that their RRIF grows, for legacy purposes,” he explains.

“I strongly advise people to find an investment professional, or an accountant, who can help develop the optimal plan for their own circumstances,” McCreath says.

On the issue of RRIF taxation, McCreath points out that taking money out of the RRIF is different than taking it out of an RRSP.

There is a minimum amount that you must withdraw from your RRIF each year, a percentage that gradually increases as you get older, he explains.

When you take money out of an RRSP, an amount of tax is withheld at source for taxes (beginning at 10% for withdrawals up to $5,000). No such taxes are automatically withheld when you withdraw the minimum prescribed amount of money from a RRIF.

If you are concerned about having to pay taxes at income tax time because of RRIF income, McCreath says you can often arrange to have the RRIF provider deduct a set amount of tax above the mandated minimum tax withholdings from each withdrawal. In this way, you will help avoid having to make a large payment at tax time, assuming the appropriate amount of tax gets withheld, he explains.

Another good idea, he says, is to use any RRIF income (net of tax) that you don’t need as a contribution to your Tax Free Savings Account (TFSA). “If you don’t need the capital for day-to-day living, you can continue to invest it in the TFSA,” he explains.

An alternative to a RRIF at the end of your RRSP eligibility is the purchase of annuity. Annuities, like a pension, provide a set income each month for life, and many annuity providers offer a variety of options for them around survivor benefits.

The current sharp rise in interest rates may increase interest in annuities, McCreath suggests.

“As interest rates rise, the functionality and usefulness of annuities go up,” McCreath notes. Generally speaking, the higher the interest rate at the time of purchase is, the greater the annuity payment will be.

McCreath concluded by offering two key pieces of advice. First, he notes, a lot of retirement decisions, such as moving to a RRIF or buying an annuity, are important and “irrevocable” ones. It’s important to get professional advice to help you make the decision that’s best for you, he says.

As well, he says, pre-retirees should have a very clear understanding of their cash flow, and “the matching of inflows to outflows,” before they begin drawing down their savings.

We thank James McCreath for taking the time to talk with us.

Saskatchewan Pension Plan members have several options when they want to collect their retirement income. They can choose among SPP’s annuity options, SPP’s variable benefit (available for Saskatchewan residents), or transfer their money to a Prescribed RRIF. Check out SPP’s Time to Collect Guide for more details!

Canadians sock away $50.1 billion in RRSP savings

It appears the venerable registered retirement savings plan (RRSP) is alive and well, reports Investment Executive – and pandemic-related extra cash may be the reason why.

Citing Statistics Canada data, the magazine reports that “the number of Canadians that socked money away in their RRSPs increased in 2020, and their contributions rose too.”

In 2020, Canadians collectively contributed $50.1 billion in their RRSPs, the article notes. That’s an increase of 13.1 per cent over 2019, the article continues, and the number of contributors rose as well by 4.9 per cent.

Investment Executive reports that “the median RRSP contribution in 2020 came in at $3,600, which is the highest on record.”

Why did more people put more money away?

Well, the article states, “savings rose as public health restrictions limited consumer spending.” With little to spend money on other that food and fuel, the average Canadian was able to stash away “$5,800 in extra savings in 2020 on average.”

So, that extra pile of money found its way into people’s retirement savings kitties.

“With the added savings on hand, more Canadians put money into RRSPs. The proportion of taxpayers that made RRSP contributions in 2020 increased for the first time in 13 years, StatsCan said, noting that the share of taxpayers making contributions has been declining since the Tax Free Savings Account (TFSA) was launched as a retirement savings alternative,” the article reports.

While things are not as locked down (thank heavens) today as they were a couple of years ago, the retirement savings bug is still with us, reports Baystreet.ca.

More than $10 billion found its way into Canadian mutual funds this February, the site reports.

“That brought the total amount of mutual fund assets under management in Canada to $2 trillion as of March 1,” Baystreet notes. “In all, Canadians put $111.5 billion into mutual funds in 2021. That’s nearly four times the $29 billion in mutual fund sales in 2020, which was in line with average annual sales going back to 2000.”

So, let’s put those two thoughts together – Canadians are putting more money away in their RRSPs, including managed mutual funds. The trend seems to be that more money is going this way each year.

The Saskatchewan Pension Plan allows you to contribute up to $7,000 annually towards your retirement nest egg. And you are allowed to transfer in up to $10,000 annually from other registered savings vehicles. SPP is a voluntary defined contribution plan – it has some of the characteristics of an RRSP and some of a managed mutual fund. Where SPP differs from a typical retail mutual fund is in the fees charged. SPP provides you with professional investment management, but SPP’s fee is typically less than one per cent – less than half of what most managed retail mutual funds charge. SPP has a stellar investing record, and – again, unlike a RRSP – SPP gives you the option of converting your accounting into a lifetime SPP annuity, among other retirement income options. Check out this made-in-Saskatchewan success story 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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From the get-go, where author Daryl Diamond describes his book as being a “do it properly” or “do it better” book on retirement income planning, rather than a “do it yourself” volume, a wonderfully written tome filled with valuable insights begins.

Your Retirement Income Blueprint makes great strides in explaining that retirement is not really “the back nine” of life. Retirement, he explains, is “not simply a continuation of the same thing (pre-retirement)… the playing field changes because there are such substantial differences between the planning approaches, investment strategies, risk-management issues and sheer dynamics of these two phases in someone’s life.”

There’s a lot to cover in a short review, so let’s look at some of Diamond’s retirement income gems.

Early on, Diamond explains the importance of having “a formal income plan, or blueprint, to show what your assets can realistically be expected to provide in terms of sustainable cash flow.” In other words, do you have enough income, from all sources, for an adequate retirement? Retiring without sufficient income, he warns, “can be a very unfortunate decision.”

On debt in retirement, he notes “ideally, you want to be debt free at the time you actually retire,” because otherwise, “you will have to dedicate income toward servicing the debt. And that is cash flow that could be used to enhance your lifestyle in other ways.”

Another great point, and this was one that Save with SPP personally used when planning retirement, is the idea of making a “net to net” comparison of your pre-retirement income versus post-retirement.

“That difference between your gross employment income and gross retirement income may appear quite significant, however, some analysis of your earnings statement may narrow this disparity. Compare what you are bringing home on a net basis with what your net income will be in retirement. You may find the difference in net pay is not as significant as you thought.”

The book provides a chart showing gross employment income being 33 per cent greater than retirement income – but only about 12 per cent different on a net basis, because the retiree isn’t paying into Canada Pension Plan (CPP), Old Age Security (OAS), a company pension or company benefits.

Diamond points out that the investment principles for retirement saving differ from the retirement income, or “using your nest egg” years.

“When people begin to draw income from their portfolios, their focus changes from ‘rate of return’ to ‘risk management,’” he writes. “Capital preservation becomes the number one issue, because with capital preservation, you also have sustainable income,” he adds. The goal is longevity of your income – meaning, not running out of money.  

Diamond sees annuities as a way to ensure you don’t run out of retirement income. The book shows how your CPP, OAS and company pension – along with an annuity purchased with some of your retirement savings – can create a guaranteed lifetime monthly amount for your core, basic expenses. The rest of your income can be used for discretionary, fun expenses, he explains.

Diamond isn’t opposed to the idea of taking one’s Canada Pension Plan benefits early. He advises us all to “assess whether or not there is merit to do so in your own situation.” He makes the point that while many of us live long lives, some of us don’t, so deferring a pension carries a risk.

He sees the Tax Free Savings Account (TFSA) as becoming “one of the great tools at our disposal. I look for ways to help retirees fund their TFSA accounts to the maximum, whether that be through taking CPP early, withdrawing additional amounts out of registered accounts or even moving other non-registered holdings systematically into them.”

He suggests that using one’s registered retirement savings early in retirement may be preferable to deferring them until the bitter end at 71. “Deferring all of your registered assets can create real tax problems in the future and could eliminate main credits and entitlements that you would otherwise have been receiving,” he explains.

Near the end of this excellent book, Diamond alerts retirees to what he calls the “three headwinds” that can “be a drag on” any retirement income solution – taxation, inflation, and fees. Attention should be paid to all three factors when designing a retirement income solution, he writes.

When you retire, Diamond concludes, it’s when “your ticket gets punched… and baby, you had better enjoy the ride.” The three commodities that will support a great retirement are your state of health, your longevity and “your income-producing assets and benefits.” Only the last commodity is one that you can fully control, he says.

This is a great book and highly recommended for those thinking about retirement.

Do you have a handful of different registered savings vehicles? Consolidating them in one place can be more efficient than drawing income from several sources. The Saskatchewan Pension Plan allows you to transfer in up to $10,000 per year from other registered vehicles. Those funds will be invested, and when you retire, your income choices include SPP’s family of annuities. Check out SPP today!

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