For any of us, at any age, who are thinking about retirement, The Art of Retirement by Anthony Gordon is a must-have retirement reference book.

The book begins by helping us reframe our relationship with our finances. Perhaps, the book suggests, quoting noted economist Moshe Milevsky, we need to think of ourselves as a corporation — “You Inc.”

In that role, your goal would be “to maximize your company’s value while minimizing the risks faced by your corporation… to take the long-term view when making financial decisions.”

After a discussion of the “Rule of 72,” the idea that “72 divided by the interest rate approximately determines how long it takes for your money to double,” Gordon notes that the earlier we start saving, the best. “You need to start saving and investing as soon as you get the chance,” he writes. “If you do not, you will not get the full benefit of compound interest and the Rule of 72, so missing a year has a significant impact in the long run.” Think of your early investment “as a small snowball that gradually grows,” so long as you get the ball rolling.

He quotes the great Albert Einstein as once saying “he who understands interest, earns it; he who doesn’t, pays it.”

Gordon advises that as you save for retirement, you want to “keep track of your debt. If you ignore debt, you will not be on track for your retirement even if you have a lot of investments.” Compound interest works against you when it’s being applied to debt, he warns.

Writing about retirement income planning, he advises us all to find out what your “guaranteed income streams” are going to be — this can be Canada Pension Plan (CPP), Old Age Security (OAS), the Guaranteed Income Supplement,” or income from an annuity.

Then you need to think about how much you will need to withdraw from other personal savings — registered retirement savings plans (RRSPs) or Tax Free Savings Accounts (TFSAs). Next, look into ways to minimize taxes — then, you will have a picture of your future retirement income.

If you are running your own investments, be aware that “as humans, our erratic emotions and actions are rooted in psychological forces that drive most of the poor results that investors experience in the market,” Gordon writes. Quoting legendary investor Warren Buffett, he writes that “to invest successfully over a lifetime does not require a stratospheric IQ, unusual business insight or inside information. What is needed is a sound intellectual framework for decisions and the ability to keep emotions from corroding the framework.”

A key tool in developing such a framework, he writes, is having a financial plan.

Such a plan, he continues, should list all assets and liabilities, establish written goals based on “your values and your vision,” and should detail how much you will need “now, five and 10 years from now, as well as in retirement. Plan for inflation and taxes,” he writes.

Use the plan to decrease expenses, and to become fully aware of your monthly cash flow needs. You should look for ways “to reduce or defer income taxes where possible,” and plan your estate, including “wills, powers of attorney, and life insurance.”

Review your plan at least once a year — keep a copy of it handy if you are working with investment or legal professionals, he writes.

Other interesting discussions in this well-written book include a section on how to take advantage of a TFSA when you are retired.

Money invested in a TFSA, and later withdrawn, has no impact on your eligibility for “federal income-tested benefits.” A TFSA passes tax free to your estate, and you can contribute to a TFSA well past age 71 when you are fully retired, he writes. “Overall, the TFSA is a great tool that will allow you to better manage your taxable income so you do not have to withdraw additional funds from your registered retirement income fund (RRIF),” he writes.

In a chapter devoted to minimizing taxation, he talks about CPP splitting and pension income splitting, and some of the tax benefits an annuity can provide.

While noting annuities aren’t for everyone, Gordon writes that they provide a guaranteed payment for life and usually provides “a much higher rate of return than if you had received money from a guaranteed income certificate.” The book concludes with a detailed look at estate planning and the importance of having a will.

Once you are actually retired, you will notice that some fellow retirees are managing better than others. This probably isn’t by fluke. The ones who travel the most, or have cabins or campers, are almost certainly the ones who put some thought into what retirement would look like many years earlier. The rest of the gang have to manage on what they’ve got to live on.

If you don’t have a pension plan through work, don’t worry — the Saskatchewan Pension Plan is open to all Canadians with RRSP room. You can decide how much to contribute, and they’ll look after the heavy lifting of investing. At retirement, SPP offers the option of a lifetime annuity — a monthly payment you’ll get for the rest of your life — to help make your retirement income predictable and secure. Check out SPP today.

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Nearly half of Canadians say they’re unprepared for retirement

New research from H&R Block Canada has found that “nearly half of Canadians are unprepared for retirement, lack enough savings, and are planning on working part-time in retirement years to make ends meet.”

The survey was carried out in February of this year, reports H&R Block via a media release, and the findings suggest that Canadians are beginning to realize that they won’t have the same kind of retirement their parents had.

“Not so long ago, the traditional vision of retirement was that at around 65 years old, Canadians ‘hung up their hats’ and celebrated the end of full-time employment. Enjoying the steady income of their company/government pension, they were ready to embrace new life ventures in pursuit of the things they never previously had time for,” states Peter Bruno, President of H&R Block Canada, in the release. “What we’re seeing now is that the vision for retirement has evolved dramatically – fuelled by shifts in tax-friendly savings plan options, evolving workforce realities, the gig economy, and the prevailing economic environment.”   

Some other key findings from the research, cited in the release:

• 50 per cent of Canadians say they plan to have a side gig when they retire
• 55 per cent say they need to better understand tax-friendly retirement savings options
• 52 per cent don’t feel they have enough money left at the end of the month to save for their retirement
• 19 per cent plan to rely on government-assisted retirement plans; 13% have not made retirement savings plans
• 32 per cent believe they put away enough money each month for a retirement fund
• 46 per cent feel good about their retirement strategy

While Statistics Canada says the average retirement age in 2022 was age 64 and six months, the release notes that 44 per cent of respondents “anticipate retiring before they hit the 64-year mark.”

At the other end of that spectrum, five per cent said they plan to retire “between 45-54 years old,” and 36 per cent don’t believe they ever will retire, the release notes.

The research found that Canadians seem to have a fairly good understanding of “tax-friendly” savings plans, such as registered retirement savings plans (RRSPs) and Tax Free Savings Accounts (TFSAs). (With an RRSP, your contributions are tax-deductible — savings grow tax free until you start taking money out in retirement, where taxes apply. With a TFSA, there’s no tax deduction for contributions, but no taxes are owed when you take money out.)

According to the release, the survey found that:

• 56 per cent of Canadians report having an RRSP; six per cent plan to set one up in the future
• 54 per cent have a TFSA; six per cent plan to establish one at some point
• 37 per cent have an employer-sponsored registered pension plan
• 19 per cent say they’ll rely on government-assisted retirement plans

Those planning to rely on government programs need to know that benefits from the Canada Pension Plan (CPP) and Old Age Security (OAS) are quite modest. According to Canada Life, the average CPP benefit as of October 2022 was just $717.15 per month. The maximum amount you could receive that month was $1306.57, the article adds. The OAS payment as of April 2023 was $691 monthly, according to the federal government’s website. If you don’t have a workplace pension program, and you haven’t yet started saving on your own, the Saskatchewan Pension Plan may offer just what you’re looking for. It’s open to any Canadian with RRSP room. You can contribute any amount up to the limit of your RRSP room, and can transfer in any amount from an existing RRSP. The possibilities are limitless! Check out SPP today!

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A recent poll by CIBC found that while most Canadians hope to retire by age 61, more than half (57 per cent) worry whether “they’ll actually be able to achieve that ambition.”

As well, a very high percentage — 66 per cent — of pre-retirees surveyed worry “about running out of money in retirement.”

Save with SPP reached out to CIBC to follow up on these results, and got some comments from Carissa Lucreziano, Vice-President, Financial and Investment Advice, CIBC.

Q. Quite an eye-opener to see that two-thirds of people worry they might run out of money in retirement. We wondered if you got any information on the causes of this worry – maybe more people are drawing down a lump sum of money in a registered retirement income fund (RRIF) versus receiving monthly workplace pension cheques? Or is it worry they’ll lose money in the markets? 

A. The rising cost of living is increasing faster than people expected which in turn is impacting many Canadians’ ability to save for retirement and other goals, which has them feeling less prepared for the future and worried about their retirement savings. A recent CIBC poll found that inflation is the top financial concern for 65 per cent of Canadians right now. While inflation is cyclical, many people are thinking, if inflation keeps going up at this rate, it’s going to affect my retirement plan. 

Another reason people may be worried is because they don’t know how much they will need in retirement. One third of Canadians simply hope they have enough to retire, 20 per cent have sat down to run the numbers on their own and only 14 per cent have enlisted the help of an advisor. It’s like going on a road trip without planning a route, of course you’ll be worried about getting lost. 

Given all the factors you need to consider in a retirement plan, it’s best to sit down with an experienced advisor who can map out a strategy that aligns with your goals, your current situation and how you expect your circumstances to change in the future. 

Q. We were interested in the quote in the release about the importance of having a financial plan. Wondered if you could expand (briefly) on what sorts of things should be in a plan – probably it is looking at what future retirement income will be versus expected expenses, and then including the great things listed in the release like travelling? 

A. A financial plan is your big picture, giving you a detailed look at your current financial situation to help you prioritize and manage your short- and long-term goals – like travel, renovations, and retirement. 

The key items that should be included in every financial plan are your income, expenses, net worth, investment strategy, retirement, and estate plan.  

Many advisors use a goal planning tool to build a personalized plan that addresses all your needs, while taking into consideration any “what if” scenarios to see how any major changes might affect your overall plan. What if you buy a cottage at age 55 or gift money to your children at age 75? It is important to understand the financial implications of any big moves before you make them.  

The most important thing to remember though, is that your plan should grow and change as you do. Ideally, you should be reviewing it every year or whenever there is a material change like employment, divorce, marriage or having a child. 
 

Q. It’s interesting that many people are saving for retirement more via Tax-Free Savings Accounts (TFSAs) than by traditional registered retirement savings plans (RRSPs). Wondered if you learned any of the reasons why they preferred the TFSA – tax free income when you withdraw the money? Accessible for emergency spending en route to retirement? Maybe it is not impactful on one’s Old Age Security (OAS) qualification? 

A. Right now, Canadians are prioritizing day-to-day needs over long-term planning. This means, for many, that they are saving more in their TFSA over their RRSP.   

Contributing to a TFSA is a terrific way to save for both short- and long-term goals. A TFSA gives you the flexibility to access money easily and any interest, dividends, and capital gains earned are tax-free. The funds you withdraw from your TFSA also do not count as income, so it will not affect the amount of OAS you qualify for when you are over the age of 65.  

You don’t have to choose between an RRSP or a TFSA.  However, one could give you more benefits than the other depending on your situation. An advisor can help you understand your options and how it fits into your plan.

Q. Finally, what was the one thing that surprised you the most about these results? 

What stood out to me is that most Canadians polled are relying on their best guess for how much they will need to fund their retirement. Only 14 per cent have met with an advisor to run the numbers.  

An advisor can help you get a better understanding of your big picture and put an actionable plan in place, setting you up for success! It may seem overwhelming, but you can get there with the right support. Plus, you will be able to enjoy your next chapter, knowing that you are in a good place financially. Financial wellbeing is so important. 

Our thanks to Carissa Lucreziano and CIBC for taking the time to respond to us!

The Saskatchewan Pension Plan has been helping Canadians save for retirement for more than 35 years. Now, saving for retirement is simpler than ever before. There’s no longer a dollar limit on how much you can contribute to SPP during the limit — you can contribute any amount up to the total of your available RRSP room. And if you are making a transfer into SPP from another RRSP, you can transfer any or all of it — no limit applies. It’s a limitless opportunity for retirement saving! Check out SPP today!

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`”Hyperbolic discounting,” other mental factors block us from saving

Writing for MSNBC, Jasmin Suknanan asks why it’s so easy for most of us to think hard about tomorrow, but less so about the weeks and years that come after that.

“Psychology is often just as important in personal finance as the numbers — the way we save, spend and invest are all influenced by the way we think and feel, especially when it comes to preparing for future events like retirement,” she writes.

We know, she continues, that saving for retirement is important “because you’ll need a nest egg when you’re no longer working. The best way to guarantee an income when you’re in your golden years is to save and invest as much as you can now while you are still working.”

So, we all get it — why don’t we all get going on it? Suknanan points to a number of causes.

First, she writes, we tend not to make too many decisions with the distant future in mind.  “It’s easy to feel like retirement is so far into the future and that we have plenty of time before we need to start preparing for it. As a result, many would rather treat themselves to things they can enjoy right now instead of stocking away money for a future that’s decades away,” she notes. This process is called “hyperbolic discounting.”

Simply put, we’d rather spend $5 today than save $10 for next week. Living in the now.

Next, she explains, “it’s easier to do nothing than it is to make a change.”

Even when you know you have to start your retirement savings program (this article is written for a U.S. audience, but here, let’s talk about starting a registered retirement savings plan or Tax Free Savings Account), it is easy to put off actually doing anything, the article tells us.

“’I’ll do it tomorrow’ becomes `I’ll do it this weekend,’ which then becomes `I’ll do it next weekend.’ Before you know it, you’ve gone a month or more and still haven’t opened up your… account. And this doesn’t just occur when it comes to saving for retirement; we’re certainly guilty of repeating this thought process for just about any task — returning a package for a refund, cleaning our room or even cancelling subscriptions and memberships,” she writes.

She notes that opening up a retirement savings account is not some big event that takes days — it can take minutes. As an example, here’s how to sign up for the Saskatchewan Pension Plan (SPP).

The final problem — also a perception-based one — is where we “underestimate how long it will take for us to achieve our desired savings,” Suknanan writes.

“Many people put off saving for retirement until their 30s or 40s thinking that they should be able to amass as much as they’ll need for their golden years in just two decades. But once they factor in their current expenses and financial obligations, they find that it’ll actually take a lot longer than they initially believed to build a comfortable retirement fund,” she explains.

“Saving for retirement is one of the most crucial financial steps you’ll need to take. Taking steps to save today can guarantee you an income in retirement when you’re no longer working,” she concludes.

This is a great article on many levels. Given the fact that the majority of Canadians don’t have a workplace pension plan, the onus for saving for retirement tends to be solely on your own shoulders. Fortunately, the SPP can equip you with all the tools you need to get the job done. Signing up is easy, and you decide how much to contribute. You can automate your contributions via pre-authorized payments, or set up SPP as a bill via online banking. You can even contribute via credit card.

SPP takes those contributions, invests them professionally in a pooled fund at a low cost, grows your nest egg, and helps you convert it to income in those faraway days of retirement. Check out SPP today!

Have you heard the news? Contributing to SPP is now easier than ever. You can now contribute any amount per year up to your available registered retirement savings plan (RRSP) room. And if you are transferring funds in from an RRSP to SPP, there is no longer an annual limit — you can transfer any amount into your SPP nest egg. Saving with SPP is now limitless!

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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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The Association for Canadian Pension Management (ACPM) has rolled out a new online course on retirement that will help you up your game when it comes to mastering the topics of retirement saving, and turning those savings into income.

The course consists of six sections, with questions at the end to test your new knowledge. The first section, The Importance of Saving, talks about the importance of making savings part of your financial plan. “Many imagine retirement savings can wait for later,” the course explains, adding that it is far harder to play catch up than to start saving, even a little bit, while you are younger.

Small savings, we learn, can add up due to the “compounding effect” of time — even $50 a month in retirement savings can grow to more than $16,000 in 20 years.

The second section, Individual Registered Savings Plans, looks at registered retirement savings plans (RRSPs), Tax-Free Savings Accounts (TFSAs), the Home Buyers Program and Lifelong Learning Program (these allow you to “borrow” from an RRSP to pay for buying a home or furthering your education) and the new Tax-Free First Home Savings Account.

Ideas expounded on here include how much you should be expecting to live on when you retire — a rule of thumb given here is 70 per cent of your gross, pre-retirement employment income. The course notes that money from an RRSP should be considered to be “deferred income,” since you are able to put it away and grow it tax-free until the time you take it out as future income, when it is taxed.

The Government Retirement Income section walks you through the Canada Pension Plan (CPP), Old Age Security (OAS) and the Guaranteed Income Supplement. The important points raise about CPP is that the benefit it provides it quite modest, with the average monthly after-tax payment ranging in the $700 range. And while OAS is a universal benefit, it can be subject to a partial or even full “clawback” if you earn more than a certain level of overall retirement income.

The Workplace Retirement Savings section walks you through the difference between defined benefit, target, and capital accumulation plans. Defined benefit plans provide you a lifetime benefit based on a formula that takes into account your earnings and years of membership in the plan; benefits are guaranteed. Target is similar, but lacks the guarantee. With a capital accumulation plan, what’s “defined” is usually how much money you and your employer contribute — your income will be based on how well those savings are invested. Examples of capital accumulation plans are defined contribution plans, group RRSPs, and of course the Saskatchewan Pension Plan.

The final sections talk about the critical “transition to retirement” stage, where you really need to know exactly what your retirement income will be and what expenses you will need to cover, as well as “decumulation,” which involves turning the money you have saved in a capital accumulation plan into income, either by withdrawing money periodically or converting some or all of it to an annuity, which provides a guaranteed monthly payout.

Estate planning — a complex topic that we all need to know more about — is also covered off.

ACPM has done a great job here. The ACPM Strategic Initiatives Committee (SIC), of which SPP’s Executive Director Shannan Corey is a proud member, led this project, and a broader financial literacy framework for plan sponsors is in the works. The group feel a national effort towards broader financial literacy is an important project, she notes.

Shannan says that response to the program has been good so far since the course was rolled out late last year, with close to 200 people graduating from the program.

Asked if the course might make its way into school curriculum one day, Shannan says “yes, we have talked about that and a contact of mine who teaches financial literacy for high school seniors is using the course as part of this curriculum.” It would be great, she adds, to see usership of the course expand.

“We feel it is a really great tool, but that it will take time for it to gain credibility and exposure. The financial literacy framework is going to be pretty amazing and should help get broader national exposure too — that one may have broader uptake as it is designed for plan sponsors rather than individuals,” she adds.

ACPM describes itself as “the leading advocacy organization for a balanced, effective and sustainable retirement income system in Canada,” and ACPM member organizations “manage retirement plans for millions of plan members. “

The group believes that “part of having a better retirement system is to provide education to those preparing for and contemplating retirement.”

According to ACPM, the motto for retirement savings is “the sooner the better.”

They state that their online retirement savings course is designed to be of value to all ages. “If you are in your twenties or thirties and just starting your career path, this course is for you.  If you’ve reached the point where you are building your household savings but not yet focused on retirement savings, this course is still for you. And if you’re nearing retirement but haven’t already learned how to manage and accumulate retirement savings, there are still many important lessons to be gleaned here,” states ACPM.

Finally, ACPM notes that many Canadians are not well prepared for the inevitable retirement from work that lies ahead of them.

“Nearly one in five retirees has less than $25,000 in savings and investments while more than half of Canadians do not have a financial plan for their retirement,” the group states. “It is our hope that this course will help you gain an understanding of pensions and retirement savings as you plan for your retirement.”

Many Canadians don’t have any sort of retirement program at the workplace. If you’re in this group, the responsibility for saving for your future retirement is squarely on your shoulders. Fortunately, the Saskatchewan Pension Plan offers a program for any Canadian with unused RRSP room. SPP, which operates on a not-for-profit basis, will invest your savings in a pooled retirement fund managed at a very low group rate. When it’s time to retire, your income options include choosing one of SPP’s lifetime annuity options, which will ensure you never run out of money. Check out SPP today!

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RRSPs are still the best way to save for retirement: Golombek

At a time when many observers are saying the venerable registered retirement savings plan (RRSP) has been surpassed by other, newer savings products, noted financial writer Jamie Golombek begs to differ.

Writing in the Strathroy Age Dispatch, Golombek notes that some retirement commentators are asking if the RRSP “still has merit.”

“Let me try to un-muddy the waters by suggesting that RRSPs are likely the best way for many Canadians to save for retirement. After all, an RRSP, just like a tax-free savings account (TFSA), allows us to earn effectively tax-free investment income. And that’s not a typo: tax free, not merely tax deferred,” he writes.

So how is an RRSP tax-free? Golombek explains.

“If you go back to basics, and really think about what’s happening with an RRSP contribution, you will soon realize the investment return on your net RRSP contribution is mathematically equivalent to the tax-free return you could achieve with a TFSA, ignoring, for now, changes in tax rates. And, provided the time horizon is long enough, RRSPs can beat non-registered investing even if your marginal tax rate is higher in the year of withdrawal than it was when you contributed,” he writes.

He gives the example of Sarah, who has a marginal tax rate of 30 per cent and puts $1,000 into an RRSP.

“Applying (an) … annual rate of return of five per cent over the next 20 years, with no annual taxation, Sarah will be able to accumulate an RRSP worth $2,653. But, alas, not all the RRSP funds are hers to spend. The piper must be paid. When Sarah withdraws the $2,653 from her RRSP, and assuming her marginal tax rate is still 30 per cent, she will pay $796 in tax, netting her $1,857 after tax from her RRSP. This is equivalent to a five-per-cent annual after-tax rate of return on her $700 net initial investment ($1,000 contribution less $300 in deferred taxes on that initial investment),” he writes.

“In other words, Sarah’s after-tax rate of return of five per cent is exactly equal to her pre-tax rate of return, meaning she essentially has paid no tax whatsoever on the growth of her initial $700 net RRSP investment for 20 years. The RRSP allowed her to save for retirement on an effectively tax-free basis,” he explains.

If your marginal tax rate when you retire is lower than it was when you put the money in, you get an additional tax advantage, Golombek concludes. Did you know that the Saskatchewan Pension Plan operates very much like an RRSP? The contributions you make are tax-deductible, so you may get a nice little tax refund as a pat on the back for making regular SPP contributions. Check out SPP today!

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“The best investment you can make is an investment in yourself.”

This quote, from famed financier Warren Buffett, begins Larry Bates’ book Beat The Bank, a nicely written, witty and fun “how-to” on how to build wealth without handing over a massive chunk of your savings to your local financial institution.

He introduces the concept of Simply Successful Investing by encouraging us all to “learn investment basics,” to “think long-term” when investing, and to “minimize” investment costs.

He rolls out the example of two couples, the Meeks and the Ables, who both manage to save $300,000 by age 65 in their Tax-Free Savings Accounts (TFSAs). At that point, the Meeks have saved $470,000 — a $170,000 gain on their investment. But the Ables, at the same point, have $856,000.

The difference, the book explains, is that while the Meeks followed the bank’s advice and invested their money in equity and bond mutual funds — carrying an average annual fee of two per cent — the Ables invested in index ETFs that charge only 0.25 per cent in fees.

“The Meeks paid total mutual fund fees of $217,600 — an astonishing 73 per cent of the original $300,000 they invested — while the Ables paid total ETF fees of just $63,900, about 21 per cent of their original investment,” author Bates explains. As well, because the Ables have so much more savings by age 65, they will receive more than twice the annual retirement income that the Meeks will.

In another chapter, Bates explains the three “wealth builders” that are out there for investors — amount saved, time (how long one has been saving) and “the magic of compounding.” The more you are able to save, and the earlier you get started, to more your savings growth will be compounded over time, he explains.

To illustrate the idea of compounding, a chart shows how $10,000 invested in Royal Bank stock would grow to $60,822 after 15 years, thanks to growth in the stock price over time. And if dividends are reinvested, the figure goes even higher, Bates writes.

Had you invested $10,000 in TD Bank stock in April, 1978, you would have $4.2 million 40 years later. “The only two investment values that really matter are the amount you pay on purchase, and the amount you receive on sale,” he writes. “The thousands of data points in between ultimately mean nothing… learning to ignore all these thousands of data points is key to Simply Successful Investing.”

Watch out, warns Bates, for “wealth killers,” which include fees (both visible and invisible), taxes, and inflation.

He offers a fee impact calculator (the T-REX calculator) at www.larrybates.ca.

Latter chapters provide detail on investing via discount brokerages or through “robo-investing,” both of which offer lower fees than traditional full service brokerages. Closing advice includes the idea of “automating” your investing/savings by making regular, automatic deposits.

This is a great, clearly written and very digestible walkthrough of what can seem like a very complex topic.

The Saskatchewan Pension Plan operates on a not-for-profit basis. That allows them to keep investment management costs low, typically under one per cent. No fees are charged directly to members. If you are looking for a low-fee, pooled retirement savings vehicle with a sparkling track record since its inception 36 years ago, look no farther than SPP!

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Aim for two-thirds of your retirement income to be guaranteed

There’s a new rule of thumb for retirement planners, reports Nicole Spector, writing for Yahoo! Finance.

While you would need a lot of hands to cover off all the various retirement rules of thumb out there, this one is refreshingly simple. It’s called the “two-thirds retirement plan.”

“With the two-thirds retirement plan, guaranteed retirement income (i.e., Social Security, pensions and annuities) is used to pay for two-thirds of living expenses during retirement. The additional third of living expenses is funded via non-fixed income (e.g., investments and retirement savings),” she writes.

Let’s Canadianize this. With this plan, your guaranteed income, such as money from the Canada Pension Plan (CPP), Old Age Security (OAS) or other government benefits — along with workplace pension income and any annuities you buy — is used to pay two-thirds of your retirement living expenses. The rest comes from other retirement savings, such as money from a registered retirement income fund (RRIF), your Tax Free Savings Account (TFSA) or non-registered investments and savings.

The article encourages readers to “do the math” to see how this idea would work for them.

“Add up the total amount of guaranteed income you expect to receive in a month,” suggests financial coach Michael Ryan in the article. “Next, estimate your monthly living expenses, including everything from housing to food… (and) leisure activities. Multiply your total monthly expenses by two-thirds.”

This sort of estimate, the article explains, is relatively easy to do if you are already retired, but harder to estimate if your golden handshake is years or decades away.

“I tell every person I work with to pretend that tomorrow is their retirement day,” Robert Massa of Qualified Plan Advisors tells Yahoo! Finance.

“If they want to live just like they are living now, they need to pay themselves at least 80 per cent of their regular paycheque in order to maintain their standard of living,” he states.

“From there, they have a basis to work with and then they can start to ask themselves what else they want from retirement and add those costs in. Then you can project forward using inflation and come up with a monthly and annual income goal and work from there,” he adds.

If, after doing the math, you don’t think government benefits will cover off two-thirds of your retirement living expenses, you need to consider finding other sources of guaranteed retirement income, the article adds. This can be done, the article notes, through converting some of your retirement savings to a lifetime annuity when you retire.

The article concludes by recommending that everyone have a good financial plan in the present — this will make us more aware of how and where our income is being spent and what we will need in the future, when we retire. And while two-thirds is a target, the closer you can get to a plan where guaranteed income covers off all of your expenses, the better, the article concludes.

An additional benefit of guaranteed fixed income — you can never run out of it, as it is paid to you for as long as you live.

Having fixed retirement income is an option for any member of the Saskatchewan Pension Plan. When it comes time to convert your savings into income, SPP’s stable of annuities is among your options. You can convert some or all of your savings to an annuity, which will land in your bank account on the first of every month for the rest of your life. Check out SPP today!

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Which is best for retirement savers — an RRSP or a TFSA?

Writing in the Toronto Star, Ghada Alsharif takes a look at the question of choosing the right vehicle for you when it comes to retirement savings.

She says both a registered retirement savings plan (RRSP) and tax-free savings account (TFSA) can help you save on taxes while you save for retirement, but that they work differently.

“RRSPs offer a tax deduction when you contribute but you pay tax when money is withdrawn. On the other hand, TFSAs offer no upfront tax break but you don’t have to pay tax on withdrawals. Both accounts help you reach your savings goals faster than a regular savings account because both grow tax-sheltered,” Alsharif explains.

Her article quotes Jason Heath of Objective Financial Partners as saying that choosing between the two options may be decided by how much you make.

If, Heath states in the article, you have “high income it’s a good time to contribute to a RRSP if you expect to pull the money out at a lower tax rate in the future. That’s not often the case for a young person who’s just getting started at their first job or is working part time, doing schooling and getting established in their career.”

A TFSA is better for lower income earners, who are taxed less on their income. Funds within the TFSA grow tax-free and aren’t reported as taxable income when they come out, the article explains.

A chart in the article shows the correlation between income and which savings vehicle people choose. The TFSA is preferred by the vast majority of those earning $49,999 or less, the Star reports. It’s more of a 50-50 choice for those earning between $60,000 to $89,999, but RRSPs predominate among those earning $90,000 and above.

“The drawback to contributing to a RRSP is someday you’re going to pay a tax on those withdrawals. That’s why it’s important to make sure when you’re putting money in, you’re getting a large tax refund to make it worth paying tax on the withdrawals someday,” Heath states in the article.

Our late father-in-law had an interesting use for his TFSA. When he was required to make withdrawals from his registered retirement income fund (RRIF), he would pay the taxes on the withdrawal, and then reinvest the balance in the TFSA. The income from the TFSA would gradually increase and is of course tax free.

A problem with both the TFSA and the RRSP is that you can tap into the money before it’s time to withdraw it as retirement income. There are tax consequences for raiding your RRSP piggy bank, but none with the TFSA. A nice way to avoid dipping into your savings is by opening a Saskatchewan Pension Plan account. SPP is locked-in, meaning you can’t help yourself to your savings until you’ve reached retirement age. Your future you will appreciate that!

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