Starting public pensions earlier might alleviate senior poverty: report

At a time when many retirement experts are extolling the virtues of starting government pensions later in life – in order to get a bigger monthly amount – a new report suggests starting them earlier may be a way to reduce senior poverty.

According to an article in The Financial Post, a report from the Global Risk Institute suggests that “lowering the early eligibility age (for government pensions) can help one group in particular: workers with lower incomes.”

The Institute’s report says starting pensions earlier than 65 “can put lower-income seniors in a better place financially and reduce the poverty rate among seniors as well.” In Canada, you can begin receiving Canada Pension Plan (CPP) payments as early as age 60, the article notes.

“The report , which examined two Canadian pension reforms that took place in the 1980s, which dropped the early eligibility age (EEA) to 60 from 65, concluded that lower-income retirees have financially benefited by claiming their pensions earlier,” The Post reports.

Those who start their CPP at 60 will receive a pension that is 36 per cent smaller than those who start it at 65, the article explains. Waiting until after age 60 to claim your pension means your future pension increases by “0.7 per cent each month, or 8.4 per cent per year,” the article adds.

“But lower-income retirees have a shorter life expectancy than retirees with higher incomes, which means they might not live long enough to reap those benefits. They might also require a boost in funds sooner just to accommodate the rising cost of living, which means claiming early isn’t just the smarter financial decision; it’s often the only financial decision they can afford to make,” The Post reports.

Even Dr. Bonnie-Jeanne MacDonald of the National Institute on Ageing, a proponent of waiting until you are 70 to collect CPP, agrees that if you need the money when you’re 60, it’s “a no brainer” to start taking it then, the article reports. “MacDonald, who has long advocated for Canadians to delay claiming their pensions, authored a report earlier this year that noted Canadians can receive 2.2 times the monthly pension at age 70 than if they claimed them at age 60,” The Post reports.

Interestingly, the “penalties” (early retirement reductions) for Canada’s pension plan are “lower than in other countries, such as the U.S., making the choice much more attractive for lower-income Canadians who need the money sooner,” The Post notes.

The article concludes by noting that some OECD countries have looked at “increasing the age of retirement” by two to five years, with the hope of keeping older workers on the job. However, the article notes, “some studies have shown these reforms caused a `spillover’ effect on other social programs, such as employment or disability insurance, and made some groups more vulnerable to poverty.”

Let’s also keep in mind that the Canada Pension Plan’s maximum benefit for 2024 is only $1,364.60 at age 65 – while the average CPP payment is $816.52. If you don’t have a workplace pension plan, you’ll need to put away money on your own to bolster that future, rather meagre pension. Why not take a look at the Saskatchewan Pension Plan. It’s open to any Canadian who has registered retirement savings plan room. You decide how much to contribute to SPP, and we take on the heavy lifting of investing and growing your savings. At retirement, you can choose among options like collecting a monthly lifetime annuity payment or the more flexible Variable Benefit.

Check out SPP today!

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Is inflation eating up Canadians’ COVID-19 savings?

Back when COVID-19 restrictions had many of us sitting at home with little to spend our money on, economists and financial observers began talking about how the barriers to spending (no travel, fewer goods and services to buy) would create a monster pandemic savings pot.

And they were right, it did. But now, reports Jason Kirby in The Globe and Mail, that giant horde of unspent cash could be getting devoured by an unexpected new entity – inflation.

“Average household net savings fell 44 per cent to $1,900 in the first quarter from the year before, according to Statistics Canada’s latest release of household economic accounts broken down by income and age,” he writes. While all income groups saw their savings fall, the article notes that those with the lowest incomes saw the biggest decline.

A graph in the article shows that as recently as spring of 2020, the average Canadian household had upwards of $5,500 in savings. That means we’ve experienced a drop of nearly two-thirds in household savings.

The article says that the savings dip is not totally bad news.

“The good news, as far as spending continuing to fuel the recovery, is the average household still has more savings than they did before COVID-19 hit and governments ramped up income support programs,” the article tells us. “Stats Can data show the average household still holds 63 per cent more in net savings than before the pandemic, even though that amount has shrunk by more than two-thirds since the second quarter of 2020,” the piece reveals.

But while the wealthier among us “have a far better ability to absorb the shock of rising prices for goods and services,” lower-income folks are having a far tougher time.

For the lowest income bracket, the article notes, “the average household in that group has negative net savings — meaning they spent more than their disposable income — and are further behind than they were before the pandemic.”

Falling into a situation where you spend more than you earn – and are living on debt – is made even more perilous by those rising interest rates, reports The Financial Post.

“Canadians who took out mortgages for 4.5 times their gross income — a not uncommon practice when housing prices shot up during the pandemic — could see payments increase by $187 to $281 from 2022 to 2024, which would absorb as much as 2.6 per cent to four per of their net income,” the article states, quoting a recent study authored by National Bank of Canada economists Matthieu Arseneau and Daren King.

So the takeaway here is that we all need to try our best – and it isn’t easy when gas hits more than a toonie per litre – to live within our means, and avoid living off credit lines and cards. The days of cheap money thanks to decades of low interest rates have ended, at least for now.

The growing inflation rate also underscores the need for retirement savings. Your future you will need more, not less money should the trend towards higher costs continue on into the future. A great partner for retirement savings – one that is open to all Canadians with registered retirement savings plan room – is the Saskatchewan Pension Plan. Check them out today and see how they can help you build, a grow, a retirement nest egg!

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A recent Angus Reid survey, reported on in The Financial Post, suggests that a surprisingly large number of us – 38 per cent – have no retirement savings at all.

That begs the question: are the 62 per cent of Canucks who are saving investing wisely? Save with SPP took a look around to find some answers.

A MoneySense article from a few years back reached the conclusion that Canadians aren’t good investors.

“A whopping 60% of the typical portfolio is being held in cash – far too much to meet most retirement needs when you factor in record-low interest rates and inflation. What’s more, nearly half of survey respondents (45 per cent) said they plan to increase their cash holdings next year. The average Canadian portfolio holds just 19 per cent in equities, seven per cent in bonds, four per cent in in property, three per cent in alternatives and the rest in other asset classes,” the article reports.

Let’s compare those numbers to the Saskatchewan Pension Plan’s current asset mix. With SPP, equities (Canadian, US, and non-North American) weigh in at 36 per cent of the portfolio. Bonds are the next largest category, at 29 per cent, and “alternatives” follow – mortgages, three per cent; real estate, 11 per cent; short-term investments, two per cent and infrastructure, one per cent. (Once you retire and collect your SPP pension, it is paid out of the Annuity Fund – a non-trading bond portfolio.)

So the self-investor is 60 per cent in cash in their retirement savings account, while the SPP’s balanced fund (typically the one chosen for the savings portion of retirement) has, perhaps, two per cent in cash/money market or other short-term investments.

Why the disparity?

“When asked why they’re sitting on so much cash, the majority cited accessibility and/or convenience while 25 per cent admitted to a fear of losing money and 10 per cent said it was because they didn’t understand their options,” the article notes. As well, the MoneySense report adds, “less than half of Canadians (44 per cent) agree with the statement `Investing is for people like me,’ and a full 51 per cent believe investing is like gambling.”

In plainer terms, those saving on their own – the majority of which MoneySense notes have never consulted a financial adviser – aren’t sure how to invest and are afraid to lose money. So they park their savings in cash.

A little personal note here. This writer, having worked in the pension industry (but not on the investment side), has decent general knowledge about investing and invests the family RRSPs on his own. Generally, we try to have an asset mix that’s 50 per cent stocks and 50 per cent bonds and balanced funds, more like a pension fund. It was a search for a good balanced fund that first connected us with SPP. What we notice is that over the decade or so that we have belonged to SPP, the SPP has always outperformed our own investment rate of return. That’s why we are gradually moving our RRSP savings over to SPP – they know more about investing and are doing a better job of it. Period, full stop.

There’s no question that it is exciting, and fun, to run your own investments. However if the money you’re in charge of is being invested for your retirement future, it might be a smart idea to get some help managing the ups and downs of the markets. A financial adviser is a good idea, and another good idea is to put some or all of your hard-earned savings in the professionally-invested, low-fee Saskatchewan Pension Plan. Check them out today.

Written by Martin Biefer
	Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock. He and his wife live with their Shelties, Duncan and Phoebe, and cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

A look at the best of the Internet, from an SPP point of view

A new retirement worry – the cost of healthcare as you age

They say the best things in life are free – however, the cost of healthcare, particularly for older Canadians, does carry a price tag.

And, according to recent Ipsos poll, conducted for the Canadian Medical Association and reported on by the CBC in Prince Edward Island, the cost of future care may prompt some Canadians to delay their retirement.

According to the polling, “58 per cent believe Canadians will have to delay retirement to afford health care. The poll also found that 88 per cent of respondents are worried about the growing number of seniors requiring more health care,” the CBC story reports.

Why are people concerned?

In the article, the CMA’s president Dr. Gigi Osler explains what people worry about.

“Our current health care system is already strained and already not able to meet the needs of our seniors, and will be even more strained in the coming years,” she states. “As our population ages, not only are people going to have to pay more for those services it’s going to cost our already strained health care system more in the coming years.”

Those concerns certainly seem to impact the thinking of older Canadians, the article notes. “Older Canadians (55 and over) are most concerned about how health care costs may affect their wallets. The survey found 77 per cent of those 55 and over were worried about the financial burden of health care costs, compared to 70 per cent of those 35-54 and 58 per cent of those 18-34,” the article reports.

The takeaway here is to be aware that costs of care can be fairly significant, particularly if you live to a long age and require some form of long-term care. Perhaps we all need to factor those future and often unexpected costs into our savings plans.

Another retirement thorn – carrying a mortgage after you’ve left work

The Financial Post runs a cautionary tale about a couple – who appear to have been great savers and investors – who are running into problems in retirement due to a “late life mortgage.”

“The couple has a late-life mortgage because they sent their children, now in their mid-20s, to private schools and paid their university costs. As a result, the kids have no education debts — but the parents have a big debt in retirement. On top of that, the kids are still living at home,” the article notes.

The couple are having cash flow problems, despite owning a $1.5 million home, having more than $500,000 in RRSPs and $100,000 in TFSAs, and a further $20,000 of investments, the article adds.

The solution from the Post is for the couple to sell their home and downsize. The article quotes Derek Moran, of Smarter Financial Ltd. In Kelowna, as saying that “more cash and less house” would give the couple more financial security. “Moreover, selling the house would give the kids a nudge to move out,” he states. “They should have independent lives.”

You can’t fault these parents for helping out their kids, but putting themselves behind the eight ball impacts their retirement and limits their ability to help the kids further.

If you’re still a long time away from retirement, and haven’t yet begun to put money away, a great choice for you is the Saskatchewan Pension Plan. Those savings will add to your income when you retire, allowing you to roll with the punches should health or family issues arise. A nice little extra chunk of income is never a bad thing when you’re too old to work.

Written by Martin Biefer
	Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing, classic rock, and darts. You can follow him on Twitter – his handle is @AveryKerr22