Some mistakes to avoid on the road to retirement

Our parents tell us that every mistake we make is also a learning opportunity – by doing the wrong thing, the path to the right thing is illuminated for us.

With that in mind, Save with SPP took to the Information Superhighway to see what retirement whoppers people have experienced, and maybe, what they learned from those mistakes.

CTV’s Christopher Liew suggests that “starting too late” on retirement savings and planning is a top mistake to avoid.

“If you want to build a substantial retirement fund, time is your greatest ally. The longer your retirement savings have to grow and earn compounding interest, the more you’ll have when it’s time to step back and start your retirement,” he writes.

Another mistake to watch out for is “failing to diversify your investments,” he adds.

“Putting all your retirement eggs in one basket can be a risky game. Diversification is key to balancing the risk and returns in your investment portfolio. Failing to diversify can expose your retirement savings to market volatility and specific sector risks, potentially derailing your long-term plans,” Liew notes.

Spread your retirement investments across “different asset classes such as stocks, bonds, and cash equivalents,” he suggests.

A third mistake Liew identifies is “underestimating your retirement expenses.” It’s hard to set a savings target if you’re not clear on what your expenses will be once work is done, he continues. “Retirement often brings its own set of financial demands, ranging from healthcare costs to leisure activities. Underestimating these can lead to financial strain, potentially forcing you to dip into savings faster than you anticipated,” he writes.

The Bellwether Investment Management blog provides a few more things to watch out for.

“Avoid taking on new debts,” the blog advises retirees. “This one may seem obvious, but it should still be addressed. Do not take on new debts. By the time you reach retirement you should have already settled them. While everyone is under different circumstances and you may already have open lines of credit, what is ultimately more important is not incurring new ones,” the blog advises.

“In a study published by Statistics Canada that investigated senior families and their finances, there has been a startling pattern beginning to emerge. Between 1999 and 2016, the rate of indebted families rose drastically from 27 per cent to 42 per cent. Worse yet, the median amount owed went from $9,000 to $25,000,” the blog advises.

Another common mistake is trying to do everything yourself in a complex retirement world where you have multiple sources of income, investments to draw down, more complex tax problems, all while you are getting older and a little less energetic.

Consider the help of a finance professional, the blog advises.

“Although many individuals have done well in taking care of their finances personally, there may come a point in their lives where they no longer have the desire to do so. In other cases, situations may arise where the surviving spouse isn’t familiar with the complex details of their portfolio which can lead to undue stress for their financial (and emotional) well-being,” the blog advises. Professional help is a call away, the blog reminds us.

The Motley Fool blog adds another good one.

“Not planning for longevity” is a major retirement planning error, the blog notes.

“The average life span in Canada is almost 82 years. But a decent percentage manages to live past 90, and some even farther than that. But a long life might not necessarily be a happy life if you are running out of cash faster than you run out of breath. While it’s vital that you save and invest as much as you can, planning for longevity requires taking other decisions as well, like buying a whole-life annuity to augment life-long government pensions,” the blog notes.

The Saskatchewan Pension Plan ticks the boxes on several of these concerns. You can start early on your SPP savings, and your hard-saved retirement money will be invested professionally in a diversified, professionally managed pooled fund. And if you are worried about running out of money (by living a long happy life), SPP’s annuity options deliver you monthly income for life, no matter how many candles they cram onto that birthday cake.

Check out SPP today!

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Back in the day, when colour TV was a new thing and there was no Internet, a “charge card” was a way to pay for things instead of using cash or a cheque.

You didn’t get anything extra in those early days – just a bill in the mail.

But over the intervening decades, credit cards (as they have been rebranded) now offer a dizzying array of extras – points to help you pay for travel, coffee, and other perks, or cards that offer you cash back on purchases.

Save with SPP decided to take a harder look at cash back cards in particular.

They are very popular, reports The Motley Fool blog.

Over 56 per cent of Americans have cash back cards, the blog notes.

“Cash back cards offer a straightforward deal. Pay with your card and earn a percentage back on your purchase. It’s a valuable benefit, easy to understand, and consumers love it,” the blog reports.

Strategically speaking, The Motley Fool lays out two ways you can go with cash back cards.

“If you want to keep it simple, you could use one cash back card for all your regular spending. There’s nothing wrong with this method, but there’s also a way you could earn much more: carrying multiple cash back credit cards. Because when you don’t mind adding another card or two to the mix, you could potentially double your cash back,” the blog suggests.

Most cash back cards, the article continues, allow you to select two or three categories (say, gas, hotels, groceries) where you get extra cash back on top of the typical rate (between one and two per cent). So, The Motley Fool suggests getting a couple, so you can max out on more categories.

OK, either try to put everything on one cash back card, or have a couple and use them for the “bonus” categories.

It’s important to remember that like any credit card, the benefits of cash back only matter if you pay your card in full each month, reports The Points Guy blog.

“As long as you pay your bills on time and in full, you’ll likely avoid any sort of fee altogether and be able to focus on earning more cash back for the purchases that matter to you,” the blog advises.

The blog makes the point that getting cash back is easier to manage than having to figure out how and where to cash in points.

What cash back cards are available to us Canucks?

According to MoneySense all the major banks, Tangerine Bank, MBNA and American Express offer cash back cards.

The magazine reports that if you were to spend $2,200 a year on a cash back credit card in Canada, you would “earn” between $331 and $1,256 per year.

Those amounts are net of annual fees, which ranged from zero to $139 per year.

MoneySense urges Canadians to shop around before they decide which card to choose.

“Cash back credit cards are an extremely popular type of rewards card in Canada. Each cash back credit card has its own features and benefits, so you’ll want to compare the annual fee, earn rate and any additional benefits before you apply,” reports MoneySense.

The best cards, the article notes, have a two per cent earning rate on all categories, “so that you can get the most out of every dollar spent.” Some connect to other benefits offered by the credit card company, also a plus, MoneySense notes.

Some cards are not as widely accepted as others, the article notes, so that should factor into your research. Also, how the cash back is paid can vary from seeing a deposit in your chequing account each month, or to getting a monthly statement credit (not really cash back but credit back), or even only an annual credit.

Read the fine print before you sign up, advises MoneySense.

This type of credit card – in fact, any credit card – should get paid off in full every month, MoneySense notes.

“The payoff with a cash back credit card is the cash—a reward that is easily cancelled out by the penalties and interest accrued if you carry a balance. Like all rewards credit cards, cash back cards tend to carry annual interest rates at the higher end, usually around 19.99 per cent. At this rate, unpaid debt will rapidly accumulate interest charges that eat up any gains you’ve made. As long as you pay off your balance in full every month, you’ll avoid this pitfall, but if you find you regularly carry a balance, you might consider a low interest credit card instead,” the publication adds.

This is very sensible and important advice. If you aren’t planning to pay off your credit card balance each month, you are going to be paying more in interest than you are going to receive in “free” cash back. If you are disciplined, and pay off your entire credit card statement each month, then the cash back approach may actually work for you.

We used our cash back money to make Saskatchewan Pension Plan contributions! SPP members can fund their accounts in multiple ways – you can set SPP up as a bill and “pay” yourself online, or you can have amounts withdrawn automatically from your chequing account. You can even make a contribution with a credit card – so cash back on retirement savings is a possibility.

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How much is “enough” when setting an early retirement savings target?

Writing for the GoBankingRates blog, John Csiszar takes a crack at a challenging topic – how much is “enough” when setting your retirement savings goals, particularly if you want to retire early?

“While the fantasy of early retirement sounds great, the reality can be difficult to achieve. If you retire early, you’ll need much more than a standard retirement nest egg to fund the extra years that you will be retired and not working,” he writes.

Drum roll, here – Csiszar next tells us that since a “standard” retirement nest egg should contain one million eggs (all eggs are U.S. denominated in his article), then an early retirement nest egg should cost “$2 million or more, to fund a long, early retirement.”

He then does the math. For those wanting to retire at age 40, they need to first understand that their retirement (according to Internal Revenue Service stats for the U.S.) could last around 45.7 years.

In order to have a “modest” $40,000 income for life starting at 40, you would need to save $1.84 million once you hang up the name tag for the last time.

To get that $1.84 million, he adds, you would need to start saving $92,000 a year beginning at age 20. And even if you could manage that feat, Csiszar adds, you would need to have average investment returns of seven to 10 per cent annually.

Well, OK. What about early retirement at 50?

Csiszar does the math on that idea, with the same goal of having $40,000 in income annually. Americans aged 50 at retirement can expect 36.2 more years of life, so you’ll “only” need $1.448 million in savings. And you’ll need to save $88,266 annually from age 30 to 50 to get the job done.

These are scary numbers, but let’s not overlook the fact that most Canadians will get a Canada Pension Plan (CPP) benefit at retirement, and may also qualify for Old Age Security (OAS) and the Guaranteed Income Supplement (the latter is for lower-income retirees). These don’t start at age 40 or 50, of course, but you can get CPP at 60 and OAS at 65.

The average CPP payout in Canada, according to our friend Jim Yih at the Retire Happy blog, is $645 per month. That’s $7,740 per year. If you were to retire at age 65, and live for 20 years, the CPP (assuming you got the average rate cited here) would provide you $154,800, and that’s not including the inflation increases you would receive each year.

The Motley Fool blog tells us that the average OAS payment in Canada is $613.53, or $7,362.36 per year. If you were to start collecting OAS at 65, and received this average amount for 20 years, you would have received $147,247.20. Again, that figure doesn’t include inflation increases.

These are estimates based on average payouts; what you will actually get depends on your own earnings and employment history. But the point is, these two federal programs can provide a significant chunk of your nest egg – you are not completely on your own in your savings program.

We can save on our own in registered retirement savings plans (RRSPs), and another The Motley Fool blog post shows that the average RRSP balance in the country is $101,555.

Saving a million bucks sounds impossible, but maybe, it’s not as big a mountain as it appears.

Those with company pensions as well as RRSPs, tax free savings accounts, and other savings, can get closer to the target. The value of your home can be a savings factor if you decide to sell and downsize for your golden years.

If you do have a company pension plan, be sure to contribute to the max.

With a committed approach to saving, and assuming you can get decent investment returns with low fees, we can all get a little closer to that “standard” savings level. For those without a company pension plan, consider the Saskatchewan Pension Plan, which currently allows you to save $7,000 annually toward retirement (you can also transfer in up to $10,000 a year from other RRSPs). The SPP has a stellar investing track record – the average rate of return has been eight per cent since the plan’s inception in 1986. And while past rates of return don’t guarantee future rates, the SPP has been helping people build their retirement security for 36 years. Check out SPP today!

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If there’s one thing almost everyone can agree on, it was great to celebrate – in a limited, socially distanced way – the end of the brutal year 2020, when the pandemic slammed the world.

It’s been a particularly frightening year for those of us struggling to save a few bucks for our retirement.

Back in February, when the COVID-19 crisis was beginning to take effect, stock markets dropped sharply, erasing “four years of gains,” reports Maclean’s . The market’s crash was based on fear – “not knowing how severe COVID was going to be in terms of morbidity,” the magazine explains.

In addition to the shocking numbers of deaths and sickness COVID-19 delivered, it also walloped our economy. According to Wealth Professional, quoting Bank of Canada Governor Tiff Macklem, Canada’s economy “is expected to shrink by 5.5 per cent for the whole of 2020, with the initial rebound following the First Wave of the pandemic having eased.”

We all know what he’s talking about here – the First Wave led to lockdowns and business closures, and high unemployment. There was a break in the summer as much of the shuttered economy reopened, but now the Second Wave is causing lockdowns and job losses once again.

The usual safe harbour for savers when the economy (and stock markets) are volatile is in fixed income, investments that pay us interest. However, in order to reboot the economy, the Bank of Canada is planning to keep interest rates low “until 2023,” Macklem states in the Wealth Professional article.

Those “low for long” interest rates mean it is not the best time to buy bonds or guaranteed investment certificates (GICs). Some savers looked to the real estate investment trust (REIT) market to replace the income their fixed income was providing, notes The Motley Fool. While some REITs, notably industrial ones, and those involved with warehousing and data centres did well, “retail and hospitality REITs… had lost 80 per cent of their value at the market’s bottom.” The Motley Fool article wonders how investments in commercial office and retail space will fare in a world where most people are working from home.

Now that 2020 is behind us, there are signs of better days ahead.

The markets in Canada and around the world are now recovering due to late-year news that effective vaccines are nearly ready for distribution.

Dave Randall of Reuters, writing in the Chronicle-Herald, notes that November was “a record-breaking month as the prospect of a vaccine-driven economic recovery next year and further central bank stimulus measures eclipsed immediate concerns about the spiking coronavirus pandemic.”

Let’s review all this. The pandemic hit us hard, sending markets down, throwing people out of work, shrinking the economy. Central banks had to cut interest rates to reduce borrowing costs. That’s great for borrowing but less great for saving. Those looking to replace the interest they weren’t getting had to navigate a market that dropped by 40-50 per cent in the late winter and is recovering, and they had to face the reality that some sectors were doing far better than others.

2021, however, looks like a better year. Market optimism is returning, and once the vaccines start to get distributed around the country, we will (hopefully) start to see a return to more normal times, with no lockdowns and business restrictions.

The point of retirement saving is putting money away for the future, which may be quite soon or decades away. If you’re worried about saving on your own for retirement during these volatile days, you might consider teaming up with the Saskatchewan Pension Plan. With SPP, experts run the money at an extremely low cost. We all have enough to worry about these days – let SPP take the worry of pandemic-era retirement saving off of your plate!

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Recession, sure – but keep saving what you can for retirement, experts say

Only the very oldest of us will remember times less scary than the spring of 2020, with so much illness, so many folks forced to stop working and stay home, and scary markets for investors.

Many of us are naturally more worried about keeping afloat financially than retirement savings.

However, a report in The Motley Fool blog says that this COVID-19 crisis should not be a reason to entirely give up on retirement saving.

“The coronavirus is driving the global economy into a recession. Stock markets are very volatile and it’s hard to tell where they’re headed. While it’s normal to be worried, you should continue to save for your retirement,” the blog advises.

You should continue to try and set aside “a small portion of your income for retirement savings,” notes the blog. One reason why is that if you don’t put money in a Registered Retirement Savings Plan (RRSP) or registered pension plan, “you my not have as much extra money as you expect… as you’ll get a higher tax bill.”

The Motley Fool agrees with the idea of directing some of any precious extra dollars to an emergency fund in this crisis, “in case you get sick or lose your job.”

But, notes the Motley Fool, those who decided to quit saving for retirement during the last big recession more than a decade ago found themselves far behind those who kept saving and who “stayed on course.”

“A study by Teresa Ghilarducci, director of the Schwartz Center for Economic Policy Analysis at the New School for Social Research, showed the negative impact on those who stopped or decreased their contributions during the 2008-2009 recession. People who came out of the markets sold low and bought high. We have to buy low and sell high to make money,” the blog reports.

“After the Great Recession, 64 per cent of high-income workers and 56 per cent of low income workers saw their accumulated retirement savings increase,” the blog adds.

Let’s recap what the blog is telling us, because there are several moving parts here. Some folks stopped saving for retirement during the last recession, and others sold their investments at the bottom of the market.

But those who kept contributing, and who didn’t sell, saw the value of their investments rise after the crisis was over.

It’s been said that every crisis has a beginning, a middle, and an end. It’s very hard to see the end when you’re at the beginning or even in the middle, but it will come eventually. If you can continue saving, even at a reduced rate, and if you can hold off selling your investments, your future you will thank you for remembering that one day, those savings will be your retirement income.

There’s a great little retirement savings trick that can really work well when markets are low. Say you’re contributing $100 per pay to your retirement account, and let’s say it is a balanced fund, such as that offered by the Saskatchewan Pension Plan. If you continue to chip in the same amount while markets are low, you are essentially buying low, which will help grow your savings when better times return.

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

Experts say retirement planning should start in one’s 20s

Ah, the joys of being in one’s twenties. You’re young, you’re healthy, you’re newly educated and you’re ready to make your way in the world of employment.

And, according to the experts, you should have your retirement planning well underway!

According to The Motley Fool blog via Yahoo!, “the saddest tale you can hear from baby boomers is the regret of having not prepared early for retirement.”

Not saving enough while young is something your older you will experience – in a negative way – later in life, the blog advises. “Many baby boomers found out belatedly that their nest eggs weren’t enough to sustain a retirement lifestyle,” the blog warns.

Without an early head start on saving, the Motley Fool warns, “you might end up with less than half of the money you’d need after retiring for good. The best move is to invest in income-generating assets or stocks to start the ball rolling.”

What stocks should a young retirement saver invest in? According to the blog, “Bank of Montreal (BMO) should be on the top of your list,” as it has been paying out good dividends since 1829. Other good dividend-payers recommended by the investing blog include Canadian Utilities (CU) and CIBC bank.

“The younger generation should take the advice of baby boomers seriously: start saving early for retirement. Apart from not knowing how long you’ll live, you can’t get back lost time. Many baby boomers started saving too late, yet expected to enjoy the same lifestyle as they did before retirement,” the blog warns.

So the takeaway here is, start early, and pick something that has a history of growth and dividend payments.

The bigger question is always this – how much is enough to save?

A recent blog by Rob Carrick of the Globe and Mail mentions some handy calculators that can help you figure out what your nest egg should be.

Carrick says that while seeing a financial adviser is always recommended for goal-setting, the calculators can help. Three he mentions include The Personal Enhanced Retirement Calculator, designed by actuary and financial author Fred Vettese; The Retirement Cash Flow Calculator from the Get Smarter About Money blog; and The Canadian Retirement Income Calculator from the federal government.

You’ll find any retirement calculator will deliver what looks like a huge and unobtainable savings number. However, if you start early, you’ll have the benefit of time on your side. Even a small annual savings amount will grow substantially if it has 30 or 40 years of growth runway before landing at the airport of retirement. For sure, start young. Join any retirement program you can at your work, but also save on your own. If you’re not ready to start making trades, a great option is membership in the Saskatchewan Pension Plan. You get the benefit of professional investing at a very low price, and that expertise will grow your savings over time. When it’s time to turn savings into income, SPP is unique in the fact that it offers an in-plan way to deliver your savings via a monthly pay lifetime annuity. And there are a number of different types of annuities to choose from. 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, classic rock, and darts. You can follow him on Twitter – his handle is @AveryKerr22

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

Boomer pension crisis is “here, and it’s real,” says survey
Saving for retirement is a lot like eating your beets. You know they are good for you, all the literature talks up their benefits, and many say you’ll be sorry later in life if you don’t eat them now. But they are not everyone’s cup of tea, and many of us choose to ignore and avoid them.

Unfortunately, retirement is a bigger problem than not eating a beet.

A recent Canadian Payroll Association survey found that 69 per cent of working people surveyed in British Columbia save less than 10 per cent of their earnings, “well below recommended savings levels.” The CPA survey is covered by this ABC Channel 7 news article.

The article goes on to say that 40 per cent of Canadians surveyed are “overwhelmed by debt,” an increase from 35 per cent last year. Debt, the article says, is clearly a factor restricting the average person’s ability to save for retirement.

Research from Royal Bank of Canada that found that 60 per cent of Canadians were concerned “about outliving their savings,” and only 45 per cent of them are confident they’ll have the same standard of living when they retire. This research was covered in an article in Benefits Canada.

So, eat your beets – contribute to a Saskatchewan Pension Plan account and if you are already doing that, consider increasing your contributions each year. You’ll be glad you did down the line.

Many savers using the wrong long-term approach
Let’s face it – whether it’s hanging a new door on the shed, patching a hole in the drywall or growing our own vegetables, many of us prefer to do things ourselves rather than depending on others.

However, when it comes to retirement savings, there are “DIY” mistakes that people tend to make, warns The Motley Fool.

First, the article notes, people tend to avoid riskier investments, like stocks. But over the long term, bonds and fixed income assets “are unlikely to provide a sizeable nest egg in older age,” the article says. The stock market is a good long-term investment, the article notes.

You need bigger long-term returns to outpace inflation, The Motley Fool advises.

Finally, it is important to avoid “short-term” investment thinking; retirement investing is for the long term, the article concludes.

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer, hopeful darts player and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Sheltie, Duncan, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22