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Summer spending habits

4 Aug

By Sheryl Smolkin

Staying on budget can be a challenge at any time of year. But when souvenirs and snacks beckon on vacation or the hotel you booked ends up being much more than you expected, your bottom line may suffer an unexpected hit.

A recent BMO Report quantifies how Canadians’ savings are affected by summer spending habits. The study reports that as temperatures soar so does our spending, and while many don’t feel guilty about enjoying the season, half (52%) admit that their summer habits have negative long-term effects on their savings.

One quarter (28%) of Canadians say they go into debt during the summer due to their spending. Another 27% dip into their savings to support their spending and 13% forego saving and paying off debt altogether to enjoy the season.

Still, the BMO summer spending report, conducted by Pollara, reveals that Canadians are aware of their tendency to over-spend in summer and are taking steps to counter it:

  • Compared to last year, fewer Canadians plan to increase their spending this summer (down to 32% from 45%);
  • 25% of Canadians will hold off on travel, for budgetary reasons, this summer; and
  • 15% feel they have too many other financial commitments to travel at all this summer.

Further, the BMO report found that 47% will restrict their travel to domestic trips to avoid fluctuating foreign exchange rates, or opt for a staycation (14 per cent), to get the most bang out of the Canadian buck.

“We’re noticing disparities across regions right now, with B.C. and Ontario continuing to drive Canadian consumer spending, thanks to strong demographic trends, low interest rates and favourable labour market conditions, “ says Robert Kavcic, Senior Economist, BMO Bank of Montreal “On the flip side, oil-producing provinces-Alberta, Saskatchewan and Newfoundland & Labrador-are seeing spending track below year-ago levels as those economies grapple with recession and the fallout from lower oil prices.”

Canadians and their Credit Cards

Almost half of Canadians (48%) admitted to paying off less of their credit card balance during the summer months than they normally would. For the 41% who carry a balance, which sits at an average of almost $3,000, enjoying the season can have longer term implications.

Summer Spending at a Glance
Nat’l Atl Que Ont Pra Alb BC
Will use credit to pay for summer spending 28% 43% 34% 30% 27% 24% 26%
Find it difficult to get back on track after higher summer spending 35% 43% 29% 37% 40% 35% 35%
Will incur a small amount of debt as a result of summer spending 35% 51% 36% 29% 37% 39% 35%
Will pay off their credit card balance from summer spending ‘when they can’ 56% 79% 45% 54% 68% 65% 59%

Nick Mastromarco, Managing Director of Loyalty and Partnerships, BMO Bank of Montreal, encourages those who plan to use a credit card for summer spending to take advantage of credit card rewards programs that many cards offer to help offset their costs.

“While setting a budget is important year round, seasonal spikes in spending are common for Canadians, and those who gravitate towards reward programs when considering how to pay for purchases are wise to do so,” said Mr. Mastromarco. “Cash rewards, for example, can be used flexibly at any time, regardless if summer plans include travel. In essence, redeeming rewards can help smooth out any spikes in spending, enabling you to get the most out of the summer season.”

How to choose a career

7 Jul

By Sheryl Smolkin

While selecting a future career at the end of high school or university may seem like a momentous, life-long commitment, the fact is that few people spend their whole life anymore in the same job or even doing the same type of work.

In a 2014 article on Workopolis Peter Harris noted that from 1990 through 2000 the number of people staying at their jobs for less than two years doubled from 16% to 33% of employees. That trend has only accelerated into the 2000s, almost doubling again from 33% to 51%.  In other words, job hopping is the new normal. In a subsequent Workopolis commentary Harris concludes that if the current trend continues, Canadians can expect to hold roughly 15 jobs in their lifetime.

So if you are starting out in 2016, or making a career change, how do you decide what field you want to go into and how to achieve your career objectives?

It doesn’t hurt to take advantage of vocational testing that may be available from guidance counselors or private consultants. In some cases the cost of these services will be pegged to your means. This will help you zero in on the kind of careers that you have an aptitude for and you are interested in.

You may also be able to leverage your hobbies. Playing in a band or singing in a choir can give you a great sense of satisfaction but these pursuits may not always be the foundation for a remunerative career. However, teaching music, audio engineering or music therapy may be more practical applications of your talents.

Similarly, if you like playing video games, consider becoming a video game designer or a programmer. Sports enthusiasts can become coaches, announcers, agents, trainers or sports event planners. Visual artists may opt for a career in graphic design.

Also, think about the subjects in which you excelled in school. A math whizz may enjoy a career as an actuary or accountant. An English major can aspire to be a journalist, an editor or a lawyer. And if you are good at fixing things or working with your hands, don’t rule out working in the trades such as carpentry, auto repair, construction or electrical work.

The Government of Canada’s Job Bank allows you to explore careers by low, medium and high wages in different parts of the country. When I searched for “Registered Nurse” in Saskatchewan, I found that in Saskatoon the hourly wages ranged from a low of $25.50/hour to a high of $46/hour, but in the Prince Albert Region the average hourly pay range is from $19.45 to $47.

When you have zeroed in on some possible careers you may be interested in, find somebody working in the field who can answer your questions about what it is really like to be an engineer or a plumber. Most people are willing to find time for a ½ hour “interest interview,” and some may even allow you to “job shadow” for a day.

Of course regardless of where your passion lies, it is wise to do a “reality check” to determine whether the career you are contemplating is in a growth area where there are lots of opportunities.  In Canada’s hot jobs, and ones to avoid Nathan Laurie, president of Jobpostings.ca notes that anyone with a computer science, math or engineering degree will find lots of opportunity on the job market. “Those degrees can apply to industries across the board — finance, e-commerce, IT — there are lots of roles for those types of positions. In addition, areas including web development, design, robotics and big data are seeing a lot of growth,” he says.

You may also be surprised to find out that Canada’s Best Jobs 2016: The Top 25 Best Jobs In Canada ranks the following as the top five jobs in the country, based on median salary, wage growth, and five-year employee growth:

  1. Mining or Forestry Manager
  2. Urban planner
  3. Pharmacist
  4. Pilot or flying instructor
  5. Public Administration Director

But regardless of which career you train for and where you or your kids get their first or next job, chances are it won’t be the last one. Today’s workforce must be the CEO of their own careers. That means keeping an up-to-date resume, networking and continuously improving both generic and job specific skills. In this way you will always be ready to embrace the next, great career opportunity when it comes along.

How to pay off your mortgage sooner

23 Jun

By Sheryl Smolkin

A continuing debate among personal finance pundits is whether you should pay off your mortgage first or save for retirement, particularly in a low risk environment. The fact is you should probably do a little of both as frequently as possible. One strategy some experts advocate is to make an RRSP/SPP contribution and then use your tax return to decrease your mortgage balance, thereby reducing your amortization period and minimizing the total cost of your loan.

But whatever you decide to do, your goal should be to eliminate your mortgage entirely before you retire. By doing so, you will reduce your monthly expenses and minimize the impact the drop in income at retirement will have on your lifestyle.

How much you can pay down your mortgage and when will depend on the terms of the loan secured on your property. That’s why it’s important when you are negotiating or re-negotiating your mortgage to clearly understand the terms and what if any penalties you might incur if you deviate from the prescribed payment schedule.

Here are four ways to pay off your mortgage faster with examples as suggested by the Financial Consumer Agency of Canada:

1. Increase the amount of your payments

One of the ways to pay off your mortgage faster is to increase the amount of your regular payments. Normally, once you increase your payments, you will not be allowed to lower your payments until the end of the term. Check your mortgage agreement or contact your mortgage lender for your payment options.

For example, if John is getting a mortgage of $150,000 amortized over 25 years with a fixed interest rate of 5.45% for five years, minimum monthly payments amortized over 25 years are $911.  If John pays just $50 a month more, it will only take 22.5 years to retire the mortgage and he will save $14,000.

2. Renew at a lower rate, keep payments the same
At the end of your mortgage term, when you renew or renegotiate your mortgage, you may be able to obtain a lower interest rate. Although you will have the option to reduce the amount of your regular payments, you can take advantage of this situation to pay off your mortgage faster. Simply keeping the amount of your payments the same will make you mortgage-free sooner.

Stephanie adopted this strategy when she renewed her $100,000 mortgage after five years and the interest rate dropped from 6.45% to 5.45%. While the lower interest rate would have reduced Stefanie’s monthly payments to $924, she decided to keep the monthly payments at $1,000 in order to reduce the total amount of interest payable over the term of the mortgage.By keeping the monthly payments at $1,000 per month with the lower interest rate for the rest of her mortgage, Stefanie will save over $12,000 and will pay off the mortgage two and a half years sooner.

3. Choose an “accelerated” option for your mortgage payment
You can spend approximately the same amount of money on your mortgage each month and still save money by choosing an accelerated option for making your payments. Most financial institutions offer a number of payment frequency options:

  • Monthly
  • Semi-monthly
  • Biweekly
  • Accelerated biweekly
  • Weekly, and
  • Accelerated weekly

Accelerated weekly and accelerated biweekly payments can save you thousands,  or even tens of thousands in interest charges, because you’ll pay off your mortgage much faster using these options. The reason is that you make the equivalent of one extra monthly payment per year.

Let us assume that Richard has a mortgage of $150,000, amortized over 25 years, with a constant interest rate of 6.45%. If he chooses an accelerated payment frequency equivalent to one extra monthly payment a year, Richard will pay off his mortgage over four years sooner and save more than $29,000 in interest over the amortization period.

4. Making lump-sum payments: Prepayments
A prepayment is a lump-sum payment that you make, in addition to your regular mortgage payments, before the end of your mortgage term. The prepayment reduces your outstanding balance and allows you to pay off your mortgage faster.The sooner you can make the prepayment, the less interest you will pay over the long term, and the sooner you will be mortgage-free.

5. Key things to remember:

  • Your mortgage agreement will specify whether you can make prepayments, when you can do so and other related terms or conditions. Read it carefully, and ask your mortgage lender to explain anything you don’t understand.
  • If your mortgage lender is a federally-regulated financial institution such as a bank, as of January 2010, it must show your prepayment options in an information box at the beginning of your mortgage agreement.
  • Your mortgage agreement may specify minimum and maximum amounts that you can prepay each year without paying a fee or penalty.
  • The prepayment option is generally not cumulative. In other words, if you did not make a prepayment on your mortgage this year, you will not be able to double your prepayment next year.
  • A closed mortgage agreement may require you to pay a penalty or fee for any prepayment.

Lorna Hegarty: Educating teens about money

2 Jun

By Sheryl Smolkin

Click here to listen

Click here to listen

Today I’m interviewing Lorna Hegarty for savewithspp.com. Lorna has been the President of LCH Resources Ltd. for almost a decade. She has an international consulting practice in human resources, executive coaching and training as well as being a published author. She co-authored The Wealthy Teen with her daughter Carly when she was 15 (she is now 24), and the third edition was recently released.

Q: Writing a book is a serious undertaking. What motivated you to write and update The Wealthy Teen twice?
A: The reason for writing The Wealthy Teen was that as I was raising my two boys I noticed there was such a difference between how the two of them handled money. One would rush and spend his allowance as quickly as possible and the other one would save it. We had conversations around how to handle money and how to save money. I always let them make their own choices. When my daughter Carly came along, there was another way of looking at money and values and how to, as a parent, influence her to think about saving and spending money. I started taking some notes and ended up turning them into a book.

Q: What does wealthy mean to you? Is it all about the money?
A: Not at all. There are so many different ways to be wealthy. The true meaning of wealth is to be grateful and respect the gifts that you have. You can have wealth if you’ve got happiness, health and great relationships, spiritual connections, or creativity. If you are a teen that is   wealthy, you understand and appreciate these gifts.

Q: Your book is not a traditional personal finance book. In fact, you don’t really start talking about accumulating, managing, and earning money until the second half. Why do you begin by having parents and children work through their attitudes about money?
A: Well, money is a really personal concept and it begins with the history of how you were brought up to view money and how money conversations happened in your home. That’s why the first part of the book is dedicated to why you think the way you do, where it came from in your history and what assumptions you have that could be correct or incorrect. I offer an  opportunity for parents or mentors to write down where their views and thoughts about money came from to help them work through the book with their teenager or any other person.

Q: Kids often resist direction from their parents. How can parents engage their children in a dialogue in order to educate them about good saving and spending habits?
A: Well, for me, the best way to engage my children was to tell them stories of how I grew up with money. An example was when I was 10 years old I wanted to purchase a dog from my neighbor. They had a litter, and the dog cost $70. My parents were smart enough to say that I could have the dog but only if I earn $70. So I joined Regal Gifts. I got a few catalogues and pretty much through selling cards and wrapping paper door to door and to friends and family, I was able to raise enough money to buy the puppy. This approach is something I taught my children — they need to really work hard to get what they want.

Q: How soon is too soon? At what age can parents start teaching their children about money?
A: Well, I like the physical aspect of money. I like that I can hold it, I can put it in my wallet, I can see how much I have left on me. For example, if a child does a chore, something easy like cleaning up, you can reward them with a little bit of cash. When would that be? When they’re three or when they’re four. I’ll give you an example.

As I was growing up, we had a stone driveway and it was a really big task in the spring to take the stones that had been shoveled out with the snow onto the grass and put them back onto the driveway. From a really young age, I would say three or four, my parents showed me what to do to take the rocks off of the grass and put them back onto the driveway, and I would get paid 25 cents for doing that and for other little things that did.

I could see the money that we put into a jar and I could see that it was growing. I think the earlier the better when it comes to teaching children about money.

Q: How important are goals? When should young people start setting goals and objectives?
A: Well, I’m going to say pretty much the same thing as the last question you asked — as early as possible. Also, it’s really important to make goals fun. As an example, let’s just say Father’s Day is coming up, so we’re going to set a goal of spending $10 and we’re going to make something special for father. That would involve a trip to the dollar store to look for materials so the child can have some fun with the adult and make a gift that says “I love you.” When a realistic goal like this is achieved, the child and the adult can celebrate the accomplishment.

Q: You discussed developing “E” potential in your book. What does that mean and why is it important?
A: Well, “E” potential is gaining entrepreneurial capability which is really open to anybody. Some of the examples that come to mind are setting up a lemonade stand or selling books or babysitting at a young age before a teen can get a regular summer job, but being aware that they have the potential to earn money. It doesn’t mean they’ve got to work Monday to Friday, 9:00 to 5:00.

Q: Tell me about the principle of the five baskets. How can it help kids to manage their money?
A: Okay, well, savings is 10%, fun is 10%, charity is 10%, investment is 20%, and essentials are 50%. In the book, I suggest having separators or little baskets to put their money in. Of course, young children may not have all the baskets, because they don’t have to pay for essentials like shelter, food or utilities.

Again, I think it’s so important for kids be able to actually handle money when they are younger so they can see physically where it’s going and how it’s being accounted for. Now, for older teens, obviously, bank accounts are ok.

My daughter still uses five different banking accounts to manage her money so obviously, it isn’t sitting in jars at home. After all these years she finds that it is a really good way of watching how her vacation fund is growing and planning where she will go.

Q: How successful have the strategies you describe in your book been in educating your own three children about money?
A: That’s a good question too. They’ve pretty much followed the rules and the principles from The Wealthy Teen. Carly is very, very disciplined. All three of them have always got their eyes and ears open for something they could do that would be fun, exciting, and interesting but also earn them some extra money.

Over the years, I would say that they’ve all pretty much taken the pieces they really believe in and they’ve had fun doing it, seen results, and incorporated them into their own and their partners’ lives.

Q: What reactions have you had from both mentors and young people who have read your book and worked through the exercises?
Well, I’ve had really good feedback. I’ve had couples tell me that they’ve used The Wealthy Teen as a discussion guide before they got married, to have a conversation about money. I’ve had feedback from readers who have used the system for saving money for school, for a trip to Europe, or for a car. It works if you have the ability to stick with it and save to reach your goals.

Q: If you had one message for adults who want to educate their teens about money, what would it be?
A: My favorite question. I strongly suggest that adults be careful with what and how much they give to their children or their teens so youth will appreciate things much more when they have skin in the game or when they’ve learned something.

In the past, I’ve seen family with children, teenagers, young adults, and they shower their children with designer clothes and the best phones. I would tell them to make sure they are living within their own means and as adults, teach their teens to understand the value of money and let them earn it when they want to purchase something.

02Jun-TheWealthyTeen

 

 

 

 

 

 

 

The third edition for The Wealthy Teen can be purchased from Amazon in paperback editions and for Kindle.

Rent vs Buy: A Reprise

12 May

By Sheryl Smolkin

Last year when I wrote about the buy vs. rent dilemma which most of us have confronted at some stage of our life, the five questions I suggested that readers consider were:

  1. How big is your down payment?
  2. How much house can you afford?
  3. Is your job secure?
  4. What are your family plans?
  5. What if interest rates go up?

All of those things are still important, but in the last year dramatic changes in both the Saskatchewan and Alberta rental and housing markets due to the drop in the price of oil may influence your decision.

For example, a report released at the end of last year from the real estate company Re Max says house prices in Regina and Saskatoon have dipped compared to a year ago because there are more properties on the market.

In Saskatoon a recent flurry of construction activity “has created market conditions modestly favoring the buyer,” the report says. “Currently, there are four months of inventory on the market and inventory is expected to increase as more of these new builds come to market next year.” The study also notes that the average sale price for a home in Saskatoon was $361,000 last year. However, by December 2015 it was $354,000 — a two percent drop.

Moreover, the report found similar market conditions in Regina, where there has been a lot of new construction taking place. “High inventory kept Regina in a buyer’s market throughout 2015,” the report says. Prices also dipped in Regina, by about three percent compared to 2014. An average Regina home was $329,000 last year and that figure has now dropped down to $320,000. For 2016, Re Max predicts that in both cities average prices will likely remain the same as for the previous year.

Recently interviewed on Breakfast TV Calgary, blogger Bridget Eastgaard said, “Assuming house prices stay down as long as oil prices remain low and layoffs continue to happen [in Calgary] which is unfortunate, it will give you more time to save and invest so you can accumulate the down payment you need to get the house you want.”

With Saskatchewan experiencing a similar downturn, her advice will also resonate with savewithspp.com readers. “If you are uncertain about your own job security now is a good time to wait it out and see what happens in the next year,” Eastgaard said.

Fortunately, if you do opt to continue renting in the short or long-term, the Saskatoon Landlord Association says it’s a tenant’s market with vacancy rates doubling in the city over the last year. According to the Canada Mortgage and Housing Corporation, the vacancy rate went from 3.4% to 6.5% from October 2014 to October 2015. Chandra Lockhart, executive officer with the landlord association attributes this glut in rental properties to the large number of new, unsold houses and condominiums that have been flipped into rentals.

That means renters have lots of leverage Eastgaard says. “You can pick and choose. You also have the bargaining chips to negotiate perks like parking spaces, utilities included or even ask for the first month rent free.”

So how do you decide?

If you have already saved a 10% or 15% down payment, it may be an ideal time to buy your first home or trade up. But if you are not quite ready, don’t be in a rush. Lots of great rental stock means you can find a nice place to live and you don’t have to worry that you will be priced out of the market in the immediate future.

 

More Canadians than Americans saving for retirement

14 Apr

By Sheryl Smolkin

There has always been a friendly rivalry between Canada and the United States in sports like hockey, baseball and skating. But a recent study from Franklin Templeton Investments reveals that that in the retirement savings arena Canadians are winning, because more of us are stashing money away to support ourselves in our later years. Nevertheless, the majority of Canadians are still concerned that they will not have enough money to retire.

According to FTI’s 2016 Retirement Income Strategies and Expectations (RISE) survey, 70% of Canadian pre-retirees have started saving for retirement, a steady increase from 2015 (63%) and 2014 (60%). In contrast, just 59% of US pre-retirees are saving for retirement, continuing a slide from 61% in 2015 and 65% in 2014.

“One possible driver of the rising retirement savings rate among Canadians could be the increasing use of workplace savings opportunities. Our survey results show that 26% of Canadians (up from 20% in 2014) are saving for retirement through workplace salary deduction programs,” said Duane Green, managing director, Canada at Franklin Templeton Investments Corp. “However, despite this positive savings trend in Canada, we tend to see some recurring anxieties about retirement, both from our annual survey and anecdotally in our ongoing retirement discussions with individual Canadians.”

The annual survey revealed that 82% of Canadians are worried about paying their expenses in retirement, with anxiety about retirement expenses peaking well before actual retirement.

“As retirement appears on the horizon, people increasingly start worrying about the financial aspects of it. Our survey reveals that an astonishing 92% of Canadians who plan on retiring in the next 11 to 15 years have some concerns about paying expenses in retirement,” said Matthew Williams, head of Defined Contribution and Retirement at Franklin Templeton Investments Corp.

According to the survey, pre-retirees’ perceptions and the actual spending habits of those in retirement are also at odds. Williams highlights survey data indicating that 69% of pre-retirees anticipate spending less in retirement, but only 32% of retirees say their expenses have actually decreased. So, there is a disconnect between what pre- retirees foresee and the actual experience of retired Canadians.

Williams notes, “The older we get, the greater the probability of unforeseen health issues – whether mental or physical – as well as rising prescription drug expenses or needing long-term care. We continue to notice an awareness of health care-related concerns, which are likely to increase as people age.”

While those younger than 55 expect that running out of money (33%) will be a bigger concern in retirement than health or medical issues (23%), the trend reverses significantly as age increases. Over a third (36%) of those aged 55 to 64 expect health and medical issues to be their top concern during retirement, whereas 19% anticipate their primary concern will be running out of money.

Individual retirement planning is particularly critical given that 63% of Canadians do not have a workplace pension plan, according to the survey. The lack of pensions, according to 2015 Statistics Canada data is particularly acute in the private sector, where just 22% of employees have a workplace pension plan — a sharp contrast to the 60% coverage rate for private sector employees in the US.

Among those who do have a workplace pension plan, complacency can be an issue: Almost half (48%) of Canadians with a workplace pension plan do not know what their personal contribution rate is, and just 12% (vs. 18% in 2015) worked with their investment advisor when selecting investment choices in their workplace pension plan.

Other key survey findings:

  • Regionally, on the high end, 81% of those not yet retired in the Prairie Provinces have started saving for retirement, but only 58% of Quebec pre-retirees have started. Nationally, 70% of Canadian pre-retirees are saving for retirement.
  • Over half (53%) of those in Atlantic Canada are very or somewhat concerned about outliving their assets or having to make major sacrifices to their retirement strategy vs. only 27% in Quebec. Nationally, 44% of Canadians are concerned about outliving their assets or having to make major sacrifices to their retirement strategy.
  • 43% of Canadian retirees say their expenses have increased since they retired, up sharply since 2015 (33%). In contrast, the same survey response data in the US indicated very little difference between 2016 (38%) and 2015 (37%).

Public pensions not enough, most Canadians say

14 Jan

By Sheryl Smolkin

While most (94%) Canadians aged 55 to 75 ‘agree’ that they would ‘like to have guaranteed income for life’ when they retire, a new Ipsos poll* conducted on behalf of RBC Insurance finds that just two in ten (22%) Canadians agree that ‘Canadian public pension plans (such as CPP/QPP/OAS) will provide enough retirement income’ for them. In fact, most (78%) disagree that these pension plans will suffice.

It’s no surprise then that six in ten ‘agree’ that they’re ‘worried about outliving their retirement savings’, while four in ten ‘disagree’ that they’re worried. Women (66%) are considerably more likely than men (50%) to be worried about outliving their savings, as are those aged 55 to 64 (62%) compared to those aged 65 to 75 (52%).

Atlantic Canadians (67%) are most worried about outliving their retirement savings, followed by those in Ontario (63%), Alberta (60%), Quebec (59%), Saskatchewan and Manitoba (58%) and finally British Columbia (41%).

One way of supplementing retirement income is through the use of an annuity, but many Canadians aged 55 to 75 appear in the dark about what an annuity is and how it might help them. In fact, six in ten say ‘that they ‘don’t know much about annuities’, while four in ten disagree that they lack knowledge in this area.

Women (71%) are significantly more likely than men (51%) to say they don’t know much about annuities, as are those aged 55 to 64 (66%) compared to those aged 65 to 75 (55%). Albertans (75%) are most likely to admit they don’t know much about annuities, followed by those living in Saskatchewan and Manitoba (71%).

Responses to this quiz also confirm that many Canadians lack fundamental knowledge about annuities. Just 55% of Canadians were able to answer more than half of the questions correctly, and only 6% got all six questions right. British Columbians (62%) were most likely to pass the test, followed by those in Quebec (57%), Ontario (54%), Atlantic Canada (53%), Alberta (52%) and finally Saskatchewan and Manitoba (49%).

  • Just four in ten believe that it is true that they need a licensed insurance advisor to buy an annuity. In contrast, six in ten believe this is false – when in fact, it is true.
  • Seven in ten correctly believe it’s true that there are potential tax savings to investing in annuities, while 29% incorrectly believe this to be false.
  • Half incorrectly believe it’s true that annuities last for a specific period of time, while the other half believes this is false, which is the correct answer.
  • Seven in ten correctly believe it’s true that annuities can provide guaranteed income for life, while three in ten incorrectly believe this to be false.
  • Half think it’s true that annuities are not a good investment during low interest rate environments, while the other half correctly believes this to be false.
  • Three quarters correctly believe it’s true that they can invest in an annuity using their RRSP and/or RRIF savings, while 27% incorrectly think this is false.

Despite the majority being uneasy about their retirement savings, just one in three agrees that they are exploring or considering annuities as part of their retirement plan, while most (65%) are not. One quarter say they have an annuity.

Members of the Saskatchewan Pension Plan can opt at retirement to receive an annuity payable for life. Life only, refund and joint survivor annuities are available.

*These are some of the findings of an Ipsos poll conducted between August 7 to 14, 2015 on behalf of RBC Insurance. For this survey, a sample of 1,000 Canadians aged 55 to 75 from Ipsos’ Canadian online panel was interviewed online.

Seniors frequent victims of investment scams

24 Dec

By Sheryl Smolkin

The Financial and Consumer Affairs Authority (FCAA) is warning Saskatchewan seniors to be aware of investment fraud scams. Roughly 30% of investment fraud claims received by the FCAA’s Securities Enforcement Branch come from seniors. And this number could be significantly higher as much of the investment fraud perpetrated against seniors goes unreported because they feel embarrassed, or are afraid they’ll be judged incapable of handling their own finances.

“They typically have pension plans, RRSPs, TFSAs and home equity so seniors make very appealing targets for fraudsters,” says FCAA Communications Consultant Matthew Barton. “The two big things they always tell seniors is ‘we want you to have enough money for a comfortable retirement’ and ‘You would like to leave a legacy for your children and grandchildren.’”

For example, in May 2014 Ronald Jerry Fast received a seven year sentence in one of the largest fraud schemes in Saskatchewan history.

He and his daughter Danielle Fast-Carlson ran a Ponzi scheme that defrauded approximately 250 investors of nearly $17 million. Most of the victims were elderly people from Fast’s hometown of Saskatoon.

He used money from previous investors in his Marathon Leasing Company to pay off new ones, creating the impression that he was able to deliver higher-than-normal returns to people who put their money into his business.

In another notable case, North Battleford financial advisor Adele Kaminsky entered a guilty plea in January 2015 in a wide-ranging case of investment fraud case. She sold investments in a company called Enviro-Can Private Placement through her company AK Financial Planning Services. Subsequently, she moved more than $500,000 to her personal bank account.

Here are some investment scams the FCAA says that people of all ages should know about and avoid:

Affinity Fraud: Con artists sometimes establish credibility by associating with an affinity group (like churches, sports organizations, or social clubs). They’ll spend some time getting to know the members of the group, and then they’ll ask if anyone’s interested in investing. They’ll also often tell you to keep the deal “hush-hush”, because it’s such a great opportunity. What that usually means is it’s a great opportunity for the con artist, not so great for the victims.

Ponzi Scheme: Ponzi schemes are also known as a “pyramid scheme,” because the people who invest first are at the top of the “pyramid.” They make their money by recruiting more investors to the scheme. These new investors pay fees, which go to the people who invested in the scheme before them. The people, who join the scheme later on (and make up the bottom of the “pyramid”), usually lose out when the scheme runs out of new investors.

Boiler Room Scams: These scams involve individuals claiming to represent a brokerage house and using high-pressure sales tactics, often offering investors an exceptional deal on stock. They’re called “boiler room scams” because the “salespeople” who call to offer you a “once in a lifetime deal” are usually calling from a room, called a “boiler room”, filled with other con artists on the phone doing exactly the same thing. The “brokerage house” typically owns most – or all – of the stock, which it actively promotes to drive the price up. Once the firm has sold its holdings, it stops promoting the stock. The price of the stock falls, and you lose your money.

RRSP Scams: These scams are often promoted in newspaper ads for RRSP “loans” that let you take advantage of a “loophole” in the tax laws to access your locked-in RRSP funds. In reality, the promoter encourages you use your RRSP holdings to purchase stock in a start-up company. In return he or she “promises” to loan you 60-70% of the value of the investment. The stock is often worthless. You can typically expect to get no funds from the promised loan and you may end up paying tax on the money you withdrew from your RRSP, even though you don’t have it.

Nigerian Letter Fraud: These letters have appeared in various forms through the mail or via e-mail since the late 1970s. They appear to be from a government official or higher-up who claims to have access to millions of dollars and needs help getting the money out of the country. All they need is for some kind soul to hold the money in your bank account. The sender of the letter will ask for your banking information and offer to give you a percentage of the proceeds in return for your “help”. Watch out! Once they have your banking information, they’ll empty your account.

“We encourage people even if they’ve called the police to also call the FCAA if they to report suspected fraud especially when it comes to securities, because we can open the investigation and we have tools and resources to help them out,” Barton says.

For more information on investment fraud, visit www.fcaa.gov.sk.ca/investmentfraud/

Why SPP is a great stocking stuffer

10 Dec

By Sheryl Smolkin

The problem with giving cash or gift cards for Christmas is that the money gets spent and the person receiving the gift often is left with little of long lasting value. Gadgets like the latest video game or smart phone get broken or become obsolete. Clothes may not fit properly to start with, or quickly go out of style.

But if you put the Saskatchewan Pension Plan in your children or grandchildren’s Christmas stocking, you will be giving them a gift that keeps on giving. SPP is a voluntary, money purchase plan you can contribute to in order to help them accumulate funds for retirement.

Anyone between ages 18 and 71 with available RRSP room is eligible to join the 33,000 other people who are already part of SPP. The only way to join SPP is by signing up directly. SPP does not have a sales force and commissions are not paid to anyone for selling the Plan.

Contributions to SPP are permitted up to an annual maximum of $2,500, again, subject to available RRSP room. There is no minimum payment and you decide on the contribution schedule and payment method. For example, choose from one of the following methods:

  • By mail (A contribution form is required )
  • In person or by online banking at your financial institution
  • By phone using your credit card (1-800-667-7153)
  • Online, or
  • Directly from your bank account on a pre-authorized contribution schedule (PAC)

You can change your contribution level or stop making contributions at any time. One way to incent your family members to learn about the plan and keep on saving is to challenge them by agreeing to match their monthly or annual contributions up to a stated amount.

SPP accounts are locked-in and earn interest until the member retires. If he/she dies before retiring, the funds in the account will be paid to the person’s beneficiary.

SPP allocates 100% of the market rate of return, less operating expenses, to members monthly. Since inception, the fund returns have been an average of 8.1%. The return history in the balanced fund for the last 10 years is shown below.

Balanced fund
Year Earnings % MER %
2014 9.10 0.95
2013 15.77 1.00
2012 8.45 1.07
2011 -1.01 1.14
2010 9.42 1.04
2009 12.68 1.01
2008 -16.23 1.00
2007 -0.33 0.94
2006 12.51 0.90
2005 10.13 0.82

Family therapist Carol Mitchell believes so strongly in the Saskatchewan Pension Plan (SPP) that she signed up several of her family members and deposited money into their accounts. She plans to make contributions for these relatives again in 2015.

Mitchell hopes her family members will continue to contribute to SPP above and beyond her gifts to them; however, she recognizes that some years they may have other, more pressing financial priorities. “The flexibility to contribute whatever they can afford to SPP each year is one reason I really like the program,” she says.

“I decided to invest in their futures,” Mitchell continues. “Someday I’m going to die and they are not going to remember they spent the $100 I gave them on a sweater or a dinner out. But when it comes time for their retirement, they’ll remember I believed in them and put money aside in their names.”

Saskatchewan residents need to save more for retirement

5 Nov

By Sheryl Smolkin

A National payroll survey conducted in September 2015 by the Canadian Payroll Association finds three-quarters of working Canadians have saved just 25% or less of their retirement goal, and many expect to work longer. In Saskatchewan, many employees are living pay cheque to pay cheque, most are not saving enough and economic pessimism is high.

The study reveals that the vast majority of employees are nowhere near reaching their retirement savings goals, and more than one-third (35%) expect to work longer than they had originally planned five years ago, with their average target retirement age rising from 58 to 63 over that period.

Nearly one-quarter (21%) say they’ll now need to work an additional four years or more. “I am not saving enough money” was the top reason for delayed retirement.

Far behind retirement goals

Nationally, three-quarters (76%) of working Canadians say they have put aside a quarter or less of what they will need in retirement (up from an average of 74% over the past three years). In Saskatchewan, the number is 71%. And even among those closer to retirement (50 and older), a disturbing 48% are still less than a quarter of the way to their retirement savings goal.

Not only are employed Canadians finding it difficult to save for their retirement, many think they will need a big nest-egg. Half nationally (and 61% in Saskatchewan) think they will need more than $1 million in savings when they exit the workforce.

Most Canadian employees do not expect their financial situation to get better any time soon. Just 33% nationally and 36% in Saskatchewan expect the economy to improve over the next year. That’s down an average of 8% nationally, and down a noteworthy 24% in Saskatchewan, over the past three years.

Living pay cheque to pay cheque

Nationally, a large proportion (48%) report that it would be difficult to meet their financial obligations if their pay cheque was delayed by a single week. In Saskatchewan, 43% say they are living pay cheque to pay cheque.

Illustrating just how strapped some employees are, 24% nationally and 17% in Saskatchewan report that they probably could not come up with $2,000 if an emergency arose within the next month.

While more employees nationally say they are trying to save more (71% now, up from 66% over the previous three years), fewer are actually able to do so, with 62% succeeding in their savings efforts (down from an average of 66% over the past three years). In Saskatchewan, just 56% are succeeding in their savings efforts (the lowest of all the provinces/regions).

And savings rates continue to be meagre. About half (47%) of employed Canadians are putting away just 5% or less of their pay. In Saskatchewan, the number is 53% (the top province for number of employees who are under-saving for retirement). Financial planning experts generally recommend a retirement savings rate of at least 10% of net pay.

Nationally, 36% of employees (and 38% in Saskatchewan) say they feel overwhelmed by their level of debt.

“Canadians are saying they are having a difficult time making ends meet, and they are not putting enough aside to reach their own retirement goals,” notes Canadian Payroll Association President and CEO, Patrick Culhane. Edna Stack, Canadian Payroll Association Board Chair, explains: “Payroll professionals can help by setting up automatic deductions from an employee’s pay cheque to a savings plan or retirement program. This is the most effective way for an employee to save, so they can get on the path to a more secure financial future.”

The Saskatchewan Pension Plan allows Canadians with sufficient RRSP contribution room to save up to $2,500/year and transfer in an additional $10,000/year from another RRSP. Members can contribute online using a Visa or MasterCard. SPP contributions can also be made automatically from a member’s bank account.