Inflation and retirement saving

 I am interested in what is happening in Australia because my daughter, my grandson, and his father work and will retire in that country. So, I was interested in this story published in October by the Financial Review written by Duncan Hughes His lead is that in Australia by June 2024, retired couples aged 65-84 will need to find more money to live in retirement if inflation continues unchecked, if inflation is brought under control, then the numbers will change. My daughter and her partner have about 25 more years before they retire, but they need to take the risks seriously.

Retirees’ living expenses will increase by almost 10 percent over the next two years because of rising inflation, forcing many to find ways of boosting investment returns or accepting a lower standard of living.

By June 2024, retired couples aged 65-84 will need to find an additional $6600 a year to maintain a comfortable lifestyle, according to an analysis by RateCity, which monitors rates and fees. For singles, the increase is just over $4700.

This is based on annual expenditure for a “comfortable” retirement determined by the Association of Superannuation Funds of Australia (ASFA). The ASFA Retirement Standards for a comfortable lifestyle include one overseas trip every six years and modest social life. For households with higher expenditure, the increases would be significantly more and could mean the difference between one overseas trip or two a year.

Inflation is expected to rise to more than 7 percent by the end of this year before slowing to about 3 percent by December 2024, according to the RBA.

Retirees also face volatile stock and bond markets, making it difficult to offset the impact of inflation with rising investment returns, despite small improvements in interest payments from banks’ term deposits.

ASFA says a couple aged 65-84 needs about $66,725 a year for a comfortable lifestyle. For those 85 and over, this falls to $61,108. ASFA’s Retirement Standard numbers are updated quarterly. The next two years of inflation will increase the income needed for the same lifestyle to $73,377 and $67,200 respectively, according to an analysis by RateCity.

For singles aged 65-84 wanting a comfortable lifestyle, ASFA says the amount needed is $47,383 and for those aged 85 and over, it’s $43,996. In two years, the amounts required will be $52,106 and $48,382, based on RateCity analysis.

The following strategies can help counter inflation by increasing income and reducing costs.

Review the idea of cutting spending on luxuries such as subscriptions and memberships. But two areas specifically should be looked at – major future expenses and energy costs. I am shocked at the high prices of energy in Australia compared to Canada, so my daughter should look at an energy upgrade like solar panels and battery and/or energy-efficient windows and coverings on exposed windows.

In Canada and I suspect in Australia many people are working longer or delaying retirement or working part-time to supplement income is considered a favorable option for many seniors.

Participation in the labour force in Australia over the past two years by those aged 55-59 and 60-64 has increased about two percentage points to more than 77 percent and 60 percent respectively. Those over 65 in the workforce remain steady at about 15 percent.

As I approached retirement my financial advisor asked my to consider a more conservative investment approach. It took me ten years, but I finally did move to a more conservative portfolio, but for the first ten years I invested for growth. I retired at 60 and expect to live until I am in my late 80s or early 90’s so my investments need to last a long time. Many people my age can expect to live another 15 to 20 years. So, is important to maintain growth investments to generate income

I know of many people who retired and then spent money like there was no tomorrow. Some went on overseas holidays, and others bought new cars, or did home renovations or other expensive outlays. I did all of these things, but I was confident in my investment strategy. When I moved to a more

In British Columbia as a senior, I can defer my property taxes or borrow on a line of credit on my home. Some have purchased a reverse mortgage. This is where the senior can take the funds from the equity in their home as a lump sum, a regular income stream, cash reserve, or a combination of all three.

In Australia, the federal government’s Home Equity Access Scheme is a reverse mortgage with lower interest payments and fees but fewer services than commercial competitors.

More than 70 percent of retirees in Australia also receive some form of age pension, which is automatically adjusted for inflation twice a year. The remainder are self-funded retirees. There is also cost-of-living support offered through the Pensioner Concession Card and the Commonwealth Seniors Health Card.

As a parent and a retired person, I know that is vital to start planning for retirement well before they stop working, knowing that they can invest for longer and remembering that they may live for another 20 or 30 years in retirement. I constantly remind my daughter and my son about this, and I suspect they think I am a fussy old fussbudget.

Short Term or long term savings

Taxes are due in two months, and the deadline for contributing to your RRSP was yesterday. The COVID Pandemic affected how we contribute. Almost half (44 percent) of Canadians agreed the coronavirus pandemic has negatively impacted their ability to save for retirement and, as a result, 31 percent have changed their financial priorities, according to a new survey by Edward D. Jones & Co.

The survey, which polled over 1,500 adult Canadians, also found 33 percent of respondents said they’re planning to contribute to their registered retirement savings plan, while 52 percent said they plan to forego their RRSP contribution and another 15 percent are undecided.

Among those not contributing to their RRSP this year, 55 percent said it was because they couldn’t afford to — an increase of 11 percent increase over last year. Notably, the number of Canadians planning to contribute the maximum amount in an RRSP remained unchanged at 10 per cent.

Meanwhile, 45 percent said instead of contributing to a RRSP they’re opting to contribute to other investment accounts and opportunities, such as a tax-free savings account (49 percent), non-registered investment account (17 percent) or buying real estate (eight per cent). One quarter (25 percent) of respondents said they consider debt repayment a key financial priority, while a little more than that (29 percent) noted they can’t afford to invest their money at all.

We are experiencing high inflation, economic volatility and uncertainty around the pandemic, all of which impact the unique financial situation of Canadians. As a result, Canadians are saving in investments they can withdraw quickly, just in case things get worse. Savings is still a priority for many Canadians, but we saving for the short term, not the long term.

How do we get people to save?

How do we get people to save for the future, is a question that has no easy answer?  In England there is a group called “The Money and Pensions Service (Maps)” which has just launched its 10-year financial wellbeing strategy, which includes the aim of getting five million more workers saving for later life.

As well as its plans to get 28.6 million people understanding how to plan for their retirement by 2030, five million more than currently, Maps’ UK Strategy for Financial Wellbeing sets out four more “agendas for change”.

By the end of the decade, Maps said it wanted 6.8 million children and young people to get a meaningful financial education, and to increase the number of working-age people who regularly put money into savings.

The organization’s other goals were ensuring two million more people get the debt advice they need and reducing the number of people relying on credit to pay for food and bills by two million.

This is a wonderful initiative and a worthwhile goal and one that I hope they achieve. If you do a search on how do we get people to save for retirement, you will get hundreds of posts along the same ideas:

·  It's never too early — or too late — to start saving for retirement

·  If you are just starting out, focus on saving as much as you can now

·  Focus on starting today

·  Meet your employer's match

· Take advantage of every government program open to you in your country

· Automate your savings

· Rein in spending

· Set a goal

· Stash extra funds

· Consider delaying Social Security as you get closer to retirement

However, many countries are facing a retirement savings crisis. In the United States, for example, the fraction of workers at risk of having inadequate funds to maintain their lifestyle through retirement has increased to over 53%. 

One reason for the savings crisis is the ongoing shift in the private sector from defined benefit pension plans (DB, where retirement benefits are formulaic and known in advance) to defined contribution plans (DC, where benefits depend on investment outcomes). Making some type of payroll-based savings plan available to everyone is essential because it is the most effective way for the middle class to save. But having a plan offered at the workplace is not sufficient. Even for those with access to an employer-sponsored plan, almost a quarter fail to join, and among those who do join, many save too little.

Behavioural Economists tell us that there are four essential ingredients to any comprehensive plan to facilitate adequate saving for retirement: availability, automatic enrollment, automatic investment, and automatic escalation. These ideals are hard to implement due to regulations, union agreements, and peoples’ ideas that they can do better than any plan. 

In Canada we are fortunate because we have programs that are designed to help us replace up to 33% of our work income. This means that if we want to save for retirement, we only need to save to replace 37% of our income. Experts tell us that we should have enough savings to give us about 70% of our work income when we retire, since our government programs replace 33% of our income or soon will, then we only need to fill the gap and save the remaining 37%, So, if your employer does not have any plan, then follow the advice given at the beginning of the post and you should be in better shape than having no savings.

Saving Energy – Solutions That Will Not Change Your Lifestyle

We all need to cuts costs but that may interfere with our lifestyle, so here are some ideas that may help reduce costs without causing too much change in lifestyle. The increase and decrease in temperature in the future places great pressures on customers as this may mean only one thing, more power and fuel are needed to manage the environment and make houses more pleasant.

Over the years, new technology has been developed to enhance our living. Power saving methods have not been left out. However new technology, as always, is a bit expensive at first. And the prices will go down after some time. But instead of waiting for a more affordable power saving devices, let us utilize conventional thinking today and do some work in conserving power.

•                  Avoid "phantom" energy users.

Electrical appliances that are plugged into sockets even when not in use consume energy. It is like a turning on the engine of your car and idling for a very long time. A single appliance plugged in may not give a meaningful increase in the electrical bill but letting every device on "standby" can be a very expensive device. Pull the plugs from their sockets from every appliance whenever you don't use them.

•                  Turn down the temperature of water heaters.

Water heaters hold about 40 gallons of water and maintain it at a constant temperature. Forty gallons of water that are sitting in your tank for a very long time consumes a lot of energy. If the water heater is not expected to be used for a while, it is advisable to maintain it at a lower temperature.

•                  The openings and leaks in doors and windows create drafts.

The stronger the draft is, the longer it will take for homes to be heated or cooled - in addition to the extra work that a heater or an air-conditioning system is doing to regulate the right temperature of the house. In newer houses, the difficulties may be few as developers take more notice to seal drafts. Older homes may not be as well sealed. Even if the outer walls are covered, air flow often occurs around wall sockets, switches and vents that could result in water concentration around these areas. A good foam patch could fix the problem.

•                  If there is really nothing to prepare much cooking for, let the stove and oven rest.

Instead, use the microwave. When cooking in stoves though, the closer the bottom of the pan used for cooking matches the hob ring of the stove, the more energy is saved. Too much flame for the pan and you are paying for heating the air around it.

•                  CFL lights are energy savers.

Using CFL bulbs will save you more than sixty percent of the cost of lighting compared with using incandescent light bulbs. These lamps are a little more pricey but these costs are recovered easily because of their long life and the energy saving features.

•                  Clean appliances regularly.

Dirt and dust interfere with the efficiency of appliances. Leave about four inches of distance between the wall and appliances that generate heat and your walls will not retain the heat.

When in the market for a new appliance always look for the energy coefficient and the energy saving features when you are buying.

Some reasons to pay off or pay down your credit card debt

If, like many Canadians, you find yourself with credit card debt and wonder if there’s a way out, you may feel like you’re on a debt ferris wheel that you can’t get off. While we may dream of winning the lottery to pay off debt and move to the sunny shores of the Caribbean, here are the Top 5 reasons you should pay off your credit cards today!

Reason 5 - High Interest Payments
Perhaps the most compelling argument for paying off your credit card is the money you’ll save on interest charges.  Consider that the average annual credit card interest rate is 19.9%. On a balance of $10,000, that’s almost $2,000 in interest in one year! If you pay only the minimum, it’ll take years to pay off and you’ll end up paying thousands in interest.

Reason 4 – Get Your Interest-Free Grace Period Back
Did you know that when you carry a balance on your credit card, you no longer get an interest-free grace period on your purchases? If you don’t pay your card off in full at the end of the month, you’ll pay interest on every single transaction you put on your card from the day you made it.

Starbucks coffee on your card? Today’s lunch from the food court? You’re paying interest on all of it. Once you pay off your credit card, you get that grace period back.

Reason 3 – Be Happy!
Neuroscience has shown that just making a decision can help you feel in control, and reduces worry and anxiety. So wear that badge of pride knowing that you made a smart decision toward paying off your credit card debt with a term loan.

Reason 2 – Improve Your Credit Score
Paying off your credit card debt will lower your debt utilization rate – a key factor in determining your borrowing ability and your interest rate.  You’ll be taking your first steps to improving your score and getting access to better and cheaper credit options.

Reason 1 – It’s Never Been So Easy
Technology is changing banking for the better. Canadians have new options to pay off credit cards easily.  By borrowing at a lower interest rate, you’ll save thousands of dollars and years in debt. 

Did you save for retirement last year?

If you did you were in the majority. According to a survey (PDF file) by the Healthcare of Ontario Pension Plan, more than half of Ontarians without workplace pension plans saved nothing for retirement in the last year - and more than 83% fear that without better pension coverage Ontario is headed for a retirement income crisis.

Three tiers—government support, private pensions, and savings—have defined the Canadian retirement system for close to 50 years. Government support provides a basic benefit, but a pension helps a retiree maintain a middle-class standard of living, and retirement savings provide important supplemental income for unforeseen expenses. 

As good pensions become increasingly rare in the private sector, there is renewed debate as to what extent governments should play the role of provider in Canada’s three-tiered retirement system. 

Research carried out by the Gandalf Group for the Healthcare of Ontario Pension Plan shows that Ontarians feel Canada’s workplace pension system is not delivering adequate retirement security; they are concerned that this could lead to a retirement income crisis down the road and cause an increase in senior poverty. The Gandalf Group surveyed 1,132 Ontarians in September, 2015

•      If workers aren’t able to access good workplace pensions and contribute during their working lives, 84% believe they will become a burden on the taxpayer. As well, 82% say that without good pensions in place, the economy will suffer. 

•      Of those surveyed, 85% say that with-out good pension plans at work many Canadian seniors will experience poverty. As well, 75% say it is becoming more and more difficult for seniors to stay out of poverty. 

•      The fact that workers aren’t saving enough on their own will contribute to a retirement income crisis, according to 75% of respondents. 

•      The lack of good and accessible workplace pensions will contribute to a crisis, say 74% of those questioned. 

•      Because contributions to workplace pension plans are not mandated by the government, 72% say it will contribute to a crisis. 

•      Those with DB pensions say they expect to receive about 60% replacement income—about 3% less than the amount cited as adequate. But those with DC pensions fear they will be short by 16%, and those with no pension at all are concerned they’ll be short by 18%. 

•      Of those with workplace pensions, 45% say they have saved nothing for their retirement on their own in the past year— and that figure rises to 58% for those without pensions at work

•      Only 31% of Ontarians surveyed said they agree with the statement that “most Canadian workers have a good workplace pension program.” 

•      Of those surveyed, 77% said all workers should have a pension that guarantees a percentage of their working income in retirement. The same strong majority of 77% prefer a pension that is based on what they earned rather than a pension with payouts that vary based on market fluctuations. 

•      Only 21% said they would prefer to receive more of their salary rather than having money deducted from their pay for their pension. 

•      When asked what type of pension the government should be encouraging businesses to offer, 47% called for defined benefit (DB) plans and 32% wanted defined contribution plans (DC). 

•      Of those surveyed, 77% supported increasing Canada Pension Plan (CPP) costs and benefits. 

•      When asked whether contribution changes to the CPP should be mandatory, 54% of respondents agreed, 23% felt they should be able to opt out of changes and 17% thought any changes should be voluntary. 

•      A 70% majority supported the idea of the Ontario Retirement Pension Plan (ORPP) increasing pension benefits. • When asked, 74% said increased pension contributions are a form of savings and an investment in the employee’s future. Only 20% saw pension contributions as a tax.

Those are just some of the findings of a poll carried out for the Healthcare of Ontario Pension Plan (HOOPP) by the Gandalf Group. The research found Ontarians were "very concerned" or "somewhat concerned" about these key retirement planning topics:

·         58% without pensions at work saved nothing for retirement in the last year.

·         85% worry that without good workplace pensions, Ontarians will face senior poverty.

·         62% wonder if they will have enough money for retirement.

·         58% ask if their retirement savings are secure.

How much is enough retirement savings? The research found that half of Ontarians believe they will need an average of 63% of their working salary to live on in retirement.

This research illustrates the point that the vast majority of people are much better off in a structured plan such as a defined benefit plan. The defined benefit (DB) pension model addresses the challenges of saving enough and receiving enough, says HOOPP President and CEO Jim Keohane. Member contributions are automatically made each payday and the DB payout is based on a percentage of workplace earnings.

"With a plan like HOOPP, after 30 years of membership a member can expect to receive about 60% of what they earned at work," Keohane says. "That pension is paid for life - and about 80 cents of every dollar HOOPP pays out comes from investment returns."

78% of those surveyed felt that pension plans offered at work should deliver retirees at least 60% of their pre-retirement income. Gandalf conducted the survey of 1,132 Ontarians in early September.

To view the full white paper, go to http://hoopp.com/Retirement_and_Pension_Research/.

About the Healthcare of Ontario Pension Plan

Created in 1960, HOOPP is a multi-employer contributory defined benefit plan for Ontario's hospital and community-based healthcare sector with over 470 participating employers. HOOPP's 295,000 members and pensioners include nurses, medical technicians, food services staff and housekeeping staff, and many other people who work hard to provide valued Ontario healthcare services

Women Showing Greater Commitment To Retirement Savings

Women have long trailed men when it comes to retirement savings but new data from MassMutual Retirement Services shows that women are responding to the challenge and are closing the gap.

Data from marketing campaigns and employer-sponsored retirement plans shows that women are responding more favorably than men to initiatives encouraging retirement saving, especially women aged 18-34, MassMutual reports. Retirement saving rates among women are also catching up to those of men, but women's average salary deferral or savings rates still lag behind those of their male counterparts.

"The longer-term trends show women are taking retirement savings more seriously and in some instances are now eclipsing men," said Elaine Sarsynski, Executive Vice President, MassMutual Retirement Services. "MassMutual is seeing increases in the rates that women respond to campaigns to boost their retirement savings. We're now finding that women's retirement savings account balances in defined contribution plans such as 401(k)s are climbing faster than men's."

MassMutual provides services for approximately 37,000 retirement plans with 2.8 million participants and a total of $148 billion in assets under management as of June 30, 2014.

MassMutual, in analyzing its data on retirement plan participants, found that the average retirement savings balance for women was up 17 percent from a year ago and 71 percent from 2009. The gap between the average balance between women and men narrowed to 37.8 percent in the second quarter from 40.5 percent in 2010.

Earlier this year, a campaign sponsored by MassMutual to encourage retirement plan participants to increase their deferral or savings rates yielded higher response rates for women than men. Younger women aged 18-34 led all retirement savers who increased their deferral rates. Women in this category increased their response rates by 38 percent from 2013 and 55 percent from 2012. Women aged 35-54 also showed more interest in retirement savings, with response rates rising by 42 percent from the same time last year.

MassMutual is seeing greater interest in retirement savings on the part of women overall and younger women in particular because the firm has been able to more tightly segment specific target markets and appeal to narrower demographic groups on their terms, according to Sarsynski. Retirement-saving messages, graphics, images and photos and delivery vehicles are being tailored to fit market segments to better connect with retirement plan participants, she explained.

While those marketing efforts are gaining traction, the average salary deferral rate for women continues to trail men, 5.37 percent to 5.70 percent of compensation, respectively. However, the deferral rates for women have remained fairly steady since 2010 while the rates for men have declined.

There are differences in deferral rates not only by gender but by industry and geography:

The states with the top three average salary deferral percentages among women were:

Montana (8.56 percent), Michigan (8.02 percent) and Rhode Island (7.53 percent); the lowest three states for women were West Virginia (4.49 percent), Mississippi (4.77 percent) and New Mexico (4.98 percent).

The states with the top three average salary deferral percentages among men were:
Montana (8.18 percent), Hawaii (8.13 percent) and Delaware (7.73 percent); the lowest three states for men were Arkansas (5.35 percent), Mississippi (5.43 percent) and Utah (5.55 percent).

The industries with the top three average salary deferral percentages among women were healthcare and social assistance; manufacturing; and finance and insurance.

The industries with the top three average salary deferral percentages among men were manufacturing; professional, scientific and technical services; and finance and insurance.

"There are real differences between how men and women think about retirement savings and respond to messages that encourage retirement savings," Sarsynski said. "MassMutual continues to learn more about those differences and is increasingly focusing on specific demographic trends to better tailor our retirement education, marketing and messaging to help our three million participants retire on their own terms."