Retirement Confidence Survey

 We are getting more confident about retirement or my friends in the USA are getting more confident. Hopefully this confidence shifts to us here in Canada.  The 2015 annual Retirement Confidence Survey (RCS) marks the 25th year of the RCS, making it the longest-running survey of its kind in the nation. Among this year’s highlights:

• Whether or not Americans have a retirement savings plan is a key factor in their outlook about having an affordable retirement. The 2015 RCS by EBRI/Greenwald & Associates finds that the nation’s retirement confidence continues to rebound from the record lows experienced between 2009 and 2013—but this is based on the increasing optimism of those who indicate they and/or their spouse have a retirement plan.
• The percentage of workers confident about having enough money for a comfortable retirement, at record lows between 2009 and 2013, increased in 2014 and again in 2015. Twenty-two percent are now very confident (up from 13 percent in 2013 and 18 percent in 2014), while 36 percent are somewhat confident. Twenty-four percent are not at all confident (statistically unchanged from 28 percent in 2013 and 24 percent in 2014).
• The increased confidence since 2013 is strongly related to retirement plan participation. Among those with a  plan, the percentage very confident increased from 14 percent in 2013 to 28 percent in 2015. In contrast, the percentage very confident remained statistically unchanged among those without a plan (10 percent in 2013, 9 percent in 2014, and 12 percent in 2015).
• Retiree confidence in having a financially secure retirement, which historically tends to exceed worker confidence levels, also increased, with 37 percent very confident (up from 18 percent in 2013 and 27 percent in 2014). The percentage not at all confident was 14 percent (statistically unchanged from 14 percent in 2013 and 17 percent in 2014).
• Worker confidence in the affordability of various aspects of retirement has also rebounded. In particular, the percentage of workers who are very confident in their ability to pay for basic expenses has increased (37 percent, up from 25 percent in 2013 and 29 percent in 2014). The percentages of workers who are very confident in their ability to pay for medical expenses (18 percent, up from 12 percent in 2011) and long-term care expenses (14 percent, up from 9 percent in 2011) are slowly inching upward.
• Cost of living and day-to-day expenses head the list of reasons why workers do not save (or save more) for retirement, with 50 percent of workers citing these factors. Nevertheless, many workers say they could save a small amount more. Seven in 10 (69 percent) state they could save $25 a week more than they are currently saving for retirement.

Canada pension plan

The pressure is on and the attacks continue on the Canada Pension Plan (CPP).  A report says administrators are hiding the fact that the cost of running the Canada Pension Plan has more than tripled since 2006 because of transaction and external management fees.

The Fraser Institute report says proponents of an expanded CPP or a provincial pension plan in Ontario don't talk about the hidden costs of large, government-managed plans.

Philip Cross, co-author of the study and a former chief economic analyst for Statistics Canada, says the total cost of running the CPP jumped to $2 billion in 2012-13, from $600 million in 2006-07.

Canadians should be informed of the total costs of the CPP’s operations and the total costs involved in its increasingly complex investment strategy,” Cross and Emes wrote in their report.

The report failed to mention that both of those figures already are available to anyone with an interest and an internet connection. They have been for years.

CPPIB discloses all of its costs in its annual reports. The publication breaks out spending by external management fees ($947 million in FY2014), transaction costs ($216 million), operating expenses ($576 million), and compensation for seven executives (CEO Mark Wiseman earned $3.6 million), among other spending categories. Likewise, CPP’s annual reports give a full accounting of the cost of administrating Canada’s $288 billion pension system ($490 million).

Still, the highest-rated feedback—by far—asked, “In all that talk, I didn't see the most pertinent question answered: Relative to the performance of a passive system, adjusting for all costs and fees, does the current system beat (or not beat) the return?”


Once again, CPPIB has the disclosed the figures and Cross has done the arithmetic. Since the reference portfolio’s 2006 inception, active strategies have generated an excess $5 billion. Subtract all the fees—administrative plus investment—and Canada’s pensioners finish $3 billion richer.  So costs may be high, but the return is also high. The attacks are from a perspective that wants the government fund to fail, but it is routinely doing better than most private sector pension plans. The success of the program must be galling for those who want to downsize and privatize pensions for Canadians. 

One of the main resources Canadians rely on is the Canada Pension plan, and as long as it continues Canadians who have worked will have income when they retire.

Start to Organize your financial affairs when you retire

Organizing financial affairs can be a beneficial step to help other responsible parties, in the event of emergencies or incapacity, locate important financial accounts, contacts, information, and documents. The importance of creating and maintaining this information cannot be overemphasized.

There are websites 1 with forms to help you organize this information, including accounting and tax information, banking and credit information, documents, and legal documents. Once you have your information organized print this information and put it somewhere safe and secure, yet leave a written instruction to a responsible person as to where to locate the forms.

Some of the information needed  by those who will be looking after your financial affairs may  be:

• Bill Payment information 
• Bank and Credit Card Statement  information
• Insurance and Medicare Payment Review
• Bank Account Deposits
• On-line Banking Activities
• Document Organization for Accountant, Financial Ad visor, Attorney or Designated Party    
• Income and Expense Ledgers
• Spending History by Account, Category, Percent and Dollar Figure
• Bill and Income Receipts and payments
• Net Worth by Account Type
• What to do with and managing Incoming Mail

You should record information about bank accounts, brokerage accounts and credit or debit cards. By including account numbers, account address and contact information, it is a convenient form to help in the event you need to contact the issuer to report lost or stolen account information.

You should also record the contact information for accountants, financial consultants, insurance agents, investment brokers and lawyers. If you have more than one professional for each category, you can include them as well as specify their specialty.

Record where you keep information about health records and forms, insurance policies and documents, investment records and legal documents. The organization of documents will help maintain order and will also allow you or others  to periodically review the most recent revisions to determine if updates may be necessary.

1.  http://www.extension.org/pages/11023/organize-your-important-household-papers:-print-this-lesson#.VThpBCFVhHw
1. https://www.myseniorportal.com/cat/finance-law-insurance/financial-envelope (must join to use the forms)

Women Showing Greater Commitment to Retirement Savings

A survey by MassMutual Finds  that women are beginning to take retirement savings seriously.

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 favourably 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 analysing 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.

Start your plan for retirement early

In the education system I worked in there was a course called Personal Planning, which is part of the Graduation Program. In the course the students learned how to plan for their careers, how to plan a budget, how to plan for life. It is a great course but it is taught at the Grade 10 level. Well in my experience, most 15 and 16 year old students are not thinking of planning for life. They have a short time horizon and planning for life means planning for the next weekend.

One of the skills taught, (not necessarily learned) show students how to save and how to plan. As a working person, close to or just starting to think about retirement perhaps a review of what should go into your plan for retirement might help.  

Planning for retirement is not hard, there are two main considerations, the first is time, the second is income. Lets look at time; in the 60's  the life expectancy from birth for a Canadian  was in the mid-70's for men and 80 for women. Today a woman who is 60 this year can now expect to live on average to 89, says the Canadian Institute of Actuaries, the group who sets the benchmark for pension calculations reports. A man who is 60 can expect to live on average to 87. So if you retire at 60 or 65 you still have a lot of years ahead of you.

Here is a great site for my friends in the States to help them plan The RealDealRetirement Toolbox.One of the first tools on this site is this one: 

 Will You Have Enough To Retire?  This tool is designed to give you a quick estimate whether you’re on track toward a secure retirement. Enter your age, income, planned retirement age, the amount you've saved to date and the percentage of income you save each year, and the tool will estimate how a nest egg you’ll need and how much you’re projected to have.

In Canada we do not have such a tool, so we have to figure out how much of a nest egg we will have by doing some basic research and doing some basic math.

First set a goal of how much money you need when you retire.  Here are some steps to help you figure out this amount. I suggest you need to consider your pension situation, the government pension you will receive and finally how much you want/need to save. 

First figure out your pension situation by finding out  if you contribute to a pension plan.  If the answer is yes, then ask what type of plan, is it. There are two basic plans. The first is called a  Defined Contribution Plan (which means you contribute, your employer may contribute, and when you retire you take your savings and invest in a program that will give you an annual income) the second is a Defined Benefit Plan (which means you contribute, your employer may contribute and when you retire, you receive an income based on years of service multiplied by a percentage to define what percentage of your annual wage you will receive). Some newer plans are a combination of the first two.

If you are not contributing to a pension plan, then you will have to figure out how much government pensions you may receive. In Canada, people who have worked all of their lives receive Canada Pension Plan (CPP). You must have worked and made at least one valid contribution (payment) to the CPP to qualify for a CPP retirement pension. The standard age to begin receiving the pension is 65. However, you can take a permanently reduced CPP retirement pension as early as age 60 or take a permanently increased pension after age 65. If you live in Canada you can go to the website and calculate how much you will receive when you retire. 

If you live in Canada you also receive the Old Age Security Pension. The Old Age Security (OAS) pension is a monthly payment available to most people 65 years of age and older who meet the Canadian legal status and residence requirements. Your employment history is not a factor in determining eligibility: You can receive the OAS pension even if you have never worked or are still working. To see if you are eligible, go to this website. This pension is currently $563.74 per month. If this is your only income, you may also be eligible for the supplement, which is $764.40.

So if you will be receiving the Canada pension add that amount to the Security Pension and that becomes your base monthly income in retirement. 

If you are not receiving Canada Pension then your base retirement income may be your OAS plus your supplement.

Once you have your base retirement income then if you are receiving a company pension you can add your company pension to that amount. This should give you an idea of your monthly income when you are retired in today's dollars. 

If  you think the amount your have is not enough to live, then you have to supplement this amount by savings. In Canada we can save for retirement through two programs. The first is called an Registered Retirement Saving Plan (RRSP), and the second is called a Tax Free Savings Plan (TFSA). Both these plans have limits on how much you can save per year. The RRSP limit for 2014 is $24,270. However, your 2014 RRSP deduction limit may be more than $24,270 if you did not use your entire RRSP deduction limit for the years 1991 to 2013. Your unused RRSP deduction room will be carried forward to 2014. 

The TFSA limit this year is $10,000 and if you do not contribute the maximum, the amount of unused contributions is carried forward. If you have not yet contributed to your TFSA you have $41,000 in room to invest. 

If you have not contributed to an RRSP or a TFSA and you have just invested and/or saved outside of these two vehicles, you may buy an Annuity or just draw down from your savings.  I highly recommend that you talk to your financial adviser about the most effective way to do this. You may be able to construct a vehicle that allow you to pay minimum tax.

When you retire, you may need to start taking money out of your savings. In Canada RRSP must be converted to Registered Retirement Income Funds (RRIF) once you turn 71. The minimum amount of money you can take out is mandated by the government and it starts at 5.28% and this percentage of withdrawal goes up every year. The RRIF program is designed to so that by age 95 all of the money is withdrawn. You must pay tax on this money.

The nuts and bolts of a RRIF

A RRIF is the sequel to an RRSP. You must convert your RRSP to a RRIF when you turn 71.

Your savings grow tax-free inside, but withdrawals are taxable.

A RRIF can hold the same sorts of things as an RRSP — stocks, GICs and mutual funds.

There is a minimum required annual withdrawal, but you can do it monthly quarterly or once a year.

If your spouse is younger, you can use his or her age to calculate the minimum withdrawal.

If your spouse is your beneficiary, he or she inherits your RRIF tax-free. Source: GetSmarterAboutMoney.ca

If you have your money in a TFSA account, you can take out whatever you want or need, there is no restrictions and you pay no tax on the money.

Most advisers I have talked to suggest that you should take out about 4 to 6 percent of your savings. 

So if you, for example want another $2,000 a month to supplement your government pensions, then you need to have around $600,000 in savings. This amount would allow you to take out $24,000 a year (4%) without touching your capital. 

So if you are in your 30's you have 35 years to save.or if you are in your 40's you have 25 years to save.  One suggestion is that you put away between 10 and 15% of your salary per year. That may be hard to do if you have a family. I suggest starting at 5% and then increasing this amount when you get a raise.