So, how is your RRSP doing?

RRSP returns not so great? Join the club. Many people are turned off RRSPs because their investments aren’t making money.

I often hear from people whose RRSP assets are the same today as 10 years ago, even though they’ve made annual contributions.

Some people tell me they’ve earned a modest return, but no more than if they had bought GICs instead of equity funds.

As public and private pensions slowly disappear, Canadians are thrown into the arms of a rapacious financial services industry. They have no choice but to save for retirement on their own. But they don’t like the choices offered.

That’s why I was happy to learn that the Saskatchewan Pension Plan was open to anyone in Canada who wanted to join. I mentioned in my column today that I’d gotten the information from Derek Foster’s new book, The Worried Boomer

Finally, you can save for retirement without worrying about self-interested salespeople selling you the flavour of the day funds.

Professional management doesn’t have to cost 2.5 to 3 per cent of your assets a year. You can cut the administration fees in half and get more consistent performance.

You need RRSP contribution room to make your $2,500 maximum annual contribution to the Saskatchewan Pension Plan (SPP). However, you can transfer up to $10,000 in cash a year from your existing RRSP assets. (That doesn’t require having contribution room.)

There’s one thing you need to know. While you can get your money out of an RRSP at any time, as long as you pay tax on the withdrawals, your SPP money stays in the plan until retirement time. Here’s what the rules are:

Do I have to wait until I’m 65 to retire?
You may retire from the Saskatchewan Pension Plan any time between the ages of 55 and the end of the year in which you turn 71.

Do I have to retire at 65?
No. You can continue contributing to your account until you retire from SPP, which can be delayed until the end of the year in which you turn 71.

If you go to the SPP’s website, it can answer most questions you have about investing.

And the plan’s rate of return? Not too shabby.

The Plan returned an average of 8.4% to members from 1986 to 2009. The ten year average is 5.45% and the five year average is 3.8%.

The highest return in our history was 21% while the lowest was -16.2%.

In 2011, most Canadian equity funds were down about 10 per cent. The SPP’s balanced fund was down too, but only 1.01 per cent. In January 2012, the balanced fund’s return was 2.16 per cent.

Saskatchewan is the birth place of medicare. It has a history of innovation and community spirit. Now it’s reaching out to retirement savers who want another option.

Check out the SPP if you’re looking for professional money management at a reasonable cost without a sales pitch. It’s a nice addition to the RRSP landscape.

Author: Ellen Roseman

Consumer advocate and personal finance author and instructor.

9 thoughts on “So, how is your RRSP doing?”

  1. If I can get 7% a year by buying Toronto real estate, it’d make way more sense than investing in volatile stocks or non yielding GICs… By the time I retire, my house will be my retirement account as it would have doubled or tripled from its current value… You won’t get that type of return in stocks, bonds or GICs

    Matter of fact, I might be buying two or more for extra income and appreciation

  2. I do not recommend the Saskatchewan Pension Plan (SPP). I invested with them over ten years ago when I was young and uninformed and have regretted it ever since. There is no flexibility to select your investments, no way to withdraw your funds until you are old and grey, and the investment fees are similar to some mutual funds.

    I now have self-directed RRSPs with a discount brokerage that allow me to buy index-based passive Exchange Traded Funds (ETF) with expenses that are a tenth of the SPP and I have experienced better returns with a Couch Potato type approach. Plus, if I ever need the money in an emergency (or for early retirement), I can actually withdraw it from the RRSP.

    While the SPP may suit some people, my experience has been that the returns are mediocre, the expenses are average, and it provides no financial flexibility. Buyer beware…

  3. Bob, I doubt you will make 7% a year on real estate over the long term. Who would be able to afford a house in ten or twenty years if it increases at that pace?

  4. Bob, even if you do earn 7% a year on your own house – where do you want to live? Is selling your home and purchasing something else in Toronto, which has also appreciated in value, really worth the hassle?

    As Ellen pointed out – this is an option that ALL Canadians didn’t have before – just another option. Thanks, Ellen.

    How you wish to lose your money for retirement is completely your own choice.

  5. @Former Sask Resident Tons of rich foreign families and professionals absolutely flood Toronto and Vancouver each year… this isn’t going to stop with baby boomer’s eventually retiring..

    Rock bottom interest rates are also here to stay at least for a good 5 years…

    The Harper government as well as the banks have shown time and time again that they are very accommodative to real estate homeowners/investors.. just look at those easy money 2.99 loans you can get now..

    Why would anyone choose stocks that are denoted in electronic numbers that are consistently volatile with the possibility for maximum loss (think ’09) with MER fees bleeding you or “safety” assets such as bonds/GICs where they barely beat out inflation?

    With a house, there will always be renters plus you get that 7% appreciation from the reasons I listed above.. it just makes sense.. people always need places to live and are willing to pay anything for their dream home

  6. Uh, if anything, Bob’s posts clearly point to an extremely overheated bubble market.

    You say rock bottom interest rates are here to stay for at least 5 years. Are you a psychic?

    There’ll always be renters? How can you be so sure?

    You act as if there’s no risk in real estate and the returns are guaranteed. That’s exactly the kind of thinking that creates bubbles. I believe you’re taking on far more risk than you believe, and worst of all, it appears to mostly be in one asset class.

    Take advantage of it while you can I guess, hopefully it’ll last for you but I fear it won’t.

  7. Well, I believe in a balanced approach. I have several empty residential lots because the taxes are super cheap and interest rates are low.

    I have an ATB Balance Conservative Compass Portfolio earning just over 6%; and, not liking exposure to foreign markets and, being an Alberta Resident, decided to max out the Sask Pension Plan for both myself and my wife for a little extra.

    I did quit dumping everything into RRSPs and now also max out the TFSAs for myself and my wife. I would sooner take the tax hit now rather than defer it.

    I am 41 and self-employed as a professional, so I will probably never fully retire. I own my own business and have 13 staff and other professionals working for me on commission.

    The one thing that can kill young families is medical bills, even in Canada. We brought in a group Blue Cross plan and I was shocked to learn that in 2012, my family made $29,000 in claims through AB Blue cross and they paid $22,000 of that (my wife and I each work for the business and are covered – and- we have a personal plan, so all three co-op pay). This does cost business-wise about $9,000 per year, but it is a 100% tax write-off. So if you have a family and are without employer benefits, get a personal plan; or, better yet, get a personal plan and employer group benefits.

    When my assistant was sick with cancer, we brought in two group plans, a Blue Cross for medical and life and Sun Life for STD, LTD and life and critical illness. Our employees pay the STD and LTD premiums to get their pay tax free – so in addition to a retirement plan, have a medical and disability plan in place.

    I have wasted 10s of $1,000s on Universal Life insurance. Stay away from that – my plan has consistently lost money over the last decade. Buy a good T-30 and put the difference in a good plan.

    Stay away from high MER fees on mutual funds. I read that if you take the number 40 and divide that by the amount of your MER fee, that is the amount of time it will take for 1/3 of your principal investment to disappear.

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