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 Iâ€™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.