Weekend Reading: Calgary Marathon Edition

I’ve been slowly upping my running game and this weekend my wife and I head up to Calgary to race in the Scotiabank Calgary Marathon. I’m still a step behind my wife, who is a more seasoned runner, so I’m entered in the 10 kilometre race while my wife attempts her first half-marathon.

Calgary Marathon

I’m aiming for a sub 55 minute finish for the 10K and my wife will try to beat the 2-hour mark in the half-marathon. Wish us luck!

This Week’s Recap:

Many thanks to Sophia Harris at the CBC for including my advice in her recent story about how Canadians are hoarding $16B worth of loyalty points.

On Monday I shared my unhealthy obsession with saving money.

On Wednesday Marie explored all the great (and frugal) activities you can do this summer to celebrate Canada’s 150th birthday.

And on Friday we opened up the Boomer & Echo mailbag and looked at why more employers are switching from defined benefit plans to defined contribution plans.

Weekend Reading:

Portfolio manager John De Goey says enough is enough – it’s time to put an end to embedded commissions:

PWL Capital’s Ben Felix launched a new video series called Common Sense Investing:

Jason Heath answers a retiree’s question about whether she should hold equities along with her defined benefit pension and GICs.

Jonathan Chevreau confronts the “wonderful” problem of the too-large RRSP:

“Baby Boomers have a huge looming tax problem ahead with their 6-figure RRSPs once it comes time to start withdrawing money or securities from them.”

MoneySense’s David Hodges says to try a balanced approach with early withdrawals to pay less tax and stretch your retirement nest egg.

If you’re working past age 65 beware of this Canada Pension Plan oddity.

Desirae Odjick takes a first-hand and detailed look at buying a house with a partner if you’re not married. For the record, my wife and I also bought our first home together before we were married.

Here’s four big risks of borrowing against your house to pay for home renovations.

It’s survey season and according to the latest one by accounting firm MNP, over half of Canadians are $200 or less away from not being able to pay their bills. Ugh.

Next up, a Manulife survey confirms the painful truth about our household debt:

“70 per cent of mortgage holders surveyed report that they would be unable to manage a 10-per-cent increase in their mortgage payments.”

Rob McLIster’s Rate Spy website digs deeper into the Manulife survey and concludes that the survey respondents likely did not have a good grasp on what a 10 percent increase in payments actually meant:

“Since the average mortgage is $201,000, a 10% payment jump works out to $106 a month (on average), assuming a 20-year amortization. To most people, that’s not a colossal dollar increase.”

If you’re having trouble scraping together money to save each month take a look at Mark Seed’s approach to saving money on any income.

Michael James tries to explain why he doesn’t abide by the “pay yourself first” mantra. I get what he’s saying, as we have a similar savings approach that’s hard to explain to others.

The anti-Sean Cooper approach to paying off your mortgage – here’s why Krystal Yee does not want to burn her mortgage early.

Home Capital increased the interest rate it offers on savings accounts and GICs in hopes to attract more deposits. Rob Carrick lays out a compelling case for not biting on the embattled bank’s 5-year, 3.1 percent GIC.

A great read from Morgan Housel: To understand how we process risk, you have to know the story of Austria’s 40-year-old nuclear power plant that has never produced a single watt of energy.

Million Dollar Journey lays out a simple index investing guide for his American readers.

Finally, a terrific piece on the career of airline executive and former head of Air Canada Robert Milton.

Have a great weekend, everyone!

From The Boomer & Echo Mailbag: Why Is My Employer Switching Our Defined Benefit Plan To A Defined Contribution Plan?

Q. I have received notice that my employer is switching my Defined Benefit Pension Plan to a Defined Contribution Plan. What are the implications to my future retirement?

Why Is My Employer Switching Our Defined Benefit Plan To A Defined Contribution Plan?

You are not alone. More and more companies are replacing defined benefit plans with defined contribution plans. This is primarily due to the rising expenses and long-term obligations (people living longer) associated with running a defined benefit plan.

Defined benefit plans essentially promise to pay eligible participants a guaranteed monthly amount (the benefit) in retirement over their lifetime. The amount is based on a formula, typically using income and years of employment, and sometimes other variables. To make these payments it is important for the company to have a properly funded plan.

Related: Have we seen the last of gold-plated pensions?

Alternatively, a defined contribution pension plan lowers the risk to the employer. They no longer have any obligation for the performance of the plan. The onus to properly save for retirement is put on the individual employee. Planning for one’s future retirement becomes more challenging when pension plans and rules change, especially if the pension could provide less income than you originally might have planned or hoped for.

As per the name, employees usually contribute an amount based on a percentage of their salary. The funds are invested in a choice of various mutual fund or GICs within the plan.

The advantage of defined contribution plans is they offer an employee more choice and flexibility to tailor the plan to suit his or her investment goals and risk tolerance, and the benefit of dollar-cost averaging.

You have total control over your portfolio, so make sure you put some effort into this.

Make the most of your defined contribution pension plan by:

  • Continuing to make contributions
  • Maximizing the amount you contribute to take advantage of as much of employer matching you can
  • Reviewing your plan statements to understand how your investments are doing

A defined contribution pension does not pay a specific benefit. There is no guarantee as to how much income you will receive at retirement. It’s harder to predict what you’ll end up with at retirement. Your payments will depend on the value of your account when you retire.

Related: Why opting out of your workplace pension plan shouldn’t be an option

This amount you will depend on how much your employer contributes to the plan, how much you as an employee save in the plan, how and how long the funds are invested, and how well your investments perform. The main risk is that a significant market crash could wipe out a big chunk of savings just when you need it.

A major decision at retirement is how to invest the money. You have a choice of transferring the funds to a locked-in RRSP, or if you need income right away, a LIF or annuity. Your retirement income will depend on the option(s) chosen.

Understand what your pension will provide. Use a retirement calculator to figure out how much you are likely to save (include the employer contribution) and how much annual income it would provide. This can also give you a guide for how much to save outside your pension plan.

Don’t wait until you retire to you figure this out.

An additional note; today a retiree aged 55 can access income from their defined benefit plan and income split with their spouse on their taxes. However, when income is taken from a defined contribution plan, these funds are not eligible for income splitting until both spouses are 65.

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