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A new BMO survey says most Canadians will rely on CPP in retirement. (Gunnar Pippel/Getty Images/iStockphoto)
A new BMO survey says most Canadians will rely on CPP in retirement. (Gunnar Pippel/Getty Images/iStockphoto)

Retirement and RRSPs

Living in Retirement: Without my defined benefit pension plan, I'd be working Add to ...

In our Living in Retirement blog, a recent retiree chronicles the ups and downs of her real-life retirement journey.

I worry about the youth of today. Instead of facing my generation’s concerns of whether we'll outlive our money, I wonder if young people will be able to save enough money to even have a retirement.

When I graduated from university in 1976, the average tuition in Canada was $538, the average price for a house was $193,000 and the average student loan was $4,338. (Use the Globe’s interactive Who-Had-It-Tougher tool to find out what these stats were in the year you graduated.)

When I mentioned these numbers to my journalism class at Sheridan College, they were not amused. The students graduating more recently have had it much worse than I did. In 2010, for example, graduates could, on average, expect to pay $4,713 for tuition, $339,000 to buy a house (fat chance) and finish school carrying $5,226 in student debt. 

When it comes to saving for retirement, my own story is vastly different from the one young people are reciting today. After finishing school, I worked as a journalist and in book publishing for 12 years. During that time, I did not have a pension and did not put away a single penny for retirement.

But after my writing and editing years, I decamped to the ivory tower and started teaching at Sheridan College. Six years into that teaching job, I bumped into the union president who asked me how I felt about the state of our pension.

Truthfully, retirement could not have been further from my mind. As someone in her mid-30s who was paying a mortgage, I was more concerned about the significant deductions on my paycheques for a pension that seemed a long way off. Taking off roughly 10 per cent of my net pay seemed like a large financial hit at the time. Although I wasn’t interested in retirement then, the union president assured me that someday I would be.

That day did indeed come, faster than I could have imagined. In my mid-50s, I became obsessively curious about the pension I had been paying into for years.

The Colleges of Applied Arts & Technology (CAAT) plan is a jointly sponsored defined benefit pension plan operating at arm’s length from the Board of Governors of the Ontario Colleges and the Ontario Public Service Employees Union

Similar to other defined benefit pension plans, it pays out a pre-set amount of monthly income based on years of service, yearly salary, particularly the last five years of income, and a complicated formula that most college employees have never figured out. But it works like a charm.

Unlike a defined contribution plan, where payouts depend on the returns achieved by the member, it is the employer’s obligation to make up any shortfalls caused by weak investment returns or other factors such as a low ratio between retired and active members.

The CAAT pension plan is 105 per cent funded and this year increased its reserve to $525-million. After the great recession of 2008 the figures are not as rosy, but those of us who are retired can depend on a fixed monthly payout.

Defined benefit pension plans force employees to set aside money for retirement from when they start working till when they stop, whether they like it or not.

If my generation couldn’t save on our own - personal savings rates have been declining for the last 30 years - it’s difficult to imagine how the students in my class will ever be able to adequately prepare for retirement.

When I was trying to decide when to retire, I compulsively entered my yearly pension statement numbers into the CAAT’s web site to see what the monthly figure would be if I stopped working at 61, 62, or 65; how much tax I would pay on my pension, how much Canada Pension Plan and Old Age Security I could expect and what I’d need from my private resources or part-time work to maintain 70 per cent of my pre-retirement after-tax income.

Based on those numbers, I chose to retire at 62, with the knowledge that about 50 per cent of my pre-retirement earnings would come from my pension plan and CPP.

During my 25-year career at the college, my contributions along with those of my employer, made it possible for me to retire without worrying if I’ll outlive my savings. After working full-time for 37 years and raising a child as a single mother, I could follow my dream of writing my first novel,  which is currently in its second printing.

Without my pension plan, I would still be teaching and working full time. Looking back, getting a job with a decent pension was the smartest financial move I ever made. I wonder how many of my students will be that fortunate.

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