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retirement and rrsps

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

Who would have thought that pensions would be the hot topic of this spring's Ontario election? When I was young, it was the furthest thing from my mind.

Back then, elections were about foreign ownership of Canadian resources and getting the government out of the bedrooms of the nation. Those of us under 30 were more interested in overthrowing the status quo than developing fiscally responsible strategies to fund our retirement. It might be the reason that boomers haven't been terribly successful at saving for it.

For many friends my age these days, plans for their golden years hinge on the pension issue. "I'll never be able to stop working," is a common refrain. For some, the dream of Freedom 55 has morphed into the nightmare of Survival 65. A multitude of reasons are cited: the stock market crash of 2008, a lack of disciplined saving, and real estate located outside Toronto and Vancouver that hasn't done nearly as well as it has inside these cities.

Those of us who were fortunate enough to have careers in the public sector are vacating the work force in droves. Defined benefit pensions are the bedrock of our financial plans in retirement.

For the rest of my circle of friends, the situation depends on three key factors. The first is if they were they lucky enough to get a substantial inheritance from their parents. Those who benefited from getting a chunk of cash from family and have a workplace pension can afford to enjoy frequent travel, summer houses and winters in the sun.

The second is personal savings. In my circle of friends, those who had careers in medicine, law or accounting have done well. But those who spent everything they earned are still working, at least part-time. Those who were prudent savers and good money managers, their retirement is secure.

The third is location. Those who bought homes in the Greater Toronto or Vancouver Areas since the 1970s have made buckets of money on real estate and, in some cases, that home is their retirement fund

Without a defined benefit pension, significant personal savings, an inheritance or pricey real estate, retirement years are filled with uncertainty. In the face of this uncertainty and predictions that younger generations will be even less prepared for retirement than mine is, the federal government has recently introduced target pensions into the conversation. In this proposed new workplace plan, the employer and the employee share the risk.

At the same time, former governor of the Bank of Canada David Dodge is calling for an expansion to the Canada Pension Plan (CPP). The Liberal government in Ontario is betting the spring election on the popularity of its provincial pension proposal.

In my case, a defined benefit pension from the college where I taught for 25 years has changed my life for the better. Here are five ways it did:

1. It allowed me to retire early.
It would have been impossible for me to retire at 62 without the knowledge that my financial situation would be secure, no matter how long I live. Although my mortgage was paid off, I had a daughter who I was helping get through university. While I was helping foot the bills for her education, retirement without this rock-solid pension would have been out of the question. Staying until 65 wouldn't have made a huge difference. (Read an earlier blog post on this.)

2. I don't have to rely solely on government money.
After working for more than 35 years, my monthly CPP benefit is $704. I didn't leave graduate school until I was 25 and for a few years I didn't contribute to CPP as I was freelancing for various magazines. I'm grateful for CPP, but it is not a financial game changer.

3. The stock market crash did not derail my retirement plans.
The Great Recession of 2008 erased 32 per cent of my investment savings, leaving me with less for retirement than I'd banked on. Although the portfolio was not overly aggressive, 70 per cent was invested in equities and corporate bonds. Mutual fund fees were high. In 2008, I was 57 years old and I didn't have the time to rebuild my personal savings to attain my long-time goal of retiring at 62. My Colleges of Applied Arts & Technology Pension Plan was the sole reason I achieved my dream. It raised employee contributions after 2008 and today is 105 per cent funded. Although my personal savings are still recovering from the recession, my monthly pension payout is what I expected.

4. My home is not my retirement plan.
If I did retire at 62 – or 65 or 67 – without my defined benefit pension, I would have been forced to sell my home. It would have become my retirement plan and I'd now be living in a modest apartment and not building equity in my new townhouse, where, as it turns out, my monthly mortgage payment is equal to my former condo fees and the rent on a storage locker.

5. I haven't depleted my savings.
Since I've retired, I haven't been forced to dig into my savings. Touch wood. I'm giving my investments time to regenerate. In an emergency, or when I do stop working part-time, I will have the adequate funds to supplement my pension and to leave something behind for my daughter.

Most importantly, I'm enjoying peace of mind about finances during my senior years. I've been able to plan ahead, not to guess, but to know, that I will be able to maintain a middle-class lifestyle as I grow older.

Follow Joyce Wayne on Twitter: @JoyceWayne1951

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