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Rachel Mielke, CEO of Hillberg & Berk, a jewelry business in Regina, Sask., looks at some of her work on display at her store.

Rachel Mielke's pension plan worked the red carpet at last year's Oscars.

When it comes to how she will fund her golden years, the 29-year-old jewellery designer is under no illusions. Ms. Mielke knows that she is on her own in building a nest egg, and the Regina resident has a simple take on her financial future: "My business is my retirement plan. I know that government programs aren't adequate, and won't take care of me."

Right now, her retirement looks rosy. Five years after quitting a secure job to start a handcrafted jewellery company named Hillberg & Berk, she's finding customers have a thing for her bling. It doesn't hurt that her business got some red-carpet exposure from an NBC interviewer who wore Ms. Mielke's earnings and necklace while working the Academy Awards, or that Katie Couric's stylist recently picked up a few baubles.

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All of which translates into a rapidly-expanding Saskatchewan venture that employs seven people and, when it comes to issues such as pensions, one somewhat anxious boss.

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"Like any small-business owner, my life is my company. Retirement really depends on my success, and on succession planning. Can I sell the business to someone else, or to my employees?" Ms. Mielke wonders. The Freedom 55 dream is not for her; she sheepishly admits she fails to take advantage of her RRSP allowances. "I can't imagine that I'll ever stop working," she says.

Meet the next generation of retirees: middle-class workers without pensions who are left to their own devices and facing an uncertain financial future. Ms. Mielke has a plan, vague though it may be. But as formal pension plans become increasingly less common, many Canadians face a savings burden that many are unwilling - or unable - to shoulder.

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'Young people simply will not save for retirement on their own, due to lifestyle and attitude, so mandatory plans helped to solve that social problem," says Idan Shlesinger, managing partner at consulting firm Morneau Sobeco.

"The move away from mandatory pension plans means young people are now far less likely to eventually enjoy well-funded retirement."

For an enormous chunk of the population - for the self-employed, such as Ms. Mielke, for those who work at small businesses, for professionals, for many immigrants - a secure, comfortable lifestyle after their working years is now in question. The middle class faces a retirement nightmare. And no one in power wants to talk about the problem.

"The great irony is there is no sympathy for these people, this huge section of the public that won't have adequate retirement income," says Malcolm Hamilton, a principal in benefits consultant Mercer.

"There is no sympathy for the middle class."

Take, for example, a small business owner who makes $200,000 a year, by any yardstick, an upper-middle-class earner one might expect to enjoy a cushy retirement. This person might own a franchise, or be a consultant, a lawyer, a dentist or a farmer.

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On retirement, they have the good fortune of selling that business for $2-million. By any conventional standard, that individual struck it rich.

What happens next? To be safe, the retiree socks the windfall into bonds. The portfolio earns 4-per-cent interest, or $80,000 a year. Taxes take half that amount. Inflation eats up the other half.

A supposedly affluent individual is suddenly left scrambling - forced to spend their capital to make ends meet. It's this kind of scenario that's been pushing retirees into the stock market.

"The tax regime forces individuals to take risks that they simply should not take with their retirement savings," Mr. Hamilton says.

For a sense of just what that extra risk actually means to those without a formal pension plan, look no further than retired dairy farmer Dick Steenstra in Goderich, Ont.

Going into the downturn, the 62-year-old had done everything right and accumulated a $1.2-million nest egg. That portfolio cracked when the market tanked; in the worst days in March, the farmer's savings were down to just $160,000.

Mr. Steenstra stayed calm, stayed invested, and rode the market back up, but is still down by 50 per cent: The family farm goes up for sale next spring to help refill the coffers, and vacation and renovation plans are very much on hold.

"My folly was thinking I could run it myself, better than the experts," says Mr. Steenstra, who is more than a little peeved with the Bank of Montreal teller who advised margin loans as a way to augment a self-directed portfolio.

The university-educated farmer says: "If you plan to invest a lot of your savings, I really think you need an education in investments. In retrospect, I wish I had thought of my portfolio as more of a pension than as stocks that I should trade."

Funding retirement of Canada's vast middle class can only become a larger social issue, as a pension paid by a benevolent employer is becoming increasingly rare.

At a time when the population is aging, more than six out of 10 Canadians have no formal pension plan, according to the most recent data from Statistics Canada. The federal agency found the percentage of the population with some sort of pension has been dropping steadily for three decades, to 38 per cent of Canadian workers in 2007 from 46 per cent in 1977.

That trend is expected to continue, as companies continue to steer away from plans now seen as expensive industrial anachronisms. The problem is most acute at smaller businesses, and there are 5.1 million Canadians - or 48 per cent of the private-sector work force - at small companies, with fewer than 100 employees.

"There are no good retirement options for the self-employed, or owners of small businesses," says Mr. Shlesinger, of Morneau Sobeco.

He sees annuities, mutual funds and other mass market financial products as expensive and inefficient.

Mr. Shlesinger says with these savings schemes, workers "tend to either budget too conservatively, and save too much at the expense of their lifestyle, or roll the dice by underfunding their retirement savings, and hoping market performance skates them on side."

And left to their devices, most Canadians can't or won't set aside enough to pay for their golden years: Statistics Canada shows that last year, just 31 per cent of eligible taxpayers made use of the RRSP program, the single biggest tax break available to individuals.

"The current market chaos should be a wakeup call to everyone - companies, governments and citizens - that our current pension system needs to be overhauled," said Ontario Teachers' Pension Plan chief executive officer Jim Leech in a recent call-to-action speech.

He added: "Average RRSP balances are woefully short of the levels they need to be in order to fund retirement."

Yet as savings decline and pension plans are wound down, a large segment of the population is ramping up their expectations for life after work.

Credit, or blame, a baby boom generation that's grown up wanting for nothing, while being bombarded with concepts such as Freedom 55, which promise fun-filled retirement.

"People aspire to more from retirement today than they did a generation back," Mr. Hamilton says.

"That goal presents a real problem to those who are reasonably affluent … who aspire to a better life in retirement than what they may have enjoyed while working."

The rule of thumb is that retirees need 50 per cent of the income they earned while working.

That figure assumes debts such as mortgages are all paid off and dependents have left the house. For upper-middle-class Canadians, RRSPs and government programs such as the Canada Pension Plan are unlikely to provide that kind of income. Yet there are few tax-effective ways to set aside additional savings.

And much of the middle class aspires to a more expensive retirement, filled with sun-drenched adventure travel and fine living.

Despite the middle-class retirement shortfalls that are obvious to pension experts, politicians and business leaders seem fixated on patching up existing systems.

Attention and resources get focused on underfunded corporate plans, and on a tired debate over the merits of defined-benefit schemes, where the employer makes good on shortfalls, versus defined-contribution plans, which shift market risk to employees.

There is very little talk about enhancing pensions for the majority of the population that lacks any retirement safety net. University of Toronto pension guru Keith Ambachtsheer says: "Rather than defending old faulty designs, why haven't pension industry leaders been searching hard for designs better suited to delivering 21-century retirement living standards that are adequate, universal and sustainable?"

Fixing the pension problem will fall to the generation that comes of age struggling to fund retirement.

For jewellery designer Ms. Mielke, the goal is straightforward: "If I could change one thing in the tax code, I would make sure that if you do well in business, you do well after retiring."



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