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

Part five: Underfunded dreams

No pension safety net for self-employed Add to ...

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.

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.

Tools you can use

Do you know what it takes to create a secure retirement? Use this calculator to help create your retirement plan

An interactive explainer breaking down the different kinds of pension plans and the payouts depending on income and age of retirement

Use our glossary to find explanations of key terms related to retirement and pensions His company went bankrupt with a 30-per-cent pension deficit

"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.

'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.

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.

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