There has been quite a bit of cheering already for the proposed changes to the Canada Pension Plan, which the federal government unveiled this week. But you may want to look closer at the fine print (and do some number crunching) before thanking Finance Minister Jim Flaherty yourself. 

The changes to CPP are supposed to reflect, in the government’s words, “the many different paths people take to retirement today.” True enough. These days, some of us want to retire early, others want to keep working past 65. Many more wish to ease into retirement by working part-time for a while. 

By far the biggest change to CPP will let Canadians keep working while collecting retirement benefits. Under the current rules, if you take early retirement, but want to keep working, you have to stop working for two months or substantially reduce your income for two months. After the two-month period ends you can go back to work or earn more and you’ll still qualify for CPP. The government wants to eliminate that red tape. Under the new rules, which take effect in 2012, you’ll be able to keep your old job while collecting CPP. The idea is that if you work for your old employer part-time, CPP will help supplement your income. So you’ll earn as much as you used to when you were working full-time.

Sounds great, but watch out for two catches. The first is that the government is reducing CPP payments to early retirees. Instead of collecting 70% of your full CPP if you retire at 60, you’ll only get 64%. That’s a significant drop, says Robert Abboud, a certified financial planner in Ottawa and author of No Regrets: A Common Sense Guide to Achieving and Affording Your Life Goals. It adds up to around $660 less in CPP a year for someone who qualifies for the maximum benefits.

Catch number two is you’ll have to pay into CPP if you keep working past 60. That’s a huge change from the current system in which anyone collecting CPP while working doesn’t pay into the program. Abboud figures it will end up costing working retirees hundreds of dollars more a year through payroll deductions. “What they’re proposing doesn’t seem like a winning proposition for my clients’ pocketbooks,” he says.

Abboud isn’t impressed either with another proposed change to CPP–one that will encourage people to work well past 65. Under the current system, anyone who delays retirement until 70 sees their benefits boosted by up to 30%. Under the new program, benefits increase up to 42%.

Again, it sounds great, especially if your RRSPs were decimated by the stock market collapse last fall, and you think you’ll need to work past 65 anyway. But as Abboud points out, the reality of working at 70 isn’t pretty. Most of your peers will have long since retired and it’s hard to keep up with the physical demands of going into the office every day at that age. The best retirement years are actually during our 60s, when we’re still relatively healthy and able to take long vacations and shoot 18 rounds on the golf course with ease.

He’s right. Encouraging people to work longer may be good for the economy and for government coffers. But it’s hardly going to make your retirement more enjoyable. If you work until 70, you may find the best years of your retirement were squandered behind a desk.

The government has an information paper detailing all the proposed changes to CPP. You can read it at http://www.fin.gc.ca/n08/data/09-051_1-eng.asp

 

But not anymore. As the real estate market cools across Canada, many of us are realizing that we’re going to be spending longer than we thought in our current homes. Given that economic reality, it makes sense to return to a simpler notion of renovating. Instead of thinking about what’s going to fetch maximum dollars at sale time, you should be thinking about which renos will actually improve your everyday existence. So check out our top 10 list of budget-smart home improvements. They’ll stand you in good stead when the time comes to sell your home. And even better, they’ll improve your life right now.

Here comes the sun

Nothing improves your mood more than a blast of sunlight. But before cutting a big hole in the side of your house to put in new windows, consider less invasive — and cheaper — ways of getting more natural light into your home. Tactics to consider include:

Light tubes

Brightening up a windowless bath or hallway can be as easy as installing a “tubular daylighting device” —or light tube, in plain English. These slender tubes , roughly the diameter of a dinner plate, are lined with reflective material. They start from your roof or outer walls and snake through joists and behind walls to channel daylight through your house, providing as much illumination as you would expect from a big skylight.

Light tubes can be installed almost anywhere in your home, including tight spaces and rooms without direct roof access — and, in most cases, they require no structural reframing or drywalling. To see what’s available, check with a lighting specialty store or visit www.amazingdaylight.com. Expect to pay $600 to $700, including installation.

Glass blocks

You can bring more light into a room by replacing part of a wall with glass blocks. These small cubes of glass can be installed in any non-load-bearing wall. They let light pass through, but are patterned on the inside to obscure the vision of passersby, so you retain your privacy.

You can build a whole wall with these nifty blocks. Or, if your budget is limited, you can replace only the top portion of a wall with the blocks. That’s what Jon Eakes, a home improvement expert in Montreal did this past year when his wife asked him to convert an empty room in their basement to a home office. “I just took 18 inches off the top of the office walls and put glass there” says Eakes. “You get light all day long, but you can’t see through the glass so you maintain your privacy. My wife says the glass makes her basement office feel twice as big and twice as bright.” For a full range of glass block products and designs, visit www.antoglassblock.com. Expect to pay $30 per square foot installed.

Other good ways to bring light into your home include removing the wall from a stairwell and replacing it with a railing, or widening the French doors separating your dining room from your kitchen. “You’ll end up with a look that’s airier, more modern and less formal,” says Francesco Di Sarra of Capoferro Design and Build in Toronto. “A lot of the time, the light is there. You just need to take down the walls to let it shine through.”

Show off the family jewels

The easiest way to upgrade the appearance of your house is to replace small, relatively inexpensive stuff that packs a disproportionately large visual impact.

Even an old house can gleam if you replace its “jewelry”— doorknobs and cupboard pulls. Bronze knobs with leather inlays, copper roosters or even granite pulls can breathe new life into old kitchen cupboards for about $16 each. You can perform a similar trick on your doors by replacing tarnished doorknobs with glossy new ones. (To see a sampling of what’s available, check out www.cabinetpull.com.) Doorknobs in glossy bronze or polished nickel range from $8 to $250 each.

You can give most boxy, contemporary rooms a dramatic facelift by adding crown molding, cornices and baseboards. If youâ’re handy with a hammer, you can install these decorative finishes yourself in a weekend at minimal cost: an ornate flower-shaped molding for your ceiling centre will set you back as little as $100. Intricate crown moldings for the top of your walls are $2 a linear foot and up, while baseboards start at $5 a foot. Visit www.moldings.ca to see what’s available.

If you truly want your home to shine, consider installing a hardwood floor. Jotoba, mahogany or walnut ($12 per square foot, installed) are three beautiful finishes to consider.

Launch your own space program

If you’re feeling cramped in your existing kitchen, you can pay $30,000 or more to install an addition— or for a couple of thousand dollars expand the usable space in your existing cupboards with the latest in space-saving devices. “These days we all have specialty pots, small appliances and kitchen gadgets,” says Kevin Fitzsimons, a Toronto interior designer. “So designers have invented lots of great ways to expand your storage space.” Some ideas to consider include:

Magic Corners

These wire frame devices neatly unfold into a series of shelves that give you tons of extra usable space in hard-to-reach corner cupboards. “It helps you to access the hard-to-reach space in the corner much more easily,” says Di Sarra the builder, who puts Magic Corner fold-out wire shelves by Häfele Canada in all of his kitchen renovations. Prices start at $1,500 for a 3 ft. by 4 ft. unit.

Roll-out drawers and pantries

Also convenient are larger pantries with chrome wire roll-out shelves. These larger units come in a variety of sizes and cost about $2,000 for a pantry unit that’s 2 ft. by 6 ft. Check out www.richelieu.com for these and other kitchen storage ideas.

Invest in water

To ensure your flower beds or vegetable garden always look lush, install a drip irrigation system. Instead of spraying large amounts of water like a lawn sprinkler, a drip irrigation system is made up of long, narrow tubes that snake through your garden, sitting on top of the soil, and slowly releasing moisture through tiny holes. Drip irrigation can cut your water usage by up to 60%. It also ensures that moisture reaches the roots of your plants, rather than being wasted on the foliage, where it may evaporate without benefit. “For a couple of small flower beds in your front or backyard, it’s fairly easy to set up this system on your own,” says Di Sarra. “But if you have several beds across a lot that’s an acre or more, then have an expert set it up for you.”You’ll pay about $500 if you do it yourself with parts from your local hardware store, and $2,000 and up if you hire a professional to do it. Visit www.dripirrigation.com for installation instructions. While you’re at it, hand over $40 more for a timer: this allows you to go away to the cottage for a week and come back to perfectly watered flowers and vegetables, even in the hottest part of summer.

Let the butler do it

Entertaining at home becomes a lot easier if you install a butler’s pantry between your dining room and kitchen. “All the stuff that doesn’t fit in the kitchen can go in the butler’s pantry,” says Fitzsimons, the interior designer. A modest 6 ft. pantry along one side of a small hallway will cost about $6,000 and include four upper cabinets with glass doors for stemware and china, as well as six under-the-counter easy-slide drawers for flatware, linen, scented candles and flower vases. Think of it as a built-in armoire for all your entertaining needs. “You can fit a lot into a small butle’s pantry,” says Di Sarra, the builder, who says he installs butle’s pantries into most of the new homes he builds. “They keep you organized and ensure that dirty pots, dishes and glasses are kept out of sight of the eating and entertaining areas. Homeowners love them.”

Get yourself an island

Kitchen renovations are expensive— but you can have most of the advantages of one for under $5,000 by installing an island in your kitchen. It will not only give you more storage space for dishes, pots and utensils, but will serve as a prep area for chopping vegetables and throwing together dips for parties and family entertaining. Prices start at $4,000 for a custom designed 4 ft. by 6 ft. island in maple with four cupboards and a couple of drawers.

Spend just a few thousand dollars more and you can equip your island with the best in efficient, space-saving devices like the 27-in.-wide, two-drawer compact Sub-Zero refrigerator/freezer that allows you to keep beverages, garnishes and other essentials at your fingertips. The Sub-Zero two-drawer model gives you over 5 cubic ft. of storage ($2,700). Also consider adding a small wine fridge ($300 and up), some pull-out wicker basket shelves ($40 each) and some quiet-closing pull-out drawers with adjustable dividers for storing all your flatware and kitchen utensils. Visit www.blum.com for more on these ideas.

Hug your own tree

No home improvement gives you more bang for your buck— or more enjoyment for your dollar— than planting a tree. A tree provides a visual exclamation mark to your house. It serves as a great place to put up a kid’s swing. Planted on the south, west or east side of your house, it even shades your roof and cuts your cooling costs. And it’s no slouch at sales time either. Surveys show that home buyers are willing to pay $7,000 more for a house that has a tree and a few hedges.

Which tree to choose? Don’t forget the humble maple. Bill Bryan, garden centre supervisor of the Kingston Farm and Garden Centre in Kingston, Ont., says that for shade and good looks nothing beats Canada’s national symbol. “They’re by far the most popular tree we sell” says Bryan.”A 10-ft.-tall maple costs around $150 and it’s fairly easy to plant if a family is prepared to do it together.”

Get a grip on your gear

How often have you walked into your home and tripped over a bunch of shoes and knapsacks? That’s why it pays to spend a little money on organization. Install a desk, closet or wall unit in your entrance way so that outdoor gear has its place. Even a few basic shelves will do wonders. “One of the main reasons people move is because they need more storage,” says Robert Koci, editor of Canadian Contractor. “But shelving is one of the easiest do-it-yourself projects out there and will take only a couple of weekends of your time to finish.” If you’re ambitious, visit www.californiaclosets.com for ideas on storage for virtually any area of your home, including laundry rooms, mud rooms and linen closets. Prices start at $200 for a 2 ft. by 6 ft. open shelving unit and climb to $1,000 or more for custom-made units.

Lapping it up

Hate driving through rush hour traffic to swim a few laps at a crowded pool? Then consider an alternative. Lap pools are personal pools that fit in your basement, sunroom or backyard, letting you swim in one place against a current. They work much like treadmills for swimmers. A standard lap pool measures only 8 ft. by 14 ft. and produces a current of 20,000 to 30,000 gallons per minute — strong enough for training Olympic athletes. You can choose between products from Endless Pools of Aston, Penn., and SwimEx of Fall River, Mass. SwimEx models go for $27,000 and up compared to about $23,000 for Endless Pools. Whichever you choose, count on spending an additional $2,000 to $3,000 for shipping and $5,000 to $10,000 for installation and finishes. Visit www.endlesspools.com and www.swimex.com for more details.

Let’s take it outside

If the price of a cottage doesn’t fit into your budget, consider an alternative: your backyard. For $25,000 or less, you can transform your yard into a mini-resort.

Start with the Cabana Spa with hot tub by Cal Spas of Pomona, Calif. This Cadillac of spas includes a roof, three bars and ample space for beverages and snacks. (Cal Spas, $13,000 and up). Then complement your hot tub with an outdoor kitchen. “Outdoor kitchens in the form of an island are really popular right now,” says Mario Furtado, owner of Marana Kitchens in Toronto. For $8,000 you can get a custom-made eight-door counter with cabinets that will house a 3-ft. gas grill, sink, and bar fridge. Spend a few thousand dollars more and you can add nifty accessories, such as stereo speakers and beer kegs ($5,000 to $10,000). With a backyard like this, you may never want to visit a cottage again.

It is tempting. In the best possible case, you could walk away with several months worth of salary, go relax on a beach somewhere, then come back and immediately find a new job.

Unfortunately, taking a buyout is rarely that simple. The first question you should ask yourself is if your employer is in serious trouble. If you suspect your workplace is about to go belly-up, grabbing a buyout is nearly always a smart idea, since you could end up with nothing in a bankruptcy.

But that isn’t the case most of the time. And that’s why considering a buyout deal can be a lot like playing poker. In most non-unionized companies, employers announce that buyout deals are available—but they won’t spell out the details until you volunteer.

The problem is that volunteering for a buyout puts you in danger. If you express interest, and the deal’s not as lucrative as you expected, it’s tough to say no thanks without repercussions. “At that point you’ve basically told your boss you’re not committed to the company,” warns Fiorella Callocchia, a human resources consultant in Mississauga, Ont. When layoffs come—and they often follow a buyout offer—don’t be surprised if you’re the first pushed out the door.

To avoid nasty surprises, develop realistic expectations about how much money is likely to be on the table. A junior employee will probably be offered no more than two weeks’ severance pay for every year that he or she has been with the company. A mid-level manager might get two to three weeks for every year of seniority. Anyone with keys to the executive washroom will get around a month per year of service. No matter how many years you’ve put in, there will be limits. Lower level employees top out at around half a year’s pay; higher-ups at a year and a half.

You should limit your expectations about how much a buyout can change your life. “People think they’re going to go back to school and start a new career, or do something else amazing with the money,” says Stephen Viscusi, a New York-based human resources expert and author of Bulletproof Your Job. What tends to happen is they buy a new car or go on vacation, and the money runs out. “And then they can’t find another job.”

If you are still determined to take the money and run, here are a few tips that can help you on your way out the door:

Negotiate for more

Never accept the first buyout offer. Even a junior employee should demand more than two weeks’ severance per year of service, says Daniel Lublin, an employment lawyer in Toronto. He points out that companies are supposed to calculate severance based on more than just tenure. The older you are, the more you should receive. How long it will take you to find a new job also matters. A good starting point is to argue for a month’s pay per year of service.

Lump sum vs. salary continuance

Companies pay severance in one of two ways: in a lump sum, or broken up into continuing paycheques—a practice known as salary continuance. Given a choice, you should go for the lump sum if you think you can find another job fast. This ensures you keep every penny. Otherwise, employers will cut off your severance paycheques the minute you find work.

On the other hand, if you expect to be unemployed for a long time, go for salary continuance since you usually get an extra month or two of severance pay for picking this option. You should also choose salary continuance if your spouse doesn’t have a benefits program at work. Salary continuance usually means your benefits will continue for the duration of your paycheques.

Shelter your money

Lump sum severance works best when you can shelter it from the taxman. Depending on how much unused RRSP contribution room you have, ask your employer to dump all or part of your severanceinto your RRSP. If you don’t shelter your buyout, watch out. You could end up owing thousands to the government at tax time.

Of course, if you really want to avoid frittering away your severance money, you’ll get out there and find another job fast. Then you’ll really be jumping for joy

We know how you feel — but the picture is brighter than you think. Relatively minor adjustments can help resuscitate your portfolio and squeeze more from your retirement dollars. You’re already familiar with many of the classic retirement-boosting tactics — like cutting out a latte a day to save money, or switching to low-cost mutual funds to boost your investment returns — but there are new tactics to consider as well. Annuities, for instance, are attracting growing attention as a way to boost your cash flow in retirement. Tax-Free Savings Accounts provide a new channel to bolster your retirement savings. And many investments, such as corporate bonds, look more attractive than they have in years.

We’re not saying that overhauling your retirement plans is easy. “It puts real strains on people to make that kind of decision,” says Bill VanGorder, chair of the Nova Scotia chapter of CARP, which represents older Canadians, and who himself has gone back to work to repair his reduced savings. But if you stay calm and take things one step at a time, you can still look forward to a long and prosperous retirement. To help you along the way, we’ve distilled the best of old and new wisdom into what we call the 10 rules of retirement — revised edition.

Count your invisible blessings

Stocks and real estate have taken a beating over the past year, but the true value of all your assets is greater than you think. That’s because it’s easy to overlook your invisible assets. Many people, for instance, don’t realize the value of a workplace pension. Many people also underestimate the value of their skills and how much those skills can generate after they retire from a full-time job.

We’ll talk more about both of these assets later in this article, but for now let’s focus on the biggest invisible asset of them all. We’re referring to government pension plans, including Canada Pension Plan (or its Quebec Pension Plan equivalent) and Old Age Security. You’re entitled to a CPP or QPP pension in your old age if you’ve worked in Canada as an adult. You are entitled to OAS simply by virtue of having lived in Canada for a substantial period.

These government programs deliver far more than many people expect. If you’ve worked your entire adult life in Canada and retire at 65, you can count on CPP and OAS to pay you a combined total of as much as $17,000 a year in retirement, fully indexed for inflation. Both programs appear to be financially sound for decades to come.

Government stipends cover a surprising amount of your basic living costs in retirement. Assuming that your house is paid off and your kids have moved out by the time you quit work, most of us can live comfortably in retirement on 50% to 60% of what we were used to earning while we were still working. For a typical middle-class Canadian, CPP and OAS provide a solid down payment on a comfortable retirement.

Master the art of the drawdown

Take out too much from your savings in retirement and you run the risk of running out of money before you die. Take out too little and you deny yourself for no reason. (Although your heirs may appreciate the big legacy you leave behind!) If you want to enjoy a stress-free retirement, no decision is more important than deciding how much you can safely draw from your portfolio each year.

How much is just right? Over the past few years, researchers such as William Bengen, a U.S. financial planner, have examined stock market history to determine a safe withdrawal rate. The researchers have concluded that a standard balanced portfolio of stocks and government bonds should be able to safely support a 4% drawdown rate. That’s assuming you retire at 65, live for 30 years, and adjust your withdrawals each year to keep up with inflation. So if you have a $100,000 portfolio, and inflation is running at a steady 2% a year, you can withdraw $4,000 the first year, $4,080 the next, $4,162 the next, and so on, until you finally keel over at 95.

Many people naively assume that the safe drawdown rate should be far higher than 4%. Until quite recently, it was quite common to see planners recommend a 6% or even 7% rate. But while there are ways to boost your drawdown rate to 5% or so (we’ll examine one of those ways in just a minute) a rate that creeps much higher can leave you penniless in your old age. You’re particularly vulnerable if you’re unlucky enough to retire just as the market implodes. If you then insist on aggressively drawing down your already diminished portfolio, you may run out of money before the market finally turns around. To avoid such a calamity, the 4% recommendation is designed to let you safely ride out the most severe market drops— even one as bad as the past couple of years.

Of course, it always helps to build in an even greater margin of safety. Allan Webb (whose name we’ve changed) plans to draw down only 3% a year (plus inflation adjustments) from his portfolio when he eventually retires. “It’s probably a conservative figure, but when you’re faced with the decision to give up your employment income, I think you had better be pretty conservative,” says the 60-year-old businessman in Kelowna, B.C.

Meet the new investment in town

Worried about outliving your money? Then it may be time to look into annuities. While these financial products have been around for a long time, they have only recently become central players in middle-class portfolios. Used properly, annuities offer two big benefits to retirees: they provide you with peace of mind and they help to boost your safe drawdown rate.

You can think of an annuity as a do-it-yourself pension plan. You buy an annuity from an insurance company; you then receive regular payments until the day you die. Moshe Milevsky, professor of finance at York University’s Schulich School of Business, says annuities can allow you to increase your safe drawdown rate from 4% a year to at least 5% because they provide a guarantee that you won’t outlive your money. As a result you can draw on your nest egg more aggressively, including the payments you receive from your annuities plus withdrawals from the rest of your portfolio.

Milevsky suggests you add annuities gradually to your portfolio between the ages of 65 and 75. By the time you hit 75 your portfolio should be roughly one third stocks, one third bonds and one third annuities. Just one note of caution: annuities are complicated products, with fees to match, and new versions are being introduced all the time, so seek out independent advice before buying.

Think Freedom 68

The simplest, most risk-free way of replenishing your battered nest egg is to work two or three years longer than you may have planned. “It’s a lot more powerful [strategy] than many people think,” says Steven Sass, associate director of the Center for Retirement Research at Boston College.

Each added year of employment benefits you in at least three ways: it gives your beaten-down investments a chance to recover, it reduces the number of years you have to live off those investments, and it can increase the income you receive from pensions. (Among other things, your CPP payments increase 6% a year for each year you delay taking payments up to age 70.)

Few people look forward to working longer, but prolonging your working life doesn’t have to be torture, either. VanGorder, the CARP chairperson in Nova Scotia, says he went back to work almost full time to help make ends meet after the market meltdown burned a hole in his mutual fund portfolio. The 66-year-old Halifax resident regrets not being able to devote as much time to woodworking, community theatre and travel as he had planned, but he enjoys his new job as a business development manager for a human resources company. He thinks he’ll continue working at least another five years. (For more on the pros and cons of working longer, see Reward Years on page 14.)

Make the most of your pension

Many Canadians ignore their workplace pensions and that’s a big mistake. By the time you’re in your fifties, your pension may be worth more than your home. In many cases, it constitutes your biggest single asset. So there’s no time like the present to learn more about it.

The most common type of company pension is what is known as a defined contribution plan. In these arrangements, your employer contributes a predetermined amount to your pension, but you have to choose where to invest that money from among a menu of options. Losses fall squarely on your shoulders and your employer isn’t on the hook to make up any shortfalls in your retirement plans that result from falling stock prices or your own bad decisions.

If you have a defined contribution plan, make sure that you’re getting the most from it. Some plans are based on the notion that your employer will match any contributions you make up to a certain limit. Given the tax advantages of contributing to a pension plan, and the free money from your employer, it’s nearly always worth your while to contribute right up to the limit.

But remember to diversify your investments. This reduces your risk and can boost your return. If in doubt, put roughly half your money in a mix of Canadian and foreign stocks, and the other half in bonds. This is a standard allocation that is suitable for just about anyone. Some pension plans also offer you the option to invest in so-called target date funds. These funds attempt to tailor your mix of assets to the year you plan to retire. You simply pick the fund with the target date closest to your expected retirement — 2015, say — and the fund does the rest, gradually reducing the risk in your portfolio as you get older.

While defined contribution plans are becoming the norm in the private sector, a fortunate minority of Canadians still enjoy what’s known as a defined benefit pension plan. These plans guarantee you a set payout every month when you retire. The payout is based on what you are earning near the end of your career and it isn’t tied to stock markets or interest rates. In defined benefit plans that are 100% employer-funded, your employer shoulders all the risks involved in financing the plan and undertakes to make the payments no matter how the market performs. For employees, it’s the ultimate in peace-of-mind arrangements.

If you’re lucky enough to have a 100% employer-funded defined benefit plan, the only thing you have to worry about is the prospect of your employer going bust— but even then, the news isn’t all bad, says Brian FitzGerald, an actuary with Capital G Consulting Inc. and co-author of The Pension Puzzle. If your employer does go out of business, your pension might be reduced, but by no more than an amount proportional to whatever shortfall exists in the plan.”The important thing is that if your pension plan is 15% to 20% underfunded and the company goes bankrupt, you haven’t lost all your pension,” FitzGerald says. “You can lose something but you don’t lose everything.” Pension assets are held in a trust separate to the company’s own funds, so the company can’t dig into it when they’re trying to stave off bankruptcy,” he says.

Supercharge your savings

If you’re 50 and still haven’t started saving for retirement, don’t lose heart. You can still save enough for a comfortable retirement, even if you don’t have an employer pension. The key is to pay off your house as soon as possible and get your kids through school — then to save with a vengeance in your 50s and early 60s.

Making this plan work depends on your ability to rechannel into savings the money that you previously spent on mortgage payments and your kids. Since this was never money that supported your lifestyle anyway— it used to go to the bank and your kids — you shouldn’t miss it. So long as you enjoy at least 10 years of supercharged savings before retiring, you can accomplish a tremendous amount.

Consider a 55-year-old couple that together earns $100,000 a year. If their house is paid off and their kids have left home, the couple should be able to save up to 40% of their income, or $40,000 a year, before retiring at 65. By that time they should have at least $400,000 (in today’s dollars) in their retirement portfolio. If they count on that to provide $16,000 a year and each receives $17,000 a year from CPP and OAS, they will enjoy a respectable retirement income of $50,000 a year — and that’s starting from zero, with not a penny saved at 55.

Actual amounts will vary with each person, but the important point to remember is that you have to make the most of your personal “sweet spot” when major expenses are paid off, but you’re still earning a high income — to sock away as much as you can. “We’re in our peak years of savings and really trying to take advantage of it,” says Peter Richardson, 57, of Mississauga, Ont. He and his wife Susan, 62, (whose names we’ve changed) live mainly on Peter’s $85,000-a-year income. Yet they’re saving about $25,000 a year and expect to bump that up to about $35,000 a year when the younger of their two daughters finishes university in two years.

Peter and Susan have paid off their home. They also have a mutual fund portfolio that was hard hit by the market crash and has shrunk to about $250,000. But Peter sees a silver lining in the timing of the crash. “Being in my peak savings years I do have the opportunity of putting fresh money into the market at lower stock prices, when it’s at the beginning of the growth cycle,” he says. So long as he can remain employed for the next seven or eight years, he’s confident his portfolio will swell in value.

Invest smart

Confused about where to invest these days? You’re not the only one. GICs, government bonds and money market funds provide only paltry returns. But after the recent market massacre, it’s difficult for most people to even contemplate plunging back into stocks.

Maybe you don’t have to. If you still have a mortgage, your best investment is probably right under your feet. Bumping up your mortgage payments and paying off your house more quickly provides an after-tax return that few stocks or bonds can match.

If your house is paid off and you want to build your portfolio, it pays to take a long view— the longer, the better. Nobody can predict what the next couple of years will hold. But over periods of a decade or more, a balanced portfolio composed of roughly half stocks and half bonds has always done well. Such a mix typically produces higher returns than an all-bond portfolio, but less volatility than an all-stock portfolio. So if you find yourself with a portfolio that is nearly all bonds or GICs, now may be a good time to start slowly edging back into stocks. That’s what Allan Webb is doing. At 60, the B.C. businessman has about 30% of his nest egg invested in stocks and plans to slowly raise that to 50%. “Prices are reasonable and I feel there will be reasonable gains,” he says.

If you still have qualms about stocks, consider investing in a mutual fund or exchange-traded fund (ETF) that invests in corporate bonds. You can find many bonds issued by high-quality companies that are yielding more than 6%. “In our view this is probably a generational opportunity for high quality corporate bonds and provincials and federal agency bonds,” says Scott Lamont, head of fixed income at Phillips, Hager & North Investment Management Ltd., and manager of the firm’s bond fund, a top-rated performer on the MoneySense Best Mutual Funds Honor Roll. “The reality is you don’t have to go very far down the credit quality spectrum to get attractive yields.”

As an example, Lamont points out that, early this year, five-year bonds issued by the big Canadian banks were yielding more than 6% — more than four percentage points above Government of Canada bonds of equivalent term. That’s an unusually high premium for investing in some of Canada’s biggest companies. If you’re interested in raising your exposure to corporate bonds, visit www.moneysense.ca and look up our 2009 Honor Roll of top-rated bond funds. For a low cost way to invest, check out exchange-traded funds that invest in this area such as the iShares CDN Corporate Bond Index Fund (TSX: XCB).

Learn a new acronym

Saving for retirement is seldom easy, but Canadians just got another good reason to try. This year the federal government introduced Tax-Free Savings Accounts (TFSAs), which allow your money to grow tax free, just as it would within an RRSP. Otherwise, though, a TFSA is the mirror image of an RRSP. With an RRSP, you earn a tax rebate for your contributions, but have to pay tax when you take money out. With a TFSA, you get no tax rebate when you contribute money, but you pay no tax when you take money out. Anyone 18 or older can contribute up to $5,000 to a TFSA in 2009.

TFSAs are a boon for couples like the Richardsons of Mississauga, who are in their peak savings years and can benefit from both RRSPs and TFSAs. Peter contributes the maximum of about $13,000 to his RRSP, and also this year contributed $5,000 each to TFSAs for both himself and Susan. “I need to protect everything I possibly can from taxes, so I can save as much as possible and have the growth tax free,” he says.

Ideally you have enough money to follow the Richardsons’ path and contribute to both an RRSP and TFSA. But if you have limited funds, you will have to figure out which plan will offer you the greatest benefit. The answer depends on how far away your retirement is, and what tax rate you’re paying at the moment.

If you’re not going to retire for at least a decade, and you are in a fairly high tax bracket, itâ’s hard to argue with the tax rebate that goes with contributing to an RRSP. You will have to pay tax when you eventually take the money out of your RRSP in retirement, but you will probably be in a lower tax bracket at that point, so the rebate you get now looms larger than the tax you will pay in the future.

On the other hand, if you’re in a low tax-bracket, your first choice should be your TFSA, since you’re not paying much in tax anyway and don’t benefit as much from the RRSP tax rebate. A TFSA should also be your first choice if you think you might have to tap into your savings over the next few years— if you withdraw money from your TFSA, you pay no tax, while RRSP withdrawals are fully taxable.

People over the age of 60 should pay particular attention to the TFSA versus RRSP question. RRSP withdrawals count as income, so, if you’re a low-income senior, taking money out of your RRSP after age 65 can reduce the Guaranteed Income Supplement you would otherwise collect. If you’re a high-income senior, RRSP withdrawals after age 65 can push your income past the threshold ($66,335 for 2009) where government starts to clawback your OAS.

Money withdrawn from a TFSA isn’t counted as income, so it doesn’t pose the same problems. And as a senior, you can keep your TFSA intact — and even contribute to it further — long after you have to start drawing down your RRSP funds at 71.

Stay flexible

It’s easy to be discouraged by the dismal economic climate, but odds are that you have more room to maneuver than you think. Your first step should be to look at how you live and ask yourself if you can spend less. Substantial savings can come from small economies— fewer restaurant meals, more modest vacations — but the easiest way to make a big difference is to cut out a major expenditure. Maybe you and your spouse can get along with one car instead of two. Perhaps you can free up cash by selling your home and moving somewhere cheaper.

That’s what Linda Anderson, 63, and her husband did three years ago, when they sold their Vancouver-area townhouse and bought a home in the Kootenay region of B.C. The $30,000 they netted from the sale and purchase of the homes was a big boost to their savings, which now stand at about $240,000. Thanks to the generally lower cost of living in their new location, as well as the savings generated by getting rid of one of their two cars, Anderson (whose name we’ve changed) was able to retire immediately. (Her 60-year-old husband continues to work as a warehouse supervisor.) They’ve made new friends in the Kootenay area and are quite happy with their new home town. “I’m quite an adventurer so it doesn’t bother me to move away,” says Anderson of the relocation.

If you’re a real adventurer, there’s an even more extreme way to magnify the buying power of your pension: move to a low-cost country. Mexico, Panama and Malaysia are just some of the destinations where the low cost of accommodation and food allows you to live well on a modest stipend. (To see a sampling of what’s available, read “Endless summer” from our January 2008 issue.)

Moving abroad isn’t for everyone, but simply knowing the option is there may open your eyes to other possibilities for changing your life right here in Canada. You could launch a small business in retirement, draw on your home equity through a reverse mortgage, or open up a new source of income by renting out part of your home. None of these decisions should be undertaken lightly, but, taken together, they demonstrate a simple truth: you always have more options than you think.

Remember: It’s all relative

You might feel glum at the thought of the money you lost in the stock market. Remember, though, that most people— including most of the experts — lost just as much. So while your net worth may have shrunk, you are probably just as well off, relatively speaking, as before. If you measure your success by how well you’re doing compared to others, nothing has really changed.

So long as you have enough money to cover your basic needs, most retirees find that having more money has little effect on happiness. That’s not just folk wisdom, that’s research. “For most retirees, money is important, but the extra impact on happiness isn’t nearly as important as a whole host of other things,” says Keith Bender, associate professor of economics at the University of Wisconsin at Milwaukee. Bender has found that for a retiree of average income, a $10,000 increase in pension income per year increases the probability of being very satisfied with retirement by only one percentage point. What matters more? Good health and good friends.

Anderson and her husband have come to a similar conclusion about what’s important. “When this big crisis hit, my husband started to worry about our financial situation because it started to look like it was going to be a total meltdown. But I said, ‘We can pay off our home. We have the [CPP and OAS government] pensions. We may not be able to live in the lifestyle we want. But we have a roof over our heads, food on the table, and our bills paid’” No matter what happens, the Andersons are confident their retirement will be OK. And, in all probability, so will yours.

Forget about the silly guideline that says you should spend two-months’ salary on your fiancee’s rock.

That so-called rule was a marketing ploy developed by the diamond industry back in the 1940s to guilt guys into paying more than they could afford. If it puts your mind at ease, retailers say the average customer spends around $2,500 on a ring, which gets you between a quarter and half carat, depending on grading.

Diamonds are graded on criteria known as the four Cs: carat, cut, color and clarity.

Carat is the weight, cut is how well the diamond was shaped, color is how clear it is and clarity indicates the number of imperfections in the stone. Trouble is there are several grading systems out there, so it’s hard to compare a diamond at one store to another. “There’s a lot of abuse to this,” says Paul Lombardi, master gemologist at Birks & Mayors in Montreal.

Anyone operating below a millionaire’s budget should devote most of his attention to two of the four Cs — cut and color.

These are the two factors that have a direct impact on the amount of sparkle a ring gives off, which is how most non-experts judge a ring’s beauty. Buy a diamond with at least a “good” or “very good” cut grade from the GIA. Color refers to how much of a yellowish tinge is visible. Diamonds are graded from D to Z, with D being the best because it’s colorless. But an E or F diamond will do just fine, says Lombardi.

Save money by being choosy in the size of stone you buy.

Diamond prices spike at predetermined weights, such as a quarter carat, half a carat and one carat. Diamonds that are slightly smaller than those benchmarks are significantly cheaper. For example, a ring that’s 0.98 carats costs about $4,000 less than its one-carat equivalent (which goes fro $16,000). The difference in size isn’t noticeable.

Stick with round diamonds.

They never go out of style and they sparkle and glitter more than any other shape. A round diamond should have 58 facets, because that gives off the most sparkle, says Mo Charania, owner of Jubilee Fine Jewellers in Ottawa. Some jewelers claim their rings are better because they have up to 144 facets; don’t believe them.

Before you buy, take the ring out of the light.

Jewelry stores have bright lamps over their sales counters for a reason. Even an average diamond will glitter like a priceless gem in strong light. The correct way to judge a diamond is to look at it under indirect light. “If it’s a good diamond,” says Lombardi, “it will still have plenty of sparkle.”

Barratt is already living what many people believe will become a new norm — working well past the traditional retirement age of 65. Some companies are offering “phased retirements” to long-term employees with hours that gradually taper as you get older. Other employers are trying to lure back retired workers and persuade boomer managers to keep working longer by offering them flexible hours and other inducements. “We’ve got this whole new world which is really opening up for people and we’re at the very beginning of it,” says Barbara Jaworski, chief executive officer of the Workplace Institute, which does training and consulting for organizations around older workforce issues.

But tapping into these expanding opportunities is a lot easier for some people than for others. Colin Wright, a 61-year-old instrument technician, lives in Georgina, about an hour north of Toronto. He has been looking for a job since the factory he worked at shut down a year ago. He’s sent out hundreds of resumes and landed interviews with two employers, but nothing has panned out. Demand for his skills is tied to the fortunes of manufacturing and he’s seen economic conditions in the industry go from bad to worse. Now “there’s nothing out there in my field.” Fortunately Wright’s wife has a good job and the couple’s finances are in decent shape. But “it’s not all about money,” he says. “You miss having a job, that’s the top and bottom of it.”

The older workers in the best position are professionals, white collar employees and skilled trades in certain industries. “If I had 25 certified accountants I could place them tomorrow,” says Sarah Welstead, managing partner for Retired Worker, which operates a Canada-wide website for retired workers. On the other hand, forestry and manufacturing workers like Wright may find it next to impossible to find anything in their own industries. Those sectors are shedding workers of all ages, not hiring them.

No matter what skills you possess, it’s vital to stay flexible if you want to find work past 60. Your search for work may involve taking a cut in pay, or learning a new skill, or starting your own business.

You will find that some organizations are more attuned to older workers than others. For instance, HSBC Bank Canada realized a few years ago that it could lose large numbers of baby boomer bankers to retirement at the same time, says Pat Brosseau, a vice-president of human resources with HSBC. To avoid a mass exodus, HSBC introduced programs such as phased retirement, the ability to work from remote locations, and sabbaticals to try to keep older bankers longer. HSBC even started luring retired bankers and older workers from other institutions.

There’s a strong possibility that other organizations may follow suit. A 2008 Conference Board of Canada study found that more than three out of four organizations expect the retention of workers over 50 to be a focus within the next few years. But expect competition for the work that is available. As Jaworski says, “Employers aren’t going to want to keep everybody.”

You should be prepared to sell yourself. It helps to face preconceptions head on. Employers value older workers for their maturity, work ethic, reliability and ability to interact with customers. On the other hand, employers worry about older workers’ strength and health. Companies aren’t sure if older workers’ skills are up to date and doubt their ability to learn new skills. To overcome these concerns, you need to work extra hard at presenting your strengths. Here are tips that can help:

Use flexibility to your advantage

Making it clear that you’re happy with temporary or contract work can give you an advantage over career-minded younger workers, saysWelstead. “Older workers are presenting an attractive solution these days because [hiring managers] aren’t getting permission for adding permanent headcount, but they are getting permission for contract [workers],” she says.

Demonstrate adaptability

Employers want people who can learn new skills and respond well to change. You can highlight your ability to adapt by listing your accomplishments in different roles on your resume. Even listing an evening course or two can demonstrate that you are willing and eager to learn.

Be selective with your experience

If you’ve had lots of jobs over the years, don’t list them all, says Welstead. They just highlight your age. While you’re at it, remove the years you graduated from high school or university — they can date you.

Be clear about pay expectations

If you’re interested in a job that pays less than you earned in your former career, be clear that you’re flexible on pay. Don’t scare off employers who think that you’re out of their price range.

Show you’re active

Your trim and energetic presence in an interview will help demonstrate this. So can your resume. Play sports? Be sure to list them. Same for community volunteering. Even mundane activities such as walking can help demonstrate your fitness level. A major car rental company used to recruit older mall walkers for jobs shuttling cars, says Jaworski.

Remember: appearances count

Make sure your haircut and clothes are up to date. “You can’t be wearing a suit you wore 20 years ago to an interview,” says Jaworski. One good way to demonstrate that you’re up to date? Take your BlackBerry out of your pocket before the start of the job interview, turn it off, and put it on the table, says Welstead.

Get help

If you’re unfamiliar with today’s practicalities in finding a job, get advice. A number of federal and provincial programs for the unemployed can provide this. Your local Service Canada Centre is a good place to start.

Think broadly

If your specific job skills aren’t opening up any doors, it’s time to emphasize your life skills. Well-developed people skills can open doors into customer service or sales. If you worked with your hands, you might find work in a paint shop, hardware store or doing home maintenance servicecalls.

Demonstrate you’re keen

Attitude is everything, says Christine Stoneman, chief operating officer of GT Hiring Solutions Inc., which provides placement assistance in British Columbia. Show enthusiasm, particularly when you’re going for a position with less pay or prestige compared to previous jobs you’ve held, she says. Even if you have all the right qualifications, an employer won’t hire you if you give the impression you feel the job is beneath you. On the other hand, if you show eagerness, employers will often overlook a shortage of qualifications and may even be willing to train you on the job.

Retrain

If you need new skills, consider short courses that can develop practical job skills quickly. Often government programs will pay the cost for courses covering such basic retail skills as working a cash register. If you have a mechanical bent, taking a course in a straightforward technical skill such as air conditioner repair might be useful, says Jaworski.

Speak up

If you’re an older worker in your 60s who wants to stay with your employer but in a different capacity, don’t be afraid to discuss the options with your organization. They may not have formal programs offering flexible arrangements to older workers, but they’ll often work something out if they want to keep you, says Prem Benimadhu, vice-president governance and human resources management research at the Conference Board of Canada. “Informal policies precede formal policies,” he observes.

Hello. Welcome to my first post on this blog. It’s always tough to do the first one, but here goes:

Oh, almost forgot. I’m Rob, features editor here at MoneySense magazine. I’ve been a journalist for 20 years. I’ve worked in newspapers and magazines. I’ve covered lots of different stuff: from politics to crime, from business to advertising. I like to think of it as the well-rounded education I never got in school. Then there’s my other life at home: three young kids, a mortgage and my car payments. Ka-ching!

That’s where my blog comes in. It’s called Getting Started. The reason: most of us, including me, don’t know as much about personal finance or building wealth as we should. We just shovel money into RRSPs and figure one day, when we turn 65, there magically will be enough money to fund a lavish retirement lifestyle. (Which surely will include an awesomely big sailboat, because isn’t that what retired people always have in Freedom 55 ads?)

But money is hardly magical. It’s dollars and cents stuff. It’s RRSPs, and insurance, and investments that usually go up (but not always). We’ll talk about all that stuff on this blog. Hopefully you and I can learn a lot together. And who knows, maybe we will get that sailboat after all.

If the financial crisis had an official start date, it was March 5, 2008, when Bear Stearns, one of Wall Street’s most profitable and notorious investment banks, seized up. Eleven days later Bear was dead. This book tells the story of its demise and offers unforgettable mugshots of the feral pack of boy-men who ran the place. They sometimes seemed more concerned with playing bridge than looking after their business. Our take: A dense, fascinating book. If you thought investment bankers were mostly hard-working, wise and careful, you will go away with a different opinion.

Weekly Market Comment (www.hussmanfunds.com, free)

Most financial managers write bland reports stuffed with pomposities. John Hussman doesn’t. His Weekly Market Comment offers a cantankerous, detailed critique of exactly what policy-makers and the markets have got wrong. Our take: Hussman has the right stuff, including a PhD in economics and an eye-popping investment record. He’s a pro’s pro, one of the money managers that other money managers keep a close eye on. You can only profit by reading him.

Animal Spirits by George A. Akerlof and Robert J. Shiller (Princeton University Press, $32.50)

Economists should be ashamed: few of them saw the financial crisis coming. Akerlof, a Nobel Prize winner, and Shiller, a Yale professor, believe that economists failed to raise a warning because they chose to ignore crowd psychology—what used to be called “animal spirits.” By leaving stories and emotions out of their equations, economists missed the beating heart of the market. Our take: Akerlof and Shiller are convincing and scary. If they’re right, and policy-makers continue to ignore animal spirits, more breakdowns lie ahead.

Soros by Robert Slater (McGraw-Hill, $33.95)

George Soros spent part of his teenage years living under an assumed name and fleeing Nazis. A few decades later, he made billions shorting the British pound. Today, he is one of the world’s most successful investors and a major donor to liberal causes. This book tells the tale of a man who has always been able to thrive in crisis. Our take: There is a great book to be written about Soros. Unfortunately this isn’t it. It provides a workmanlike overview of Soros’s career, but little insight into the man or what made him such a great investor.

Baseline Scenario (www.baselinescenario.com, free)

Simon Johnson, former chief economist at the International Monetary Fund, is now a professor at MIT—and a blogger. His Baseline Scenario (produced with James Kwak and Peter Boone) delivers smart, snappy commentary on the current mess. Johnson’s central thesis is that policy-makers have given away far too much to Wall Street’s golden boys. Our take: Essential reading for anyone who wants to understand how financial whiz kids could have steered the global economy into its worst quagmire since the Great Depression. Especially recommended is the “Financial crisis for beginners” section.