Credit card companies have many names for this insurance, such as “Balance Protection” and “Credit Wise.” But the programs all work the same way. If you lose your job, the credit card company covers your minimum monthly payments. If you get sick or die, the insurer pays off your balance.

It sounds reassuring, especially in a recession. But thanks to high premiums the insurance is hardly worth it.

Rates for credit balance insurance are based on the size of your balance. The more money you owe, the higher your monthly premiums. The industry average is 95 cents for every $100 owed. If your credit card has a balance of $2,500, the insurance will cost you $23.75 a month. Over a year that adds up to $285.

“It’s really a terrible deal,” says Jim Bullock, a life insurance broker and educator in Toronto. Credit balance insurance costs more than regular forms of disability or life insurance for what you get in benefits. And there are usually a lengthy list of conditions. For instance, not all serious illnesses are covered, and some insurers will only pay if you lose your job through layoffs. If you’re fired, you can’t collect. Plus, some insurance plans won’t cover more than $10,000 of your total balance.

It’s not mandatory to have credit balance protection, but a lot of people sign up without realizing it. That includes Bullock, who only noticed a few months ago it was on his credit card. What to do if you find yourself in the same boat? Call your credit card company and cancel the insurance right away. Then ask for documentation that you signed up for the insurance in the first place. If the credit card company can’t show proof, ask for a refund on all the premiums that you’ve paid so far. “I know one person who got back nearly $2,000,” says Bullock. “She’d been paying for credit balance insurance for five years. She didn’t even know it.”

Is my employer pension enough to retire on?

Unless you’re a long-time government employee, probably not. Most private sector pensions are intended to help with retirement, but not to finance the whole shebang by themselves.

As a rough guide, you should assume that you will need a retirement income of 50% to 60% of your working income to enjoy the same standard of living as you did while working. Government stipends, such as Canada Pension Plan (CPP) and Old Age Security (OAS), give you a big head start on getting up to that 50% level. A husband and wife who have worked in Canada all their adult lives and who retire at 65 will collect, between them, an average of $22,000 a year from CPP and OAS.

Most of us will want to supplement those government payouts with other sources of money. That’s where pensions come in. Your first step in assessing your pension should be to figure out which type of pension you have.

Many private sector pensions are “defined contribution” plans. In these plans, your employer contributes a set amount on your behalf each year. The employer’s contribution is typically 4% to 5% of your salary, says Brian FitzGerald, an actuary with Capital G Consulting and co-author of The Pension Puzzle. It’s up to you to decide how to invest the money, usually by choosing from among a menu of mutual fund-like options. If you make good decisions, these plans can work out well. But if you make bad decisions, tough luck.

A more stress-free arrangement is what is known as a “defined benefit” plan. This is what most people mean by a company pension, although the classic version of such pension plans is becoming rarer and rarer outside the public sector. If you have a defined benefit plan, your employer contributes on your behalf. (You may also have to make contributions.) Your employer decides how to invest the money. Finally, the pension plan guarantees to pay you a set amount in retirement. You have no decisions to make.

A typical defined benefit plan at a private-sector company pays you about 1.5% a year of your final salary for each year that you have worked for the company, says FitzGerald. Say you’re 65, you’ve worked 20 years for a company, and you’re earning $100,000 a year toward the end of your career. A typical private sector defined benefit pension would pay you 20 times 1.5%, or 30%, of your final salary. In other words, $30,000 a year.

There’s nothing wrong with that, but defined benefit plans in the private sector typically provide limited protection from inflation, says the actuary FitzGerald. The purchasing power of your pension will decline gradually over the years. Also, private sector defined benefit pensions tend to work poorly if you switch jobs a lot—and in these days of a mobile workforce, who doesn’t? That’s because when you leave a private sector employer, the salary used in the computation of your eventual pension is typically frozen based on what you earned at the time. There is no adjustment for subsequent inflation. The job you left in 1989 will pay you a pension based on a percentage of your salary from the late 1980s.

Public-sector employees usually enjoy a much sweeter deal. Defined benefit pension plans for teachers and government workers typically pay 2% per year of service if you retire at 65, and offer either full or partial protection from inflation, says FitzGerald. Thus, if you worked in a government job for 35 years before retiring at 65, your employer pension plus CPP will likely provide you with an impressive 70% of your pre-retirement income. And your pension will rise in line with inflation.

The bottom line is that long-term public-sector employees shouldn’t fret about saving large amounts for retirement. So long as they keep working until 65, and have at least 25 years on the job, their pensions will probably provide at least half their working income in retirement. They may want to supplement that with their own money, but their pension provides an unbeatable foundation.

Private-sector employees, though, will probably have to build up their own RRSPs if they want to enjoy a good retirement. They will also have to face more risk. Which brings us to our next point.

My employer’s defined benefit plan is underfunded. Should I be worried?

What happens if my employer goes bust? You should keep track of the status of your employer’s plan, but you probably have less toworry about than you think.

Many defined benefit plans have recently accumulated large shortfalls, says FitzGerald, the actuary. Shortfalls occur when the assets of the plan aren’t big enough to cover the projected cost of future payouts. As a result of the market crash and other factors, many plans are now underfunded by 15% or more.

This is not an ideal situation, but the shortfalls may not affect you at all. If your plan is 100% funded by your employer, and your employer stays solvent, then the shortfall is your employer’s problem, not yours. If markets stay down, your employer must make up the shortfall over time.

On the other hand, some pension plans divide the responsibility for a shortfall between employer and employees. If this is the case where you work, then both employees and employer will have to kick in more cash to make up the difference if markets don’t recover.

The law gives priority to protecting pensions that have already been earned, so if you’re already retired, a shortfall likely won’t affect you. Instead the employee share of any shortfalls will fall largely on working employees. They will have to contribute more money or agree to reducing the benefits they can expect.

The worst case comes if your pension plan has a shortfall and your employer goes out of business. If that happens, your pension might end up being reduced—but only by the extent of the shortfall. In other words, you might lose something, but you won’t lose everything, says FitzGerald. Pension assets are held in trust, so a failing company can’t grab them to pay other bills when it’s trying to stave off bankruptcy.

Provincial governments try to protect pensions where possible. Ontario, for instance, has a Pension Benefits Guarantee Fund that’s intended to cover pension underfunding up to certain limits if a company goes bust. However, there’s not enough money in the fund to cover potential shortfalls from automakers and other companies now teetering on the edge of bankruptcy. If some of these companies go under, it’s not clear if the Ontario government will help bankroll a pension bailout.

I’m changing jobs. Should I take my money out of my former employer’s pension plan?

Your options depend upon what type of pension you have.

If you have a defined contribution pension or a similar arrangement known as a group RRSP, there shouldn’t be any problem taking your money out if you’re unsatisfied with the invesment choices in your former employer’s plan.

If your former employer has provided you with a group RRSP (which technically isn’t regarded as a pension plan), then you’re subject to regular RRSP rules. You can transfer your money to another RRSP with no tax implications, but the money is taxable if you cash it out.

If your plan is a defined contribution plan, you generally face restrictions on what you can do with the money. You will probably have to keep it in specific investments that ensure you an income in retirement. The most common is the “locked-in” equivalent of an RRSP. This is known as a Locked-In Retirement Account or LIRA. The rules for locked-in investments vary by province and generally limit your ability to tap into your cash before retirement age.

If you have a defined benefit plan, you may discover that you can only get your money out through the eventual pension payments themselves. However, if you leave the job before you reach early retirement age — often 55 — many plans allow you to take out the lump sum equivalent value of your pension. Again, though, you probably can’t just take the cash and run. You are generally limited to moving your money to investments, such as LIRAs, that ensure income in retirement.

In such cases, your best bet is likely to leave the money in your former employer’s pension plan. It’s hard to beat the defined benefit pension’s assurance of guaranteed income for life, says FitzGerald.

I came across this rather colorful chart showing how the average American paycheque gets spent.

I though it worthwhile to break out where Canadians spend their income. Here’s the most recent data available from Statistics Canada. The numbers are from 2007. As you might expect, the biggest expenses most of us have are taxes, housing costs and transportation.

Since these are averages for all Canadian households, a few of the numbers may not correspond to your own situation. For instance, if you’ve got young kids at home and both of you work, you’re spending a lot more on daycare than the $330 shown here.

Also, in the food category, StatsCan doesn’t break out spending on groceries and restaurants. But several other StatsCan studies have found that 30% of most food budgets is at restaurants. So I’ve gone ahead and done the math. I’ve also indicated the percentage of total spend for each category in brackets.

Total household spending – $69,943 (100%)

Personal taxes – $14,447 (20.6%)

Personal insurance/pension contributions - $3,946 (5.6)

Housing:

Shelter (includes mortgage/rent) – $11,440 (16.3)

Utilities – $2,203 (3.1)

Household furnishings/equipment – $1,964 (2.8)

Communications (phone, cellphone, cable, etc.) – $1,488 (2.1)

Pet expenses – $432 (0.6)

Child-care expenses $330 (0.5)

Other household costs – $1,037 (1.4)

Transportation:

Private transportation (car payments, gas, etc.) – $8,426 (12.4)

Public transportation – $969 (1.4)

Food:

Groceries – $5,114 (7.3)

Restaurants – $2,191 (3.1)

Other:

Recreation – $3,976 (5.7)

Clothing – $2,948 (4.2)

Health care – $1,932 (2.7)

Gifts of money/contributions – $1,788 (2.6)

Personal care – $1,167 (1.7)

Education - $1,017 (1.5)

Books, newspapers, magazines – $260 (0.3)

Miscellaneous expenditures – $1,081 (1.5)

Vices:

Alcoholic beverages – $915 (1.3)

Tobacco products and smokers’ supplies – $621 (0.9)

Games of chance (minus winnings) - $251 (0.4)

For years, huckster car dealers on late-night TV have offered to take that used clunker off your hands… so long as you buy one of their slightly newer… um, used clunkers.

Now it’s Ottawa’s turn to be the huckster. Environment Minister Jim Prentice is mulling over offering Canadians $3,500 to scrap their older, polluting car and buy a new one. Other countries, notably the U.S. and Germany, have introduced similar vouchers.

Of course, the purpose of the vouchers isn’t to rid the streets of gas-guzzlers. As far as the government is concerned, the last few 1980s Crown Victorias and Cutlass Supremes can continue to pollute freely. Instead, these programs are designed to kick-start the ailing auto industry, which is desperate to get people back into showrooms. In Germany, car sales shot up 21% during the first month of the program. (You can read a bit about how the U.S. program works here. Presumably, the Canadian version would be similar.)

Are these vouchers a good deal? If you planned to buy a new car anyway, it might be worth waiting to see what the made-in-Canada program looks like. A $3,500 discount (on top of whatever other incentives carmakers are willing to offer) is certainly tempting.

But if you’re car is working smoothly, you’re better off keeping it for a little while longer, no matter what the age. To understand why, we have to walk through the life of a typical vehicle. Let’s start on the dealer’s lot, where a shiny, new car awaits you. Go ahead. Kick the tires. Savor that new-car smell. Mmmmm. Good, isn’t it? So you buy the car and take out a five-year payment plan.

That’s when you make your first mistake. You drive your new car off the lot. Right away, it’s lost 30% of its value. Ouch!

After that, there’s good and bad news. The good news is your new car drives like a charm, and with a five-year warranty you won’t have to worry about paying for any repairs. On the other hand, you’ve got car payments to make. Once you add in the payments, taxes on the purchase price and depreciation, your car will cost you twice as much as the sticker price. In other words, if the price on the windshield is $25,000, you’re really paying $50,000 over the first five years.

How do you get that money back? Easy. Drive your car till it drops. Here’s why: After five years of ownership, you’re done paying for the car. But pretty soon your wallet will get dinged with repair bills. Somewhere between years six and eight of your car’s life, it starts to break down. It could be the muffler, the battery, the transmission or the head gasket. Or all of the above.

Once you’ve gone through most of those repairs, your car is actually in pretty good shape. You can expect to drive it for another couple of years before junking it. And it’s during those last few years, after your vehicle turns nine, 10, 11 or 12, that it really starts to pay for itself.

So feel free to take the $3,500 incentive. Just don’t count on saving any money.

 

The couple spent weeks this past summer visiting million-dollar-plus cottages that had been listed for sale. In early fall, they compiled a list of 10 properties they loved that were still on the market. In November the couple instructed their real estate agent to start placing “stink” bids that were at least 33% below asking prices. Their plan was to begin with their top-ranked cottage, then move down the list until they found a cottage owner willing to take their lowball offer.

To their surprise, their first offer was accepted. “The cottage had been on the market for $1.49 million all summer,” says Lutz. “It was re-listed in October for $1.29 million. Our offer was $950,000 and after a bit of negotiating, we got the place for $1 million even. It was a cold day in December and the owners of the cottage hadn’t used it for months. They were ready to move on and we benefited.”

If you, too, are in the market for vacation property, take a page from the Lutzes’ book. Thanks to the recession, buyers of recreational properties can now drive a hard bargain.

And that’s only fair since sellers have had things all their way for the past several years. Average prices for cottages in the Lutzes’ area almost tripled from $440,000 in 1999 to $1.2 million in 2007.

Since then, though, prices have nosedived by 15% to 20% in Muskoka and in most other prime vacation areas. “My feeling is that prices are still too high,” says Tim Harris, owner of Tradewinds Realty Inc. of Chester, N.S., which specializes in carriage-trade properties along Nova Scotia’s south shore. “We’re in a tough market and sellers have to adjust prices accordingly.”

Keep these tips in mind to find your own bargain.

Explore

The best time to start looking is at the height of summer. Spend time on the Internet researching prices. Drive out to see properties that interest you. Follow the progress of those properties for a few weeks so you can see how long it takes for a listing to sell. “We spent every weekend last year during the summer and the fall meeting with real estate agents and inspecting properties,” says Lutz. “It was exhausting but believe me, all that legwork paid off.”

Buddy up

Many agents don’t want to put in stink bids because of the low probability the offers will be accepted. One of your first jobs is to find at least one agent who sees the merit of your strategy and is willing to work with you. Don’t be afraid to use several agents, so long as you make it clear to each agent that you’ll be using each of them only for the listings in a specific area. “Real estate agents are pack animals,” says Lutz. “If the wrong coyote shows up in their neighborhood, they bark him out. Make sure you use the right agent for the right territory.”

Wait

There’s no point in trying to get a deal on a property that has just been listed. The seller is still hoping to get his or her asking price. “Wait three months, or until the listing has expired and been put back on the market at a lower list price, before you put in a stink bid,” says Paolo Visentin, a real estate agent with Country Living Realty Ltd., in Rosemont, Ont. “If a place has been listed for only three or four weeks, the seller still believes a better offer lies in the wings.”

Wait some more

For country properties, the best time to buy is in the dead of winter. For cottages, it’s late fall. “There’s less competition when the weather gets cool,” says John Aben, the sales rep in Muskoka Lake of Bays who sold the Lutzes their cottage. “And sellers don’t want the cost of carrying the cottage through the winter. They’re very motivated.”

Make it clean

Ensure your offer contains no complicated conditions. You want to make it as easy as possible for the seller to sign on the dotted line. “Make sure you have the money in hand, can get a quick closing and don’t raise too much fuss over the small stuff,” says Lutz. “The only condition we had was a home inspection — that was it.”

Keep cool

If you fall in love with a place to the point where you tell yourself that you must have it at any price, then you’ve already lost your edge in the bidding wars. To preserve a detached attitude, keep looking until you have a list of at least a half-dozen properties on the market that you would be happy to own. Keep reminding yourself that you would be content in any of them. Then start bidding. If the owner of your top-ranked property won’t meet your price, shrug and move on. “It’s just a transaction” says Lutz. “In this market, some sellers are sure to capitulate. When they do, you’ll come out a winner.”