Rocco, his wife Catalina, and their three children—Peter, now 24, Salina, 18, and Paolo, 15—emigrated from Uruguay nine years ago with only $20,000 to their name. (We’ve changed names to protect privacy.) They decided to leave their native land after enduring two years of financial hardship. “In 2002, there was a huge economic crisis in Uruguay,” says Catalina, 47, an accountant. “The currency lost over one-third of its value overnight and it was catastrophic for us. We lost all our savings.”

Today the Medinas are slowly rebuilding their lives. They became Canadian citizens five years ago and bought a three-bedroom home in a middle-class suburb of Montreal. After struggling with several low-paying, dead-end jobs the family now has an annual household income of $145,000 and an annual surplus of about $36,000 after their taxes and monthly expenses have been looked after. That’s the good news.

Unfortunately, they have virtually no savings and their assets are minuscule. They have a modest $250,000 home with a mortgage of $235,000 at 2.5%. Their RRSPs amount to just $5,000, and they need to pay back $11,000 they borrowed in 2009 through the RRSP Home Buyers’ Plan. The family shares a Toyota Corolla worth $15,000 and still has $10,000 left on the car loan. All told, their net worth is just $25,000. “It’s embarrassing,” says Rocco.

The Medinas have three key goals. The first is to pay off their mortgage before Rocco is 65. The couple would also like to save enough money to give them an after-tax retirement income of $40,000. “I have a small $300 a month pension that will come from Uruguay when I’m 65, but nothing more than that,” says Rocco.

Finally, they want to help Salina and Paolo pay for four years of post-secondary education. Peter graduated last year and the couple is thankful he has found a job he loves in video game design. “He’s making $47,000 a year and is on his own now,” says Rocco. “He loves his job and leads an active social life. We’re so happy for him.” The Medinas want to provide an eduction for their other two children to help them get good jobs, too.

While they have clear goals, the Medinas have no idea how to achieve them. “We came to Canada because we wanted to start fresh,” says Rocco. “We knew it had a solid economy with a society that reflected our values. What we need now is a plan.”

The Medinas were raised in middle-class families in Uruguay, and both attended university. They married in 1986. “From the start, I loved everything about Catalina,” says Rocco. “She’s smart, beautiful and very funny. Who could ask for more?”

University is free in Uruguay, but it’s extremely competitive. “It’s easy to get in, but staying in is another matter,” says Rocco. “With a starting class of 500 kids in my engineering program, only 40 made it to graduation. The filtering process is insane.”

The Medinas settled in Montevideo, Uruguay’s capital, where their children were born. Rocco and Catalina had well-paid jobs, and in 1995 bought a townhouse for $80,000. Their only savings strategy was to pay down the mortgage, and when the 2002 banking crisis shocked the country their home equity evaporated. “The interest rate rose to 18% on the $45,000 mortgage,” says Rocco. “The mortgage was in U.S. dollars, but my salary was paid in pesos, which were worth next to nothing.” There was a run on the banks from people desperate to withdraw their money.

“Both Catalina and I were eventually laid off from our jobs because our employers could no longer pay our salaries,” says Rocco, who had worked with the same engineering firm for 17 years. “Our debt ballooned and our household income went to zero. I was 40 and we had three small kids. We decided to leave.”

The Medinas tried to emigrate to Australia but were turned down. Their second choice was Canada, and they were accepted in 2004. Before they left, their house in Uruguay was auctioned off for a paltry $28,000. That money helped them get settled in Montreal. “The first six months were really scary,” says Catalina. “We lived on the little bit of savings we had.”

There were other challenges, too. “We really knew nothing about Montreal, except that one of its main languages was French,” says Rocco. “We could speak Italian and Spanish, so we figured it would be easy for the whole family to adapt, but the accents were so tough!”

Getting good jobs in Canada also proved difficult. “When we arrived it was hard to find work at the level we were used to back home,” says Rocco. “Catalina initially found work at a local bakery, while my first job was working at a factory installing components in heavy machinery. It was depressing work.”

Rocco and Catalina slowly worked their way back up the salary scale. By 2009 they were even able to borrow some money from Rocco’s RRSP and put $20,000 down on a three-bedroom home in a middle-class suburb. “It’s just a modest little house but we love it,” says Rocco.

The family loves to swim, sail and ski. They also enjoy an active social life with the local South American social club. “We thought we would hate winter, but now we can’t get enough of the snow,” says Rocco. “It just goes to show, you never know what life has in store for you, and sometimes the surprises can be wonderful.”

The Medinas are grateful for how far they have come since arriving in Canada with almost nothing. But they feel they’re coming up short compared with their Montreal friends. “They have paid off their homes already and saved thousands for retirement,” says Catalina. “Have we been left behind?”

What the experts say

That MoneySense article spurred the Medinas to realize they need to make some changes if they’re going to enjoy a comfortable retirement. “That’s fantastic,” says Annie Kvick, a fee-only planner with Money Coaches Canada in North Vancouver. “It’s never too late to start saving for retirement.”

Al Feth, a fee-only financial planner in Waterloo, Ont., agrees. “The Medinas went through a true financial disaster, and they certainly had a difficult few years,” he says. “But they’ve proven themselves to be truly self-reliant. Now that they have $36,000 of income available for investing, they can accomplish a lot in a few short years.” Here’s what they need to do.

Start an RESP for Paolo. The Medinas want to give $6,000 a year to each of their two youngest children to help fund their post-secondary education. They should start by immediately opening a Registered Education Savings Plan (RESP) for Paolo.

When you contribute to an RESP, you’re eligible for a 20% top-up in the form of the Canada Education Savings Grant (CESG). But special rules apply to accounts opened when a child reaches the mid-teens, Kvick explains. “The Medinas need to start this year. The rule is you have to put in a minimum of $2,000 by the end of the calendar year your child turns 15 or you’re not eligible for the CESG at age 16 and 17.”

Kvick says if the couple makes RESP contributions of at least $5,000 in 2013 and in each of the next two years, they will get $1,000 in CESG annually. “That’s $3,000 in free money.” At the end of those three years they will have at least $18,000 in the RESP, plus whatever return they earn on investments. That won’t be enough to fund Paolo’s entire education, but it’s a good start.

Salina no longer qualifies for grant money, so there is no point opening an RESP for her. The Medinas should simply give her the $6,000 annually for the next four years to help finance her education. Some of this could be tax-sheltered in a TFSA.

Pay off their debt. This year the couple should pay off their $11,000 RRSP Home Buyers’ Plan loan as well as the $10,000 remaining on their car loan. “That will save them $3,600 a year in car payments, bringing the amount they have available for investing to $40,000 going forward,” says Feth.

Starting next year, the Medinas should also put an extra $10,000 towards their mortgage annually. “If they do this,” says Barb Garbens, a fee-only financial planner in Toronto, “their house will be paid off by 2026—just before retirement.”

Use Tax-Free Savings Accounts. The couple should start using TFSAs—not RRSPs—for retirement savings. When you draw money from an RRSP in retirement you need to claim it as income, but that’s not true of TFSA withdrawals. This flexibility will help keep the Medinas’ annual retirement income low enough to qualify for income-tested benefits such as the Guaranteed Income Supplement (GIS). It will also help them avoid OAS clawbacks.

Beginning in 2014, the Medinas should contribute about $11,000 each to their TFSAs until they are maxed out by 2017 (after which they would put in the annual $5,500 each).

Commit to a simple investment strategy. The Medinas are novice investors who don’t have the time or inclination to manage their money. They are also starting with a modest sum, so they’re not likely to find an adviser who is willing to help them.

That’s why they need a hassle-free strategy that will give them the broad diversification and investment returns they need to retire comfortably.

An ideal solution would be to open an account with ING Direct (ingdirect.ca) and use their Streetwise Portfolios. These one-stop Couch Potato portfolios are well-suited to first-time investors like the Medinas. Although the fees are relatively high for index funds (1.07%), there are no account minimums, no other fees or commissions, no need to rebalance, and no need to work with a discount brokerage.

The Streetwise Portfolios are available in four versions ranging from 25% to 100% equities. For their TFSAs, the Medinas should use the Streetwise Balanced Portfolio, which invests 40% in Canadian bonds, 20% in Canadian stocks, 20% in U.S. stocks and 20% in international stocks. This mix is conservative enough to use even in late retirement, but they can dial down risk by adding GICs as they get older.

Open a non-registered account in 2018. In four years the Medinas will be largely done paying for their children’s education. Then they could save more money, even after maxing out annual TFSA contributions until age 65. They should keep paying down an extra $10,000 a year on the mortgage until it’s gone. The remaining $20,000 should be put into non-registered accounts and invested like their TFSAs. (By now they’ll need an adviser to help.)

If they follow this plan, they will have over $400,000 in TFSAs and other investments by 65, assuming a 5% annual return. Add in government benefits and they should be fine. “With their work experience, I estimate they will receive a combined $1,000 a month from CPP, a combined $700 a month from OAS and $300 a month from Rocco’s Uruguay pension,” says Kvick. “Add in a combined $8,400 a year from the Guaranteed Income Supplement (GIS) and their annual retirement income will be $32,400. If they need a few thousand dollars more, they can draw from their savings with no fear of losing their GIS. Because they will have a paid-off house and very modest expenses, life will be just fine.”

Julie Cazzin is an award-winning business journalist and personal finance writer based in Toronto.

—Lana Kolupaev, Toronto

Unfortunately, as a new immigrant you can’t claim any RRSP contribution on your 2011 tax return. The reason is simple: you don’t have any Canadian income from the prior year to claim it against. Your 2012 RRSP limit will be based on the income you report on your 2011 tax return. If you opened an RRSP in 2011, you might be wondering, what happens now? The Canada Revenue Agency allows you to overcontribute to an RRSP by as much as $2,000, says Jennifer Horner, a senior tax manager at BDO Canada. If you contributed more than that, then you could face a penalty of 1% per month. However, TFSAs don’t work the same way. You get the full $5,000 contribution room automatically every year you are a resident of Canada (age 18 or older) with a valid Social Insurance Number. Since you have been here two years, you can now put up to $10,000 into your TFSA. As a new Canadian there are other potential tax issues to be aware of, so it’s well worth your time to visit the CRA’s website or consult with a tax adviser.

TFSAs: Tax-Free Savings Accounts are popular with newcomers, as you don’t have to build up contribution room before you can use them. You can contribute $5,000 during your first year in Canada as long as you’re over 18 years old, have a valid social insurance number and are a resident of Canada. Your contribution room will then grow at the rate of $5,000 each year. You have to pay income tax on the money you put in, but you won’t have to pay tax on any interest, dividends or capital gains earned on investments in the account, even when you take out the money.

RESPs: Registered Education Savings Plans are a great saving tool to help put a child through university or college in Canada. Each year you contribute, the government will put up to $500 a year in grant money into the RESP, with a lifetime limit per child of $7,200. The money grows tax-free while inside the RESP. When the money is taken out, the student pays the tax, if any.

Mutual funds: These popular investments pool money from different investors, which is then put in a single portfolio of stocks and bonds which is overseen by an investment manager. You can benefit from instant diversification and professional money management, but be warned: in Canada, mutual fund fees—money taken out of the fund to pay managers and other expenses—are among the highest in the world. Look for a bond fund with a management expense ratio (MER) of 1% or less, and an equity (stock) fund that charges 1.5% or less. Avoid funds that levy a deferred sales charge (DSC) if you sell the fund too early.

During Sobia Ali’s first few years in Canada, she found it almost impossible to save money. She first moved to Toronto from Pakistan in 1997, after marrying her Pakistani fiancé, who had already moved to Canada. Despite having teaching experience and a degree in math and statistics from the University of Karachi, Ali was unable to find a job.

Eventually, she found a gig with a temp agency making $10 an hour, but most of her salary went to pay for daycare for her three-year-old daughter, Abir. Undeterred, Ali, now 37, set up a savings plan at her bank that automatically funneled $100 a month into her savings account. “It worked,” says Ali. “At the end of the first year, I had $1,200, and I started investing. I kept saving, and I used some of the money to buy a house last year.”

What are your goals?

After the rush of your first few years in Canada is over, and you’ve got your career on track, it’s time to focus on saving money and investing for the future.

Your first goal should be to save three to six months’ worth of living expenses in case of an emergency. After that, how you invest your money will depend on the ultimate purpose of the money: if it’s for a short-term goal, such as purchasing a home or car in a couple years, you should stick with low-risk investments, such as a bond fund or GIC, or keep your cash in a high-interest saving account, such as the ones offered by Ally and ING Direct.

For goals that are more than five years away, such as retirement, consider putting a portion of your money in stocks. A good rule of thumb is that you should hold a proportion of safer investments, such as bonds or money market funds, that is equal to your age and put the rest in stocks. For example, if you’re 40 years old, you could hold 40% of your portfolio in bonds and 60% in stocks. As many immigrants come into the country in mid-career, they have a shorter length of time before retirement, so you should plan your portfolio accordingly. If you have investments in your native country as well as in Canada, make sure to look at your investments as a whole to ensure a proper balance.

If your employer offers a pension plan or a group retirement plan, you should almost certainly join. Pension plans often include contributions from your employers and either type of plan likely allows you to pay lower investing fees. So you’ll grow your retirement savings faster than you could on your own.

Avoid unnecessary risk

Immigrants are risk-takers by nature, and many come from rapidly growing countries where they are used to high returns. However, using your retirement funds to place bets with risky stocks is not a good retirement plan. “Immigrants have to understand that steady growth in a boring mutual fund is actually a good thing for them because it means less volatility, less risk,” says RBC’s Wendy Seto.

Instead of speculating on a few technology or mining stocks, you should consider investing in a low-cost balanced mutual fund to start, such as BMO Monthly Income, RBC Monthly Income or Mawer Canadian Diversified. The diversification you get will protect your savings even if some the companies you’re invested in hit unexpected hard times, while the bonds in your fund help protect you when the whole market crashes.

How much do you need?

While financial institutions selling retirement products may say you’ll need 70% of your working income in retirement, in most cases that’s not true. Typical Canadian retired couples can enjoy a comfortable retirement on 50% to 60% of their working income, as long as they own their own home and retire with no debts. That’s because when you retire, the costs of paying the mortgage, raising the kids and saving for retirement disappear.

As well, in Canada the government will help fund your retirement. If you worked in this country, you’ll get money from the Canada Pension Plan when you retire. How much depends on what you paid into the plan when you were working, so immigrants who came over mid-career will receive less than people who worked here for their entire lives. For example, an immigrant who worked in Canada for 20 years and made the maximum CPP contributions each year would currently get $480 a month in CPP benefits if he retired at age 65.

If you’re over 65 and you lived in Canada for at least 10 years as an adult, you’ll receive money from Old Age Security (OAS), although you probably won’t get the maximum amount unless you’ve lived in Canada for 40 years.

Going at it alone

Most immigrants start out in mutual funds with an adviser. But as you become more comfortable with the Canadian financial system, you might become interested in managing your own investments. Sobia Ali originally invested in her bank’s line of mutual funds, but after doing some research, she realized that index funds, which track a specific target index or benchmark, almost always perform better. “I don’t see any reason to buy expensive mutual funds anymore,” she says. “I get the same results cheaper through low-cost index funds.”

Today, Ali says she has a good understanding of the Canadian financial system. She’s saved some money in her daughter’s RESP and she’s building up her RRSPs. Ali plans to build up her workplace pension and pay off her mortgage before retirement, two things that will be the foundation for a prosperous retirement. “I’m pretty confident now in managing my finances,” she says. “Many of my Canadian-born friends come to me to ask for advice.”

“Until recently, you didn’t even need to have car insurance in Mexico, so immigrants don’t understand it,” he says. Not only is car insurance mandatory for drivers in Canada, but for newcomers with no driving history here, it can cost a small fortune: Martinez says rates of $300 per month for one modest vehicle are common.

Bring your documents with you

Many immigrants aren’t aware that if they were living in the U.S. previously, they can use their insurance record there to get significantly lower premiums. Even if you’re not coming from the U.S., it’s a good idea to bring documentation with you. “When we came from Australia, we brought over as much information on our financial standing as we could and it was a huge help,” says Toni Byrnes, a 38-year-old project manager in Victoria. “We brought letters from our insurance companies saying how many years we’d been insured and how many claims we had. That helped us start out with lower premiums because we had no claims.”

Get life and disability insurance

Life insurance is a must if you work and support a spouse and children. But don’t overdo it. Think of it as “income replacement insurance” that will allow your family to get by without your paycheque. A good rule of thumb is to purchase enough life insurance to cover 10 times your income if you have kids under 10 years old (five times your income if you have kids over 10), plus the amount needed to pay off any debts. Disability insurance is also crucial. Often this is covered by your employer, but if you’re self-employed you need to take out your own policy. If you’re not supporting anyone else, you don’t need life insurance, and it doesn’t make sense to insure the lives of your children, as they have no income.

RBC’s Wendy Seto says many of her immigrant clients are shocked when they realize how high the tax rates are in Canada. “The highest tax bracket back home in China is 12%. They’re not used to sales tax and they aren’t used to paying capital gains on stocks.” She says in some cases, she’s seen immigrants actually leave the country after they realize the extent of their tax obligations.

Even if immigrants are aware of the tax rates in Canada, they are often baffled by the complexity of our tax system. The good news is that if you learn about how the tax system works and get proper professional help, you will likely find some deductions and tax credits that can lower the amount you need to give to the tax man each year.

Tax essentials

The crucial thing for immigrants to understand is that you have to report all income, even if it comes from outside of Canada. You may get credit for tax already paid in another country, especially if there is a tax treaty between Canada and your home country. Any assets you have outside of Canada that are worth $100,000 or more must be reported. You must file your tax return by April 30 of the year after the tax year (June 15th if you run a business).

If you are hanging onto investments in your home country, figure out their value at the time of your immigration. That’s because when you sell the assets, you will only be taxed on their growth since you came to Canada.

Should you file?

You need to file a tax return if you owe tax or want to receive a refund. However, even if you have no income to report or tax to pay, you should file to get the GST/HST credit (a credit given to people with low and modest incomes to offset paying sales tax) and the Canada Child Tax Benefit (a monthly payment given to eligible families with a child under 18 years of age).

Often people who come to Canada to study don’t file a tax return because they have no income. But by filing, you will be eligible for tax credits that can be used in future years when you are working. If you didn’t file your taxes during your student years, you can go back and file them later.

Tax credits and deductions

Canada offers all kinds of tax credits that can reduce your bill—each one doesn’t offer huge savings, but their value can add up. For example, you get a credit if you buy a transit pass or if you pay for your child’s sports and fitness programs. It can get complicated, so for the first few years you file, it’s a good idea to pay for a tax professional’s services.

Business owners enjoy a wide range of deductions that can lower their income. “You can expense most things that you spend to earn income, such as your cell phone, advertising costs, and lunch when meeting with a client,” says accountant and immigration consultant Eric Cheung. “If you work at home, you can deduct a certain percentage of your home office expenses.” Once you’re making $90,000 or more in after-tax self-employment earnings, consider incorporating your business to save even more.

Income splitting

One important concept to understand is that in Canada, each spouse has to file his or her own tax return. Couples generally pay more tax in total if one has a high income and the other one has a low income or no income. Therefore, if you own a business, it’s better if each spouse gets an equal amount of income from it, rather than having it all taxed in one person’s hands. If one spouse isn’t working, accountant David Goldsmith says it’s a good idea to put any investments in that person’s name when you come to Canada. This means that income from the investments will be taxed in the hands of the lower income earner, and your family will pay less tax overall.

Read the next part in the series: Growing your wealth

Read about what insurance you should purchase and what you don’t need.

• Apply for your Social Insurance Number (SIN). You will need this to get a job and to get access to government programs and benefits.
• Apply for the Canada Child Tax Benefit, a tax-free monthly payment given to parents caring for children under the age of 18.
• Apply for a provincial health card. If there is a waiting period in your province before coverage starts, take out private medical insurance to cover you for the first few months.
• Find an immigrant settlement agency close to your home and inquire about employment and English language programs.
• If possible, set up your Canadian bank account before you leave your home country. Ask if the bank will waive fees for new immigrants in the first year.
• When wiring large amounts of money from your home country, ask your bank for a preferential exchange rate, says Ngoc Day, a financial planner at Macdonald, Shymko & Co. For smaller amounts, shop for the best rate on currency exchange company websites.
• Wealthy immigrants might want to consider setting up an Immigration Trust, which allows you to shelter investments from taxes during your first five years in Canada.

My first job was in Canada was a bouncer in a club,” recalls Fernando Margueirat, now a 37-year-old living in Toronto. It was quite a departure, considering he was an experienced IT manager back in Buenos Aires, Argentina. Margueirat came to Canada to build a better life, but instead he found that without Canadian experience, he couldn’t get work in his field. “I took the job as a bouncer because I thought it would be better than sitting at home doing nothing. Any opportunity to build Canadian experience is going to pay off in the long term.”

After several years working in various “survival jobs,” such as working in a Spanish-speaking call centre, a friend told Margueirat about an IT job opening at the National Ballet of Canada. Having some Canadian experience and a contact at the company helped him get the job. “I was finally given a chance and a huge door was opened for me,” he says. “Getting this job completely changed my view of Canada. My company has a great work environment and they’ve given me many opportunities to grow.”

The language barrier

Language is often the biggest obstacle for newcomers. Nick Noorani, immigrant entrepreneur and author of Arrival Survival Canada, says that many think they’re well equipped if they speak some English, but they don’t realize that their beginners’ grasp of the language won’t cut it in a professional environment. “They don’t understand the level of English required is different than the level of English they might have spoken in their home country,” he says.

It’s not just learning how to speak clearly—newcomers need to master the subtleties of business communication as well. For example, Noorani describes how one newcomer, who wanted to emphasize the importance of his skills, sent out his resume in ALL CAPS, which comes across as “shouting” and was sure to turn off employers. To learn how to communicate better in a business environment, Noorani urges newcomers to take advantage of free language and employment services offered by government-sponsored immigrant settlement services.

Immigrant entrepreneurs

Newcomers often start their own small businesses so they can take advantage of their specialized knowledge, have more control over their career—and sidestep some of the discrimination that can exist in established Canadian companies. A good way to get off the ground is to take advantage of various government-funded local business centres that help entrepreneurs. Juan Guido, an immigrant from Colombia, for instance, is working with Service d’aide aux jeunes enterprises du Montreal Centre to launch a food import/export business. “You get some grants from the government and get assistance on writing your business plan,” says Guido. “I’d recommend it to anyone who wants to start a business.”

Building a network

Entrepreneurs and professionals alike need to make efforts to build up their network of contacts. By going to industry events and networking online, immigrants are more likely to hear about unadvertised jobs and business opportunities.

Salil Shah, a 31-year-old marketing manager in North Vancouver, B.C., used the online social network LinkedIn to land his first job in Canada. Shah, who is originally from India, was working in the U.S., but he wanted to come to Canada because it would be easier to bring his parents here. He applied for a job at a Vancouver technology company that had a business relationship with his California firm, but he got no response. “Eventually, I contacted someone at the company through LinkedIn who was able to get in touch with the hiring manager,” says Shah. “I did an interview and got a job offer. Most people who come to Canada start by looking for job. I was very lucky—I had one already.”

Finding yourself a mentor is another great way to expand your network and get advice. “I once contacted someone who was interviewed in the newspaper and I asked if I could buy him lunch,” says Noorani. “He’s still my mentor today.” For entrepreneurs, he advises hiring a coach on an hourly basis to help create a business program.

Volunteering is another way to meet new people and gain valuable Canadian experience. When Sobia Ali came to Canada from Pakistan, she wasn’t able to find a job, so she started volunteering at her local employment centre. “Volunteering isn’t as common back home. It’s something I learned here,” she says. “Some people questioned why I was working without getting paid, but I knew I was doing the right thing.”

A few months later, a contact Ali met through networking told her about a temporary job with the federal government. She got the gig, which she later leveraged into a permanent position. Since then she’s worked at a variety of government departments, including Human Resources and Skills Development Canada, a position she got thanks to her volunteering experience.

Read the next part in the series: Borrowing time