Canada’s pension system is simply not doing the job, authors say

Political issues deemed too important or sensitive to be tampered with are often referred to as the 'third rail' after the electrically-charged third rail in subway systems ... like Canada's pension system, for instance. “Many Canadians will be surprised by how much they will need to save to fund their desired income in retirement and that their income is going to plummet,” says Jim Leech, co-author of The Third Rail: Confronting our Pension Failures. “It’s clear that existing pension structures are not allowing people to reach their saving goals. Political leadership is urgently required to bring a more flexible approach to retirement planning, one that can withstand the pressures of more retirees and longer life expectancy.” The easiest and most efficient way to close this shortfall is to enhance the Canada Pension Plan, he maintains. But that's not likely to happen anytime soon since most workers and their employers are simply too short sighted. As employers and employees each contribute roughly 5% of their pay straight into the CPP, an increase in the rate would mean that employees would have to get a raise larger than the CPP hike to ensure their take-home doesn’t drop. They would, however, see an offset with a larger CPP pension down the road. Many critics have voiced strong opposition to any boost in CPP contributions, however, labelling it another job-killing payroll tax on businesses. Nonetheless, Ontario is considering launching its own pension plan if it cannot obtain reforms to CPP. Leech and co-author Jacquie McNish would also like to see some action taken to stem the decline of defined benefit plans -- the least expensive way to provide a pension to workers, they argue. The authors cite Rhode Island and New Brunswick as examples of jurisdictions that have taken drastic measures to address pension shortfalls, including major cuts to municipal jobs and services. But both are cautionary tales. And they will remain so as long as a government continues to ignore the root cause of the retirement meltdown, they maintain. Record numbers of workers are retiring and living longer than anyone expected; pension funds have not built in sufficient surpluses to cope with market and demographic stresses, and employers are unwilling to shoulder these steadily increasing costs. Failure to address these issues immediately will soon lead to disaster, the authors predict. Would you like to set more money aside using the CPP? If you're lucky enough to have one, are you concerned about the stability of the plan you're involved

Rather than downsize, retiring boomers hope to stay put

If you read the headlines, just about every urban boomer is leaving the suburbs behind and moving into condos or lofts in a trendy downtown area. Yet there's little evidence that most Canadians are actually that open to the idea of moving into a smaller residence as they grow older. A majority of Canadians aged 50 and over – 83 percent – said staying in their own homes and paying for home care is the most appealing option for them, according to Royal Bank research. Even then, while the majority of us want to ''age-in-place'', this doesn't necessarily mean that we expect to stay in the same house. Most people are attached less to a particular pile of bricks and mortar than to a local area – to a network of friends, services and familiar places. Among those who were already retired, a decision to move out of their home was most often due to a change in their health – 66 per cent – rather than to cash in on their home equity or get closer to restaurants. Remaining in familiar surroundings – in a home of their own, in their current neighbourhood and close to family and friends – is definitely how Canadian Boomers wish to live when future health changes occur,” says RBC head of retirement and aging strategies Amalia Costa. Then there's the emotional pain of scaling back. Many empty nesters find they lack the stomach or stamina to dismantle their lives. They'd rather hang on. They struggle with sorting through all those boxes in the basement or dread listening to adult children who want to keep the house where they grew up.And isn't always the financial bonanza they expect. With fewer square feet to heat, low and pay property taxes on, many downsizers assume they'll slash their monthly expenses. But unless you're willing to move to a part of the country with a lower cost of living, the savings may prove fairly modest.Do you plan on downsizing in the future or have you already made the move? How are things working out so

RRSP season is nothing to sneeze at

Enough about flu season – it’s time to stop sniffling and start seriously thinking about RRSP season. The deadline date for making contributions to the Registered Retirement Savings Plan for the 2012 taxation year is just around the corner on March 1. An RRSP is a plan that helps you save for retirement while offering you some other great tax benefits. For instance, deductible RRSP contributions can reduce the amount you owe on your income tax or even give you a bigger refund (depending on your income). And, as long as the funds remain in the plan they are exempt from tax as it grows. You don’t have to make one annual lump sum to contribute to an RRSP either. RRSPs can be made easier to carry through monthly payments that suit your budget needs. However, if you are considering making a lump sum contribution before the March 1 deadline but don’t have the on-hand cash, another option is to talk to your financial advisor about an RRSP loan. There is a maximum amount you can contribute to an RRSP based on your income and how much you previously contributed. You can contribute 18 per cent of your previous year’s income, up to a maximum of $23,820 in 2013. But keep in mind, if you didn’t contribute the maximum in previous years your deduction limit will be higher. Also, if you contribute to a workplace pension plan your deduction limit will be lower.You can set up a RRSP through your financial institution such as a bank, credit union, trust company or insurance company. You may also want to consider setting up a spousal or common-law partner RRSP. The bonus to this plan is that if the higher-income spouse or common-law partner contributes to the RRSP for the lower- income spouse/common-law partner then the contributor gets the short-term benefit of the tax deduction while the spouse or common-law partner receives the income and reports it on his or her income tax return. While we’re on the topic of income tax, the deadline for personal income tax is April 30, 2013 while those who are self-employed have until June 15 unless there is a balance owed and then the deadline is April 30, 2013. As with everything in life, make sure you do your research and find out more about Registered Retirement Savings Plans and the benefits. Click on the Canada Revenue Agency link for some helpful information on RRSPs. Will you be considering contributing to an RRSP this

Managing finances before and through a divorce

Divorce is always devastating. But for some couples, parting with their other half is easy compared to dividing income and assets fairly. While some partners may have unrealistic expectations or simply aren't emotionally ready to settle up, others are dishonest and deliberately try to hide or deplete their assets. Either way, the financial negotiations of divorce will be the largest financial transaction most individuals will ever participate in, says Justin A. Reckers, a financial planner who works with couples that have or are contemplating a split. Most every divorcing person will prefer things, at least the financial side, to remain the same post-divorce as they were during their marriage. In reality, the pay cheque doesn't go as far when supporting two completely separate households, so everyone loses financially in divorce, he points out. If you think your relationship might be on shaky ground, here are a few things he suggests you think about long before you knock on his door. * Couples may have previously decided one of the parents should stay home to raise the kids at the expense of career development. The end results in divorce are child support, spousal support, and retraining to enter the workforce outside the home. * Couples often make a joint decision not to purchase long-term care insurance because they plan to care for each other in the event they need it. When they divorce, the caregiver is lost. * A couple may choose not to set aside funds for college education because they can afford to pay the expenses from cash flow when both are working. But with two separate households college becomes a low priority when even saving for retirement seems no longer possible. * Partners may choose not to save aggressively for retirement because one expects a large inheritance to take care of things. In most circumstances an inheritance received after a divorce will only benefit one of the parties. * A couple may decide to reinvest all of the profits from their small business back into growth instead of paying down a mortgage or saving for retirement. When it comes time for divorce, it is often not possible to turn that business into cash because a sale is not advisable. Sound familiar? Knowing what you know now would you do anything

Things are going to be different next year

Even the best of us make poor money choices and sabotage our financial future as a result. Sure, it’s not easy to change. But the important thing is to do something, starting right after the holidays. For example, are you putting off saving for retirement because the deadline seems so far away? Or are steering clear of addressing your unwieldy debt load because it's so intimidating? Don’t. Instead, ask yourself where you want to be in five years. Then try these simple steps... Make a written plan. You can't sidestep your financial responsibilities forever. Your odds of following through will increase dramatically if you set milestones. This way, you’ll hold yourself accountable for your choices. Set specific goals. Break each one into several objectives: short-term (less than 1 year), medium-term (1 to 3 years) and long-term (5 years or more). Talk often about these goals with a partner, friend, or family member. You might even consider recruiting someone with the same outlook and work at things together. Budget for savings. Pay yourself first. Just as you learned to budget money every month to pay bills and cover the essentials, you should also budget to save. The amount isn’t the issue at this stage -– focus on the process. Track your spending.Do you know where all your cash is going each month?  Are you honest with yourself or your partner? Prove it. Keep a spreadsheet of your spending for a few months and look for patterns. Try to figure out why you failed to pick up on unanticipated costs. Monitor the results. Make sure you keep an eye on results, periodically comparing them against those milestones. If you're not making satisfactory progress on a particular goal, reevaluate your approach and make changes as