Posted by Canadian Dream on April 14, 2011
So another defined benefit pension plan officially kicked the bucket just recently. Air Canada’s pilots have agreed to switch any new employees over to a defined contribution plan (ie: shift the risk from the employer to the employee for market returns). While this would be interesting if it were a unique problem, but it isn’t. For example, the City of Regina’s pension plan currently facing a $238 million shortfall and was recently denied a request to raise rates to 14% (each, 14% employee and 14% employer for a total of 28% – YIKES). So you have to wonder what solution will happen there?
In general there are several defined benefit pension plans that are facing some serious problems because a combination of factors. Some of the more common factors are:
- Poor Investment Returns – 2008 knocked around a lot of plans, just when they needed to start paying out to more retirees.
- Poor Retiree to Worker Ratios – With the boomers now leaving the workforce and the pressure almost everywhere to rein in spending is resulting in a higher number of retirees compared to current workers. What is also pushing this ratio down is the fact retirees are living longer.
- Too Generous Perks – While the core of these plans might have been sustainable often they were adjusted over the years to slowly turn them unsustainable. Some common examples include allowing overtime pay to count towards the pension or a bridging benefit for early retirees to make up what they will collect in CPP.
This isn’t to say all plans are screwed, but the pressure is growing to either shut them down or adjust the bad plans to make them sustainable over the long haul. Also depending on what sector you work in they are getting hard to find, while public sector often still has them, the private sector is turning a defined benefit plans into an endangered species. For example, in my career I’ve only ever had one employer in the private sector offer a defined benefit plan. I currently work for a Crown corporation (which is almost public sector) and even it doesn’t offer a defined benefit plan anymore and hasn’t for decades.
So perhaps the lesson for today is don’t get too dependent on your defined benefit pension plan with your retirement planning (especially if you are in the private sector). While the plan is a good place to start and you will likely get most of your benefits you would be wise to have some of your own savings around if your spending projects are very close to the amount you expect to get out of the plan. For example, if you plan to spend about $3000/month in retirement and you are planning on getting $2800 of that from your pension plan you might want to consider a backup plan like not depending on your CPP or OAS income so that can back fill your pension if it gets a cut back. While that scenario might have been a remote one previously, now a days it is starting to look a little bit more likely.
Do you have a defined benefit pension plan? If so, are you worried about it being able to provide for you?
Posted by Canadian Dream on April 13, 2011
I know I really baffle some people with the fact that between my wife and I we save over half our take home pay. Upon hearing that number I usually get a response of “Oh you meant to say 5%“, a confused stare or the classic “Pardon?!? How?!?”
I have tried to explain to people over the years how to do it, but it always seems to be that people just don’t get the fact the whole system of saving is really just a series of habits and cost optimizations. For example, we have the habit of not renting movies we instead borrow them from the library or we have optimized our house insurance costs by keeping our deductible as high as they will let me go. Take that and repeat over every area of your life.
Yet more recently I have developed a rather new habit that significant keeps my costs down: the habit of not spending. It’s an interesting fact when you do something long enough just about anything can become a habit. Case in point I’ve been literally so busy over the last few months that I’ve sort of fell into a new habit: I don’t spend much of anything without being fully aware of doing it.
I used to spend some money on little whims that would crop up periodically like a coffee or an afternoon snack (I would suspect most people do this). Typically this spending would be basically pure impulse. I didn’t need it and often afterward I would find myself wondering why I bothered since it didn’t always end up being that satisfying. Yet after being insanely busy for the last few months I did manage to stop some of that impulse spending.
Now when a whim comes up I tend to think a bit about it before I spend the money. Do I really want something to eat? Or am I just bored or thirsty instead? Do I really want a coffee? Or do I just need a break from what I’m working on? I’ve basically taught myself to second guess my impulses to spend. So when I do end up buying that snack or a coffee I know that I really do want it and what would best fill that want. By mastering those little things I’ve found keeping the larger spending items in check easier to do.
The other interesting side benefit of being busy is I’m generally happy with it. I’m never bored and flip through channels on the TV in the evening. My biggest issues some evening is choosing what book to read next or perhaps which writing project to work on.
So perhaps that is the key to really not spending much…stay busy working on what you love. That way you stay out of the mall unless you need to be there. So how about you? What tricks have you used to keep your spending down?
Posted by Dave on April 12, 2011
This is a guest post by Dave, who is also looking to retire no later than 45, but unlike Tim has no kids and doesn’t want any. Dave is from Ontario and is working towards his CGA certification.
I spend around $45 every month on a gym membership. This is one of the main “frivolous” things that I spend money on continuously (other than golf in the summer) and I would say that I really get my money’s worth. The main reason that I actually use my gym membership is that the gym is less than a two minute walk from my office (right across the road). I go there to lift heavy weights and sweat a bit, something I don’t do a whole lot of sitting a desk looking at numbers all day.
If I changed jobs I would probably drop my membership at the gym, as I know I wouldn’t find the time before or after work to make it to the gym. I know there are a lot of people out there who don’t have access to a gym and may want to get in better shape or lose some weight. So here are some things that I would do that are low cost to get in shape.
- Walk: Everyone would benefit from going for a walk. Take your spouse/kids/dog or put on your i-pod and walk for a half-hour or more. Walking is a good time to catch up with your spouse and gets you get some sun (very beneficial) and pretty much anyone at any weight should be able to do it for a little while. Personally, I find walking much easier on my joints and much more social than running. The other benefit of walking is that it is free other than the wear on your shoes.
- Body-weight exercises: Three simple exercises – squats, pushups and pull-ups (or modified versions) can provide enough of a basic workout to provide some benefit and doesn’t require any equipment (although a doorway chin-up bar would be nice since it is better than doing pull-ups while little kids are trying to climb on the jungle-gym).
- Kettlebells: If I didn’t have access to a gym, I would buy one of these. I would mostly use this to mix up my workouts and keep things interesting. These are kind of expensive (around $80 – $100 for the weight that I would need) but on a per-use cost it works out pretty low and they can be resold for basically the same price that you buy them for (not much wear and tear can happen to a big hunk of cast-iron).
So, that’s how I would stay in shape by not using a gym, at most I think it would cost about $150 to set up and would consist of a heavy hunk of metal and a bar that I would hang in my doorway. If my gym wasn’t so convenient and such a nice change of pace in the middle of my working day, I would save the $550 per year I’m currently spending to go somewhere else to lift heavy things.
Do you go to a gym? Do you have any frugal fitness methods?
