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Finance: Lessons Learned

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Finance: Lessons Learned

What Sears Canada taught us

Sears Canada permanently closed their doors as of January, 2018. Like Simpsons, Eaton’s and Simpson Sears before them, these iconic stores are all part of our history. It’s sad news when we hear about the bankruptcy of a business that brings back so many nostalgic memories.

The closing of Sears has left 12 thousand people out of work, and 18 thousand former employees wondering if they will receive the pension that they were promised. This is a perfect example of why all Canadians have to take steps to plan for their retirement, and to make sure that they will be financially secure no matter what happens. Regardless of what your savings situation might be, there are ways to disaster-proof your retirement.

Is your pension plan fully funded?

There are two major types of company pension plans – defined benefit plans and defined contribution plans. In a defined benefit plan, your pension income is guaranteed. Whereas, contribution plans can fluctuate depending upon the investments that you choose.

For defined plans, 99.9 per cent of pensions (private or public) are safely managed, and the money that you are promised is guaranteed. However, make sure that your private company pension plan is fully funded. You can do this by checking your annual pension statements. Look for something called the transfer ratio. You want it to be one-to-one or 100 per cent. That means that the fund is fully solvent, and even if the company goes bankrupt, the pension plan can meet its already existing pension obligations.

In the case of Sears Canada, pensioners may get less money than they had hoped for from their defined plan, as the fund has a funding shortfall of 19 per cent.

Self-pilot your savings

Making monthly contributions to your company pension plan is an excellent way to save for your retirement. However, that doesn’t mean that you should put your savings on autopilot, and assume that it will be enough. Even if you retire, and receive the full pension that your company plan has promised, you may have unexpected expenses that you didn’t plan for. In addition, your initial retirement plans may end up costing more than you originally budgeted. If finically possible, invest money in your TFSA and, if you have room, in your RRSPs.

Make a long-life plan

If you plan to retire in your 60s, take a look at what you might expect your spending to be over the next few decades. If you’re looking to create extra income, be creative. Make use of the skills that you already possess. Perhaps you could consult in your field of expertise, teach or tutor students. Take a look at your home environment, and determine if you have space for an income suite that can be rented for short or long-term stays. Any of these ideas would help to fund the retirement that you want – and they’d be on your terms.

We all want a comfortable retirement, so it’s important to build in insurances and make other arrangements if things don’t go as planned.

Rubina Ahmed-Haq is a journalist, personal finance expert and HPG’s finance editor. She appears on CBC TV and radio, CTV Your Morning, Global Toronto, and writes for ratesupermarket.ca. Follow her @alwayssavemoney. AlwaysSaveMoney.ca

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