MG — please, take what you get from the greaterfool blogs / garth turner blogs with some salt. I find them full of negative sentiments from monday morning quarterbacks who are not actually in either the real estate or stock markets. Read CanadianCapitalist or milliondollarjourney instead for a more balanced approach from people who actually put their money where their mouth is (for the most part, I mean there are also good posters on those other blogs but not nearly as frequently).

The Canadian governments pension plan is well funded. Unless its mad max style world apocalypse time in which case money won’t matter anyway, it will be there in our lifetime. Don’t take my word for it, here’s an interview the fund manager. Sounds like a sharp guy. http://www.canada.com/topics/news/national/story.html?id=59a6c1f2-09de-4bc3-802f-c5ad81cce18d

I never advised Pam to not pay off her mortgage quicker if she can, but it seemed to me between the lines that she was trying to do too much. Instead, I recomended at least building up a reserve fund instead to avoid further debt (ie $15K on a line of credit) and invest the rest. But complete step 1 first, don’t try to do too much.

The typical advice given in paying off the mortgage first is so that you can then take that extra money and invest it fully. A good approach if you’re very disciplined but I wonder how many people actually can do that, I don’t know if I could control my spending knowing that I didn’t have a mortgage to pay. Instead I pay my mortgage biweekly as my extra payment program, and invest regularly with time on my side.

Stock Markets do not return 8% returns every year. They return between 5% – 10% *on average* over a longer period of time with some years high returns and some years negative returns. Some stocks will tank (CIBC), some companies will go bankrupt (Nortel), some will come out of nowhere to be huge (Google), but overall its quite predictable. See canadiancapitalist postings lately where a prominent economist predicts that the lowered stock prices now actually mean higher returns in future because the cost to buy is lower.

Kristin – I agree with you that if you’re concerned about a sure thing, then paying off your mortgage is a really good way to go. However, the problem is one of liquidity. If you have a no investments and a $300,000 house paid off, the only way to unlock it the value is to sell it and move, which can be very disruptive. If you have a $300,000 stock and $200,000 left on your mortgage, you can sell your stocks and still live where you are. You might lose money on the stocks sure, but you can also lose money on your house.

Please note that I am recommending paying off all other forms of debt (line of credit, credit card, family loans, etc) its just mortgage that I’m flexible on options with.

MountainGirl – that’s exactly why we don’t plan on having kids Too expensive! We’d never be able to retire!

A few months ago I had $32,000 in my RRSP but with the craziness now I haven’t checked the balance because I don’t want to panic and do something stupid. Right now the losses are on paper, I don’t actually lose anything until I sell and I have no plans to do that right now. I use “the stock market is on sale!” mentality. Heck, I started my RRSP only a few months before 9/11 and right when the tech boom went bust, the first few years didn’t show a lot of growth but the good years did come.

Right now I contribute about 11% of my gross salary into my RRSP and get a company match of 4%. Free money!

Also MG – I’m in my 30s and do not plan on working until I’m dead and have a plan to do so. In fact, I think our generation has the greatest potential in a long time to do quite well. Low interest rates for mortgages, falling house prices (though I bought last year), cheap stock prices for great companies, a resource laden country in world that will be desparate for commodites (India, China), etc its all looking up.

Also – Retirement calculators (Gail don’t shoot me) are often based on the idea of having enough funds to replace 70% of your income. However, according to moneysense magazine and others, that 70% figure is too high and unsupported. Some may need 70%, but others may only need 50% which makes a huge difference in the amount needed to save. If when you work you are paying 25% of your income in mortgage, and paying for kids and their education, and then suddenly you’re not, well that should make it easier unless your planning on travelling the world. In short, my advice is to get started young, not get too scared, read and get self-educated, and most of all… plan the work and work the plan as soon as possible. Start small but think big.

What you should do, if you haven’t already, is get yourself listed on the daycare subsidy wait list. (Toronto.com/childcare I think, if not google it). For one child you won’t get much money assuming your household earns $80,000+ but for two you will, and at the prices your paying I’m sure its a licensed daycare and will qualify. You can apply for it right now, before birth.

P.S. Don’t vote NDP if you want your taxes to stay down though…

Kate — First, go visit canadiancapitalist.com everyday, he does a great job of explaining things. But I’ll give it a shot – think of an RRSP as an investment ‘container’. Everything you put in this container gets to grow tax free until you take it out, and every dollar you put in this container (contribution) you get to deduct off your tax return. In exchange, when you retire, the government will tax you on all the money you pull out of the RRSP container. You can also pull it out before then tax free for your first home and for higher education, if proper forms are filled out of course. (which is treated like selling your rrsp at current market value)

What goes in your container is up to you — mutual funds, gics, bonds — its up to you. If the market tanks, your rrsp value goes down. Ours is down about 20%. BUT and here’s a big but, you only lose it if you choose to sell it. In fact, this market slowdown is the best, I repeat the best, thing that could happen to someone in their 20s and 30s like me. I’m getting to buy stocks at a discount, which in turn pay dividends in the form of additional stock shares bought at same low prices) and don’t plan on selling for at least 30 years when I’m confident that the share value will far exceed any earnings from GIC or bonds which barely keep even with inflation. As I get older, I will move from stocks to bonds or gics and more stable investments but lower returning investments.

I’d also caution you to look at what kind of MER (Management Expense Ratio) you’re paying for your RRSP setup. What this is, is the ‘off the top’ cut the bank or manager takes. So if your RRSP returns 9% and the MER is 3%, you get a 6% return. The tricky part is that all your statements will say is “Return of 6%”. You can find TD efunds that are relatively easy to buy with a MER of half a percent (see canadiancapitalist.com for details).

My advice to you is find a low MER RRSP account and just start contributing whatever you can. Most have a minimum initial contribution of around $100 with min monthly after that of $50. Very doable. And good for you for investigating this.

My MIL has a full ONTARIO government pension, yet she works full time for another agency. I’m not sure if she would be able to work for the government again or not. It seems as though she mentioned this once but I don’t remember the answer!

CPP – I had forgotten the one month period.

Depending on the career (teaching, maybe government) and whether you return to that same type job (full time) – it would/could make a difference in a pension.

I did hear once that teachers who took their retirement money out – years ago – and then returned to teaching, that they started paying into a new second pension.

Not to mention my fiance and I just bought a house. How do I factor in paying off the mortgage as early as possible? Ugh! So frustrating

As for other work affecting your pension…well as a teacher there are certain jobs that I can’t work at post-retirement without having to stop my pension (they are all education related). MAYBE you might not be allowed to go back to work for the government if you are in receipt of a government pension. That would be something important to look into.

That is exactly what I meant. I am no math student – so when at retirement workshops I’ve heard that it’s to my advantage to get out and live my life – post retirement, I’ve thought how can I live without a salary – even if it’s only worth whatever they say it is worth?? Is there a time when you really are working for nothing??

I know why I’m still working – I had kids late in my career. I have bills which don’t go away easily (mortgage) and I’m not sure yet if I can maintain my lifestyle on my pension even with CPP added.

This year, is the first year that I’ve thought well, let’s check out the financial side of retirement thoroughly but now, with the economic situation as it is, I’m even more worried about giving up a perfectly good salary and a job I love. My pension would also increase by 2% but would I be working for nothing or is it just a math game?? Gail – what’s the answer?

When I started to write this post I knew that what Gail had written hit me head on. There is just so much to understood about retirement planning and how life will be – post pay cheque!! Preparation takes years for a good retirement plan.

Kelly, as far as I know you can receive your pension, your CPP and then get a new job and it won’t affect your CPP. I can’t think how having other work could affect a federal pension either. Nineteen years goes fast – get prepared now.

As well, check out the ING website for their new Tax Free Savings Plan – there is some nice interest if you get in now. Especially, if you can’t contribute too much to RSPs anymore.