This guest post was written by Robb Engen, who blogs about Canadian personal finance at Boomer & Echo. Together with his mom, (she’s the Boomer, he’s the Echo) they offer their own unique perspectives on saving, investing and personal finance. Add Boomer & Echo to your RSS reader today!

Did you know that the average person will stay in the same job for less than 5 years? This means that you will likely have at least 6 to 10 different jobs throughout your entire working life.

For the 29% of Canadian workers who currently contribute to a defined benefit pension plan this presents a bit of a challenge, especially for younger employees.

The Golden Retirement Plan

A gold-plated pension has been seen as a blessing for Canadian workers for decades, but these pension plans are now hard to come by outside of the public sector. Employees lucky enough to have such a plan were thought to be set for life in retirement.

The basics of the defined benefit plan look something like this:

- Employee contributes a certain percentage of their salary towards the public or company pension plan

- Employer matches that contribution

- As your salary increases throughout your career, contributions continue to grow

- Employees max out their pensionable service when they reach the magic number of 85 (age + years of service)

The retirement benefits will vary depending on the type of plan offered by the employer, but a typical defined benefit pension formula can look like this:

2.0% x Years of Service x Best 5 Year Average Salary

Using real numbers, if you were hired by your employer at the age of 25 and worked there for 30 years with your best 5 year average salary of $100,000, your annual pension income would be $60,000.

Set For Life, Or Life Sentence?

As a young worker, there is one number that stands out above all the others. 30 years with the same employer? In order to maximize your defined benefit pension retirement benefits, you need to be in it for the long haul.

That seems almost inconceivable for this generation of employees who fall in and out of love with their jobs faster than Apple updates the iPhone.

I’ve witnessed firsthand the complacency that sets in amongst many public sector employees who do the least amount of work possible in order to collect their paycheque every two weeks until they finally reach that magic number where they can retire and receive their gold-plated pension.

Is that any way to live your life? If complacency is setting in after just 5 or 10 years with the same organization, how in the world are you going to make it for 25+ years? Young workers definitely have to consider this when choosing their long term career.

Leaving The Pension Plan Before Retirement

If you leave the pension plan before your normal retirement date, your eligibility for benefits depends on the length of your pensionable service and your age.

There are three options for those leaving a company with a vested pension:

1. Leave the funds in the plan and collect the pension benefits at the time of retirement.
2. Transfer the funds to a new pension plan, if the new pension plan allows this.
3. Transfer the amount into a locked-in RRSP, or LIRA.  A LIRA is similar to a regular RRSP except withdrawals are not allowed until the employee reaches retirement age.

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There has been a lot of talk about which one is better, the RRSP or the TFSA in both the PF blogosphere and the media.  Both are great tools for saving for us Canadians.  Given that it’s a fresh year (and almost time the RRSP contribution deadline for 2011- March 1, in case you forgot), more people are thinking about the TFSA and the RRSP.

In an ideal world, one could max out both the RRSP and the TFSA.  That would be ideal. Though in the real world, life happens, and it is oftentimes very difficult to be able to scrounge up the money (without having to sell a kidney on the black market-kidding!) to be able to max out both the RRSP and the TFSA.

In my opinion, the RRSP and the TFSA are like siblings. Very different siblings. Almost mirror opposites and the inverse of each other. They both compete for your money and attention.  They are both good, but as we all know, one can be better for you than the other, just like parents really do have a preference of one sibling over the other, but they just don’t say it aloud (uh oh, is my middle child syndrome coming out in my post?!  Sorry about that).

So let’s talk about the RRSP first (the older sibling):

The Basic Lowdown on the RRSP:

• The RRSP was introduced in 1957 (yeah, it’s the really old sibling)
• As detailed in my RRSP post, the RRSP can hold a number of things (including GIC’s, stocks, mutual funds, bonds); it’s like a basket of investments sheltered from tax
• Contributing to the RRSP is with PRE-TAX income (the tax refund you get is your pre-tax money, but given to back to you at a later date)
• You will have to pay tax eventually when you take money out of it- it’s a tax deferral program (the hope is that when you take money OUT of the RRSP, you’ll be low income aka retired, so there won’t be as much income)
• You are supposed to contribute to it to reap the tax deductions when you’re at a higher tax bracket, and take it out when you are at a lower tax bracket.
• There are two options where you are allowed to borrow money from your own RRSP: 1) Home Buyers Plan and 2) Lifelong Learning Plan (with both you are expected to pay back 1/15 and 1/10 respectively, of the amount you borrowed per year until its fully paid)

The Lowdown on the TFSA:

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This guest post comes to us from Jack at Darngoodblogging.com. He usually talks about debt and credit cards on his blog. Thanks Jack for writing this guest post. I don’t know much about US retirement accounts and this has helped shed some light on it for me.

Your future essentially depends on how you handle your present. The more prudent decisions you make now, the better your chances for creating a secure future for yourself and your loved ones. Retirement plans form a very crucial part of your future planning. You definitely wouldn’t want to step into your retirement with scanty funds and looking for cheap debt consolidation or debt settlement services to resolve your debt issues. So, it is absolutely important that you get geared to prepare a proper retirement plan to secure your financial future.

Surviving on your retirement income

Surviving on your retirement income is a matter of real concern. Social Security, company pension plans, and the individual retirement investments are the three main sources available for retirement income.

Under the Social Security Administration, Social Security offers about 40% of the fund you require for a pleasant retirement. And pension plans are becoming rare day by day. Most of the companies that offer pension plans require the plan holder to be an employee with the company for a specific span of time. But unlike earlier, they are no more considered a source of substantial retirement income.

The uncertainty associated with the above sources highlights the need for a proper retirement plan that contains the right mix of investment and savings.

Save substantially for your retirement

Substantial savings is the key to a comfortable post-retirement life. Always remember, if at all you work after your retirement, it should be your choice and not a necessity. Often a lot of retired people are forced to work hard at an old age, simply because their savings are not enough to last them throughout their remaining life. The inflation, soaring costs of commodities, tax obligations, rising medical expenses add to their plight and make their living all the more difficult.

Such costs are expected to rise even more in near future, making the baby boomers’ post- retirement lives all the more expensive. So, to begin with, create a new savings account where you can deposit a certain amount every month as a
part of your retirement plan. Save as much as you can.

Consider long term investment plans

Smart investments are very crucial for a fruitful retirement plan. You can consider reliable retirement plans such as IRS Roth conversion and 401K plan to spice up your retirement planning.

It is very important to understand how your plan works and what benefits you will receive. Keep a track of your retirement accounts so that you can retire peacefully. There are different types of retirement accounts you can choose from and it is best to talk to a financial advisor about which account might be right for you and your situation.

Amongst a number of retirement accounts to choose from, 401(k), 403B and IRA are the most common type that people make use of today. Using Roth IRA can also be very advantageous because it offers great tax advantages. If you are confused with the host of options out there, seek the advice of a certified accountant to help you choose the account that is right for your situation. Remember, retirement is not the end of life; with proper planning, you can rediscover the joy of living!

EDITORS NOTE: I agree that we shouldn’t be relying on the government or pension plans for our retirement.  I must admit that it’s hard to think about retirement being so young, but I know it’s necessary.  It’s just that other priorities come into play (like kids, a house, saving up for a wedding etc.)   I definitely do want to work after retirement (when I retire early, of course) but maybe just once or twice a week and just for fun.  Studies have shown that working after retirement can help prolong life (the brain doesn’t get stagnant because you’re constantly working it out).

Readers, what do you think?  Do you think about retirement a lot? Would you want to work after retirement?

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Here’s a guest post by fellow PF blogger PT Money (aka Phil Taylor) who started blogging since 2007 and has a limit-less site talking about saving money, debt reduction, and living a frugal life.  I thought I would include his post on 401K’s because I wanted to learn more about the US counterpart of the RRSP.  I picked the photo to the left, by the way.. so it in no way reflects the thought-process of PT Money.

I love the company 401K.

It makes retirement savings easy. It’s automatic at most companies. But it’s not the perfect tool for retirement savings. It could be improved. Luckily some of the improvements can be made by you.

Here’s some advice on making the most of your 401K.

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One of my favourite personal finance bloggers is Budgets are Sexy- he makes personal finance well, sexy and fun. He started a Million Dollar Club where you can pledge your mini-goals to reach the ultimate goal of a million dollars.  So I decided to join the Million Dollar Club.  Nothing like having your goals out in the public eye to make you stick to them, right?

Besides, that badge is really cool looking- so I wanted it on my sidebar. Kind of looks like the Fred Perry logo that they have on those $75 golf shirts, maybe Budgets are Sexy can start a new brand! The Million Dollar Club (catchy, huh?)

Because I’m 20-something and of the generation Y blood, I don’t want to be working until I’m 65. I want to have it all- enjoy life, save money, spend it on things that give value to me (e.g. TRAVEL!) and also as Rich Dad Poor Dad says: make my money work for me, not work for my money.

So without further adieu, here is my pledge in order to reach my goal of $1,000,000 net worth. Man, when that day comes, you better believe that I’ll be enjoying a good drink (maybe some Silver Patron?) to celebrate! (I must have TI’s You Can Have Whatever you Like in my head). In the meantime, I’ll be livin’ it up to Having Whatever I Like, Weird Al Yankovic style in order to work hard, spend less, and achieve my goal of achieving millionaire status.

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