Saturday, May 29, 2010

Response from NDP Leader Jack Layton to my email

I received the following email from Jack Layton (NDP) re Bill C-501


Thank you for your past email concerning pension protection in Canada.

Our legislation, Bill C-501, that will put workers at the front of the
line when a company goes bankrupt moved one step closer to becoming law
when it passed second reading on May 26. Regrettably, a majority of
Conservative MPs voted against Bill C-501 although only a year ago they
voted unanimously in support of a New Democrat motion calling for
pension funds to be at the front of the line. Looking forward, the
Conservatives' reversal on this issue may represent a significant
obstacle to ensuring pension fairness.

Bill C-501 is very similar to NDP MP Wayne Marston's own 'Nortel Bill'
(C-476). However, due to a parliamentary procedure that uses a "lottery
system" to determine the order for Private Members' legislation, Mr.
Rafferty's bill will be considered first by Parliament. Therefore, our
Party took this immediate step as we view pension protection to be a
national crisis that requires national leadership. There should be no
further delay or empty talk.

In addition, Mr. Marston has also tabled a bill known as the "Nortel
Long Term Disability Protection Act" to provide bankruptcy protection
for those receiving health benefits. For more information, please visit:

You may be interested to know that we have dedicated a section of our
website to allow Canadians to share their concerns over retirement. For
more information this and our plan to protect pensions, please visit: and

Again, I appreciate your interest in this important matter. Feel free to
share my reply to with your contacts. All the best.


Jack Layton, PC, MP (Toronto-Danforth)
Leader, Canada's New Democrats

Friday, May 28, 2010

NRPC comments on Canadian Bill C-501

The following is a statement from a representative of the NRPC with respect to the C-501 bill in the Canadian Industry Committee of parliament.

Please write to members on that committee and to elected representatives with your request that they support the passage of the bill. If the bill does not pass, or passes in its current form Nortel Pensioners will receive no benefit. The bill needs to be retroactively applied to Bankruptcy filings during 2009 or earlier. The bill also needs to apply to both BIA and CCAA. Otherwise the Nortel bill will not help us at all, though it may help others in similar situations in the future.

This is the NRPC statement:

Bill C-501 passed 2nd. Reading on May 26, 2010 in the House of Commons and has been sent to Committee! Even a few Conservative MPs supported the Bill. Thanks to everyone who wrote to the MPs.

In 2009 when Wayne Marston of the NDP introduced his Private Members Bill to give priority to pensioners and terminated workers, he called it a "Nortel Bill". It was the first significant attempt to change Canada's outdated and unfair bankruptcy laws to protect pensioners and employees. The plight of our members was the impetus for the Bill. After prorogation, Mr. Marston transferred his Bill to Mr. Rafferty who had a better position in the queue for introducing Private Members Bills, and it became C-501.

Even when the Bill was first introduced, in order to help us it would require either the transfer of the Nortel Bankruptcy case from the CCAA (bankruptcy protection) to the BIA (liquidation), or retroactive implementation of the new law to at least January 13, 2009. When Judge Morawetz refused to approve the first Settlement Agreement in March 2010, it became clear that he would be unlikely to move the Nortel case under the BIA over the objections of the bondholders. With current laws, it is possible for Nortel to be liquidated under the CCAA.

So retroactive implementation of C-501 applied to the CCAA is one of the conditions needed if we are to benefit from it. We will press for an amendment to give C-501 this effect while the Bill is in the Committee stage. If this fails but C-501 does become law, it will still help those pensioners who follow us down the unhappy path of corporate bankruptcy. You can also be sure that NRPC will continue actively to seek ways at the federal level to obtain relief for Nortel's pensioners and terminated employees, through new Bills or through other means such as tax relief. Initiatives at the Ontario level are also in progress and we will report on those soon.

Thursday, May 27, 2010

Canadian Parliament votes to move Bill C-501 into committee.

The Canadian parliament voted on Bill C-501 yesterday and narrowly approved it. It now goes to committee. Not sure what the process is following this vote but from what I have read it can be amended in committee, so perhaps retroactivity may be applied to cover Nortel.

The actual vote by member shows at:\

The record on Bill C-501 was as follows:

Vote No. 50
40th Parliament, 3rd Session
Sitting No. 49 - Wednesday, May 26, 2010
Mr. Rafferty (Thunder Bay—Rainy River)
C-501 - An Act to amend the Bankruptcy and Insolvency Act and other Acts (pension protection)
That the Bill be now read a second time and referred to the Standing Committee on Industry, Science and Technology.
See the published vote in the Journals of Wednesday, May 26, 2010
144 111 255 0
Agreed to

Of the 307 MP seats, 52 did not vote, 255 voted = 144 Yea + 111 Nay
split was largely along party lines, with Conservatives generally voting Nay and
all opposition voting Yea. 11 Conservatives are to be commended for voting for
the bill.

Wednesday, May 26, 2010

Article in Toronto Star on bill C-501

According to this article in the Toronto Star yesterday (25th) on bill C-501 the bill if passed will not be retroactive. That means we Nortel pensioners will lose out even if future banalruptcies in Canada give pension plans priority over other creditors. This is certainly disappointing, though it is the right thing to do to protect others who may find themselves in the same situation as us. There is still time to have a retroactivity clause inserted, and lets hope enough pressure is placed on the government to do that for Nortel pensioners.

By James Daw, Toronto Star:

Politicians of all federal parties are being pressed to vote Wednesday to raise the security of vulnerable pension plans.

Pensioners are urging them to support a bill from a Thunder Bay New Democrat that would bring Canada’s bankruptcy law up to the standard in most other developed nations.

“Do you want to support legislation that protects vulnerable Canadian citizens, or do you want to protect wealthy banks, bond holders and hedge funds?,” chides a letter from General Motors of Canada Ltd. pensioners.

The bill would give pension promises equal standing with secured loans when companies restructure under bankruptcy protection, or go out of business.

GM Canada pensions have already been partly propped up with money from government loans, but benefits would be cut sharply if GM were to fail.

Pensioners from Nortel Networks Corp. have also been trying to raise support for the bill, even though it will not help them.

The man behind the bill, John Rafferty of Thunder Bay-Rainy River, was thinking of AbitibiBowater Inc. workers and pensioners in his riding when he proposed his Bill 501.

The forestry giant is aiming to emerge from bankruptcy protection later this year, but pensioners could still be vulnerable for years to come.

NDP officials are frank with Nortel pensioners who call about Rafferty’s bill, warning them it will be too late to help them.

Lawyers for pensioners and employees have already agreed to the share of assets pensioners and disabled workers will receive from a court-supervised sale of Nortel operations.

They have also agreed not to seek a higher priority for pension promises if the company files for bankruptcy, and if the Bankruptcy and Insolvency Act is changed.

“Given those agreements, any legislation that improves priorities for pensions would have to be very specific to get around the existing settlement agreement (approved in court),” says a lawyer familiar with those agreeements.

The NDP-sponsored bill does not do that, nor is it intended to apply retroactively to pensions of companies that have already sought bankruptcy protection, says Rafferty.

Normally, a bill from a member of a minor party is given little hope. But Rafferty points out that the Conservatives have already voted in favour of the principle behind the bill.

“The Bloc, Liberals, and Conservatives … unanimously supported our Opposition Day motion from last June,” says Rafferty.

“That motion said Parliament should bring forward measures to protect workers such as ensuring that workers’ pension funds go to the front of the line of creditors in the event of bankruptcy proceedings. We’re just asking them to be consistent and support this bill, too.”

Liberal finance critic John McCallum (Markham-Unionville) says he and pension critic Judy Sgro (York West) will recommend the bill be sent to committee for discusssion, and possible amendment.

There were definitely legitimate arguments against making a retroactive change, as Nortel pensioners would have wanted, said McCallum. He also acknowledges other concerns that corporations and lenders will raise.

Any of the many companies with a pension plan that is short of fund might have to pay higher interest rates to borrow, or find it difficult to raise new capital.

This could hurt those companies’ ability to compete, and hasten the disappearance of traditional pension plans.

Meanwhile, buyers of corporate bonds, including other pension plans and individual investors, could lose money if corporate bonds fall in value.

McCallum doubts the Conservatives will support the bill. He notes Conservatives have not even supported a bill from Liberal Senator Art Eggleton that would provide protection for disabled employees, such as about 400 at Nortel who stand to lose about 85 per cent of their benefits starting next year.

“But,” asks McCallum, “if so many other countries do it (protect pensions in a bankruptcy or guarantee pensions), why can’t Canada?” He challenges critics of the NDP bill to provide proof.

Only Ontario has a Pension Benefits Guarantee Fund. It was designed to protect only the first $1,000 of benefits, and had recently had no money. The provincial budget revealed a $500 million grant was made to the fund, most of which will go toward Nortel pensions.

Rafferty notes that Australia improved the priority of pensions in a bankruptcy as recently as 2005, and a later study found there was little change in bond interest rates.

“So we have a real-life recent example,” he says, although fewer companies and pension would have been in as much trouble as are now, he acknowledges.

Tuesday, May 25, 2010

Budgeting for Pension cuts-8 Expense reduction

At this point in the process, some serious thinking has to take place about what must stay in the future budget and what needs to be cut or eliminated. Having worked out the amount of annual disposable income available after the pension cut, your expenses have to be less than that, or else you will quickly eat through your savings.

Just as a reminder, disposable income is gross income from all sources minus income taxes and property taxes. At this stage you need to look over your expenses and make sure you have separated them into those you consider musts and those you consider wants.

You may have some discretion in terms of calculating the amount of money needed for some of the musts, but in general you will need to budget for all of them first to make sure that you can afford housing and living healthy, with enough to eat. So items such as Food, Medical, Mortgage, Rent,Utilities, and Insurance become essential and must be paid for. It is possible to reduce some of those categories by careful planning and thinking, but it is important that you pay for those items first.

Food bills can be reduced by carefully watching for coupons offered by grocery stores and making sure that you shop on the day when they give senior discounts. Publix and Krogers for example in the US offer 5% discounts on Wednesdays to seniors and that adds up when you consider how much is spent on food over a year. Krogers also offers a card that is free but which allows you to shop at an already discounted price. Also there are wholesalers, such as Cosco, who offer food in bulk at lower unit costs. So it pays to be a savvy shopper.

Mortgage rates are at an all time low at the moment, so it is really worthwhile considering refinancing your mortgage. You can also extend the range of the mortgage so that it reduces the monthly payments.

Make sure you take advantage of any exemptions offered by your town or county or province or state in terms of property taxes so that you can maximize the disposable income to start with. Same applies with income taxes. State and provincial taxes vary and it may be worth your while to consider moving to a lower tax base, though there could be offsetting costs that may affect you so research the choices before taking any steps.

Downsizing is another alternative of course to reduce the amount of mortgage payments,taxes, insurance and maybe even utilities and maintenance. There are many new offerings for seniors that provide excellent housing alternatives in smaller residences that also provide maintenance and community support. So this may be the time to consider such a move and thereby reduce your on going costs.

Once you have thought through all the costs that you consider "musts", subtracting that from your disposable income will give you what I consider as real discretionary income. This is the money you will have left over for things like eating out, entertainment, travel and gifts.

You may consider some of these items as more important in which case you will have to prioritize them to determine which ones you want to fully fund, and which you can cut back on. For example if you eat out every Wednesday with a group of friends, maybe that's something you still want to do regardless, in which case you should plan to continue that at the expense of something else.

This is all a balancing act aimed at making sure that you have enough money to live as closely to your desired lifestyle as possible. Only you can decide which items are more important than others, and it may be a painful process to decide, but in the end it will be better to take a stab at it rather than hope for the best and end up short of money.

This will probably take a few iterations in order to come up with a viable budget. You and your spouse need to work this out together because you each may have different views of what is more important, and this process may avoid some confrontational debate if one partner makes the decision to cut something that the other one considers top of the list for keeping.

You should work at the top level of your budget categories to start with. For example you should think of money for Entertainment as a whole rather than start to look in minute detail at movies, shows, tv , book etc. Once you have decided on a top level budget for all the items then you can start looking at the sub divisions to see what you can afford. Perhaps you will only be able to go to the movies once a month instead of four times, or maybe you need to cut out some of the premium channels on your TV listings. Or perhaps you can start borrowing books form the library or join a book club instead of buying hardcovers as soon as they come out.

The idea is to come up with a plan for each element in your budget. You know it won't be perfect because as time goes along priorities often change and unknown expenses occur that impact the plan. So you will need to be ready to adjust, and part of that is to plan for some savings in your disposable income. If you budget it all and you spend it all there won't be anything there when the unknown expense hits you. So build in some contingency.

Also this is a dynamic thing. You will probably find that once you start this process you will have to repeat it as you get a better understanding of your real costs. Hence you will need to keep some records and review them on a basis that you feel comfortable with. It's almost certain that your expenses will be different from what you budgeted, and you will have to make adjustments as you go.

In the next post I will discuss the records that I keep, to try to stay abreast of the budget and expenses. I usually look at this monthly as I feel more comfortable doing that. For those of you who were in some management position in Nortel you should remember the monthly budgets, and like most of us you probably considered that a drudgery. However it was good training for what we are now facing, and I urge to take advantage of those lessons so that you can keep your own finances in control and enjoy life with what you have.

Sunday, May 23, 2010

Bill C-501 Status. - Canadian Bankruptcy Law

BIA bill C-501 was discussed in the Canadian Parliament on May 11. The bill is intended to change the bankruptcy laws to favor retirees and move them to a preferred status. You can read the details at:\

The NDP are the party putting forward the bill. The Liberals kind of support it but didn't stand up to be counted. The conservatives seem to be cool towards it-of course. They are the ones in power but they appear to be siding with the bond holders and other creditors and trying to avoid helping retirees and ex-employees.

Mike Lake, conservative MP, said:

"Some countries, such as Italy and France, have mainly state-funded pensions and few private employer-sponsored pensions, which make the insolvency of contributing employers largely irrelevant to the amount received by pensioners.

Other countries, like New Zealand, treat pension claims as wage claims, giving claimants access to wage guarantee funds instead of protection in the bankruptcy process. Still others, like the United States and the United Kingdom, have pension guarantee funds, financed by premiums or general tax revenues."

Sounds good, however he then went on to say:

"with respect to the protection of unfunded liabilities, like Canada, a large majority of members of the OECD, including such countries as Australia, France, Germany, Italy, New Zealand, Sweden, Switzerland, and the United Kingdom, treat unfunded pension liabilities as unsecured claims in insolvency."

So he is taking the road of avoidance based on false logic. You can help by writing to him and other members of parliament to demand support for this bill since it makes sense to protect retirees rights against other creditors who are insured and who can well afford to take a lower priority than those of us who will lose a large chunk of our livlihood as a result of current bankruptcy law. Diane Urquhart has done the financial analysis and predicts that the impact on interest rates will be mimimal, in spite of what all the naysayers and bond holder suopporters say.

The bill will be back up for a second hour of debate sometime over the next two weeks. After that, the bill will head to the federal industry committee where the bill will be studied further.

Meanwhile we are faced with opposition by people like John Manley who has been appointed chief executive of the Canadian Council of Chief Executives. Manley was former Liberal Finance Minister and a Nortel director. His opinion is absolutely against Bill C-501 and he carries a lot of influence. Try not to get sick when you read what he thinks. Get angry and write to your MP. Here's what he has to say:

Preferred creditor ­status for ­pensions would weaken their ­sponsors

By John Manley

On both a personal and professional level, I know how important the issue of protecting company pensions is for many Canadians. Part of it stems from my experience as a corporate director, but it also has roots in my former career as a politician, when I learned early how policymakers are sometimes tempted to support quick fixes at the expense of broader, longer-term goals.

Many Canadians certainly have a stake in protecting private company pensions — but many would like to pretend there is an easy way to ensure pensions are paid should a company go out of business.

A private member's bill now before the House of Commons purports to do just that. In reality, however, Bill C-501 would weaken the financial viability of companies that sponsor those pensions, as well as the financial well-being of many Canadians who do not have such plans.

Supporters of Bill C-501 say the bill would better protect the pensions of companies that go bankrupt by moving beneficiaries higher up the list of creditors that would have their stakes in the failed company honoured — ahead of, for example, corporate bondholders.

This may sound reasonable, but there is a huge price tag attached. Before leaping on the bandwagon, we should consider who these corporate bondholders are, and what would happen if they suddenly found themselves with "less preferred" status than is the case today.

Corporate bondholders lend companies money so that those businesses can invest, innovate and grow, as well as sustain and create jobs. The interest rate charged on such a loan reflects the perceived degree of risk. Many millions of Canadians have a stake in those corporate bonds as part of their own retirement savings or other investments.

Ironically, granting preferred creditor status to private pension plans could actually erode the value of most Canadians' retirement savings — including the savings of those who might think their pensions would be more secure under Bill C-50.

The equation goes like this. Moving bondholders down the list of preferred creditors increases the risks those creditors face. To compensate for that extra risk, bondholders will charge a higher premium when they lend money. That in turn would increase the financial pressures on companies with private pension plans, potentially impacting the viability of their businesses. It could even push some of the more fragile companies over the edge, moving them closer (if not all the way) into bankruptcy.

To make matters worse, raising the priority status for pension deficits under C-501 could trigger the liquidation of companies with defined-benefit plans that are trying to restructure.

Bill C-501 does nothing to help Canadian businesses avoid bankruptcy. Instead, it only increases the possibility that companies with private pensions will fail. Nor does the bill benefit Canadians who do not have access to private pension plans. In fact, it could potentially hurt Canadians who invest in corporate bonds directly or through their retirement savings plans. The proposed legislation could even hurt the very pension beneficiaries it is designed to protect, because it would make it harder for companies with pension plans to compete against companies without them.

Supporters of Bill C-501 say it would increase the chances that employees who contribute to a company pension plan would recover at least some of what has been lost if and when a company fails. Bear in mind, however, that the bill would not guarantee full pension recovery; rather, it would simply move potential pension beneficiaries up the list of creditors as assets of the bankrupt company are liquidated. What that means in terms of actual amounts received is anybody's guess.

All of us should be concerned about the viability of private company pensions. But in considering this important issue, our elected representatives must be careful to avoid ill-considered quick fixes. And that means refraining from passing legislation, however well-intentioned, that guarantees little but undermines a lot, including investments in retirement savings by countless Canadians and the ongoing financial viability and competitiveness of businesses that have private pension plans.

Financial Post
John Manley is chief executive of the Canadian Council of Chief Executives.

Friday, May 21, 2010

Budgeting for Pension cut-7 Tax Deferred Accounts

The seconds set of accounts which I watch monthly are the tax-deferred accounts which I built up over the years in Canada and the US.

When I retired I withdrew as much from my US Pension as I was allowed by the IRS rules, and placed the money into my 401K. Then when Nortel showed signs of dying I moved the contents of the 401K into an IRA. The IRA has various components within it including mutual stock funds, bond funds, CDs etc. Any gains made on the market or from dividends are reinvested and can grow inside the IRA without having to pay tax immediately.

When I withdrew my US pension some of the commuted value was not allowed to be rolled over into the 401K because of IRS rules. Nortel required that I take the rest of my pension as what they called a "Fifteen Year Certain Pension" and was considered non-qualified by the IRS. Hence the money was being paid out of Nortel's general funds and not any Pension Trust Fund. That worked fine for 7 and a half years until Nortel declared chapter 11 at which time they stopped my pension. So much for certainty.

Since I had worked in Canada for a number of years I also had an RRSP which was invested in various Canadian and International funds. I also had some money left in my 401k. So I treat these three accounts as my tax-deferred fund and in my original plan I was not going to touch them until the fifteen year certain pension stopped.

Unfortunately with the demise of Nortel I had to start taking money from my IRA to replace the money I lost from the NQ pension.

Withdrawing money from an IRA or other tax deferred vehicle like that means that you have to pay taxes on the withdrawal as if it were earned income. There are IRS rules for withdrawal which everyone needs to be aware of.

If you are less than 59 1/2 years old, there are penalties involved which will cost you an extra 10% tax penalty over and above what taxes you have to pay based on your income and deductions.

There are some exceptions to the the rule that you must wait until 59 1/2 years old before making a withdrawal.

If you roll over your IRA to another retirement plan, it is not subject to the 10 percent penalty.

If your medical expenses exceed 7.5 percent of your adjusted gross income, you can make a penalty-free withdrawal from your IRA.

If you lost your job and paid your medical premium yourself, you can withdraw that premium penalty-free from your IRA until you find another job.

If a physician certifies you cannot work, you can withdraw funds from your IRA penalty-free.

If you die with an IRA, it can be distributed to your heirs penalty-free.

You can pay college tuition with distributions from your IRA penalty-free.

You can withdraw up to $10,000 from your IRA penalty-free for the purchase of a home.

If you begin taking essentially the same amount from your IRA before you are 59 1/2, and do so for 5 or more years, those distributions will be made penalty-free.

Another rule of traditional IRAs is that you are required to begin making withdrawals when you reach 70 1/2 years of age. You have to make the first minimum withdrawal before April 1 on the year after you reach that age and the amount is based on the value of your IRA as of December in the year before you reach 70 1/2. Failure to take those distributions results in a penalty of 50 percent of that amount,so don't get caught having to pay the IRS by procrastinating.

The first distribution starts off around 3.6% of the value in your IRA and grows each year after that based on actuarial tables used by the IRS. A calculator is available at to help you determine what your minimum withdrawals over your lifetime would be given various interest rates and values in your IRA. You can find that at:

In terms of RRSPs in Canada, they don't last forever. By December 31st of the year in which you turn 69, Canada's Revenue Agency requires that you have to move the money out of your RRSP.

There are three basic options:

You can close your RRSP, cash out your savings, and pay a huge amount of tax on it at the highest marginal rate. This option is absolutely the least desirable and should be avoided.

You can buy an annuity with your savings.

You can roll your savings into a Registered Retirement Income Fund (RRIF).

Most people buy an annuity or roll their savings into a RRI but there are pros and cons with each approach.

Buying an annuity

An annuity is a contract between an investor and a financial institution. The investor turns over a non-refundable lump sum and, in exchange, receives a pre-determined stream of income for a set period. The type of annuity chosen will depend on your specific situation and your plans. There are three main types of annuities: single-life, joint-and-survivor and fixed-term.

A Single-life annuities provide buyers with an income stream for life. But when the holder dies, the payments cease and nothing goes to the estate.

A joint-and-survivor annuity is geared toward couples and provides income protection for the surviving spouse. The annuity payments continue after one spouse dies. The annuity can be set up to provide the same payment to the spouse or reduced on the death of the first spouse.

A fixed-term annuity provides a benefit to a specific age, or for a set period, such as 10 years. If the person dies before the end of the term, the remaining payments go to her estate or a designated beneficiary.

Annuities are tied to the interest rate at the time of purchase of the annuity, so there is no way to take advantage of rising rates, and there is no protection from inflation.

So, in a low-rate environment like today, where rates are expected to start rising, few people are choosing annuities. The best choice is to roll RRSP savings into a RRIF.

Rolling into a RRIF

A RRIF operates much the same way as an RRSP. The primary differences are that you can't contribute more money to it once it's established, and you must withdraw a minimum annual amount from it starting in your 70th year.

Like IRAs, yearly withdrawal vary according to a formula established by the Canadian federal government. The amount of money you must withdraw each year is determined by your age. So if you have a younger spouse, you should designate her as the beneficiary because it will lower the minimum withdrawal.

When the RRIF is established you need to take steps in advance to accommodate the minimum withdrawals you'll have to make. Otherwise you may need to sell investments before their maturity in order to meet your withdrawal obligations. This will probably decrease your total return on the RRIF.

The minimum RRIF withdrawal may be based on your age,or your spouse's age. So you can choose the lower number to keep your RRIF building. Minimum withdrawal at age 55 is 2.86%, at 60 it is 3.33%, at 65 it is 4.0%, at 70 it is 5.0%, at 75 it is 7.85%, and it continues growing until it reaches 20% at age 94.

The Day that Nortel Died- A spoof song on YouTube

There is a video song in YouTube called " The day that Nortel Died" that you might enjoy watching. It is sung to the tune of American Pie and tells the sad story of Nortel's demise.

Budgeting for pension cut part 7 will be posted soon.

Monday, May 17, 2010

Budgeting for pension cut-6 Liquid Accounts

As part of my monthly budgeting and expense method I record the amounts in my various accounts and examine the change from the previous month. That helps determine where the money is going and how fast I am using it.

I split the accounts into two major categories. Liquid and tax deferred. I do that because the liquid accounts are the ones I use for cash flow, and the deferred tax accounts are those that I generally leave alone to grow without having to pay tax on them before I withdraw money.

In the liquid accounts I list my bank accounts and investments made with after tax money. I also separate the liquid accounts into those that I use for day to day business, those that I am trying to grow, and those that I consider as accruals.

I generally use one checking account to pay my bills and I have my pension and other income paid directly into that account. I also transfer money from my savings account to that checking account when I need it to pay specific bills. That way I try to keep a close eye on the checking account to understand where my bills are coming from, and how the amounts compare on a month to month basis.

I have various savings accounts that I consider as accrual accounts that I use to build cash which I plan to use for property tax payments, estimated tax payments, vacations, and other large expenses such as a wedding, or a car purchase.

I transfer amounts into those accrual accounts monthly based on the amount I have decided to use for a specific purpose. Hence my property tax account builds up over the year and when it come time to pay that bill I withdraw the money from that account. That way it doesn't seem so onerous as suddenly having to pay the bill and taking the money out of general funds.

Same thing for travel and vacations. Having decided what I will spend in the year I let it build monthly and then when we take a trip I withdraw the money from that account to pay for the travel costs. It doesn't make it any cheaper, it just gives a slight psychological edge, and makes travel that more enjoyable knowing I have already saved up the money to pay for the trip.

I also include my investments in the liquid accounts even though there may be capital gains (or losses). I include CDs, mutual funds, and dividend paying REITs as well as a few stocks. So I keep track of where they stand monthly by checking on line and it helps me keep an eye on change to my total worth. It helps to know that in order to know how long funds will last as current spending rates.

This may seem a lot of work but I find it useful to be aware of how my bank accounts change and it also gives me a chance to manage costs in a way that will allow me to adjust when my pension is reduced. I can plan to save for specific fixed costs like property taxes and I can adjust my outflow by changing my travel budget and other expense budgets to meet the new reduced income level.

It has taken me years to arrive at this budgeting and expense method, and I'm sure that everyone reading this has their own approach. I am writing this to try to help those who haven't set up any system, so that when October comes and pensions are reduced,there is some method that they can use to determine how to adjust to live with that reduced income straeam.

Wednesday, May 12, 2010

Budgeting for pension cut -5 Bill Records

An important part of budgeting is having a method for paying bills that allows you to be aware of how much you are spending on a monthly basis. One monthly spreadsheet I have been using for many years to keep me on track with my expenses and budget is a simple list of the bills I expect to pay in the month.

The following shows a rough example of what I use to keep track:

-------------------------Date Due----Date Paid----Amount------Check#-- Posted

Auto Loan----------------20th
Arrow Exterminators------Quarterly
AT&T- Bell---------------19th
Auto Insurance-----------11th
Broadview Security-------15th
Cable TV-----------------28th
Dell Computer------------5th
Homeowners Ins.-----July
Medical premium----------31st
Trash removal------------19th
Taxes Federal------------Quarterly
Taxes- House City--------Yearly
Taxes- House County------Quarterly
Taxes State-------------Yearly
Cell Phone---------------10th
Lawn Maintenance---------31st

I also have set up a Bill folder on my Favorites in the Internet browser that lists all the bill websites corresponding to the list of bills on my spreadsheet. That gives me easy access to pay online as many as I can.

I pay bills on a once a week basis for the week that they are due and record in the spreadsheet when I have paid them, how much, and the check number if I use a check. I try to pay as many as possible on line since it is easier, cheaper and gives you instant receipt feedback.

The monthly spreadsheet of the bill record helps me keep track of my total spending so that I can see whether we are going over our budget in the month and allows for adjustment in the next month.

This may sound too complicated and fussy to many but I find it a useful method and because it also forces a routine discipline I have rarely missed a bill or been late in payment. Forgetting to pay a bill such as a credit card can lead to enormous interest rates and bank fees so its a really good idea to keep on top of the situation and pay bills in a timely manner.

Many banks will also help set up automatic bill paying so that you can let the bank pay on your behalf electronically when the bill is due. Many companies also have that feature in their systems where you can opt to pay automatically each month out of your checking account.

If you feel comfortable doing that it is certainly a good and safe method. In my own case I prefer to have more control than that, hence my preference for paying the bills myself and recording them as shown above.

Tuesday, May 11, 2010

Budgeting for pension cut-- 4 Savings

The first two posts in this series were aimed at helping you determine what your disposable income will be going forward after the cut to the Nortel Canadian Pension occurs in October. The third post was to assist you determine the amount of money you are spending on a monthly or annual basis.

Basically your disposable income is gross income minus taxes.

If your current expenses exceed that amount then you are going to have to take some actions to reduce your costs or increase your income so that you can stay solvent. This post is aimed at some ideas to try to increase your income.

One area that can be examined is your savings. If you are lucky enough to have money set aside in an RRSP/RRIF, an IRA, a 401K, CDs, GICs, or personal savings accounts, you should take stock of that and think about how best to use those funds to augment the pensions your are receiving.

If you are not yet withdrawing money from those accounts you should consider carefully how you can best access them to avoid any tax penalties, and you should also examine the interest rates you are receiving to see if you can increase the earnings on those savings.

If you can afford to use a financial planner that is the best thing to do to assist you in making decisions regarding the best way to maximize income from your savings.

If you can't afford to do that, many investments companies offer free courses through churches, senior centers, and other organizations to help seniors decide what to do to help fund their retirement. Many of those sessions include planners who hope you will sign up with them, so be aware of that, though your don't have to use their services.

One idea is to convert some of your savings to annuities that will pay out a fixed amount over your lifetime. Unfortunately the interest rate on all of these instruments is at an historical low at this time so before jumping into long term agreements think about the idea of "laddering" your choices so that you can take advantage of higher interest rates when they increase some time in the future.

Laddering means putting your savings into a set of financial instruments such as CDs or GICs but spreading them out over different time frames. For example,decide on how much of your savings you want to put into a specific investment vehicle such as CDs. Then place 20% of that amount, into a 1 year CD, 20% into a 2 year CD, 20% into a 3 year CD, 20% into a 5 year CD, and 20% into a longer term such as a 7 year CD. That way you may be able to get better rates on the 5 and 7 year CDs, but still have money available in a year or two years to reinvest if rates go up.

One other way to increase your income is to downsize. That means selling your house and moving into a smaller house and investing the difference. This is a traumatic move and one that can't be taken lightly. Also there are many additional costs involved such as real estate agent fees, loan origination fees, moving expenses etc and they will eat into your profit and reduce the amount your can invest.

In the US there is an idea called reverse mortgage. I'm not sure if it exists in Canada. With a reverse mortgage, seniors can obtain a loan on their house from a financial institution which is then invested and pays them a monthly amount. They can still live in their house and don't have to pay back the loan until after they sell the house or pass on. There are various catches involved in this process. The children will inherit the house and the debt associated with it. There will be interest charged on the mortgage which will have to be paid back eventually. So it isn't a panacea but may be useful for some people who just can't make ends meet after the pension cut.

To help keep track of what you are doing with your savings I strongly suggest you maintain good records and look at the returns monthly. I plan to post a specific section in this series on the records that I try to maintain monthly, however to help you at this point I will provide a little input on the savings records I keep.

I split my savings statements into two categories. Liquid, and deferred.
By liquid I mean the amount of money that I have in bank accounts or investments that I can access without paying additional taxes when I withdraw from that account. The deferred category includes funds held in tax deferred accounts such as IRAs, RRSPs, 401Ks, etc.

Each month at the end of the month, I check each account to see where it stands and then I build that into a spreadsheet which gives me a view for the year to date gain or loss in each account. It also helps to find out what the impact of expenses are on those accounts and will help me make some decisions in October when I have to cut back on various categories of expense.

All banks and financial institutions carry your account information in their computer databases. By opening an Internet account with them you can access your own personal information in a safe and secure manner and see what is in each of your accounts at the end of the month without having to wait for paper copies. This also helps you see charges and withdrawals so that you can keep on top of what your income and expenses are.

Keeping a record like that is going to be even more important when your income is reduced so that you don't fall short and end up overdrawn. Banks charge inordinate fees and penalties for overdrawing on your account, so try to keep current with your accounts to avoid having to spend extra money that you can ill afford.

Monday, May 10, 2010

Budgeting for pension cut 3-Expenses

Having worked out an estimate for net disposable income from your projected gross income minus taxes, the next step in budgeting is to estimate the amount you spend on a variety of items, and find out if your spending is within your projected disposable income or not.

Expenses should be divided into two main categories, Musts and Wants.

The "Musts" in your expenses are things that you will have to spend money on whether you like it or not. The "wants" are things that you have some control over and which you may decide to reduce or eliminate.

The items that I have included in "Musts" and "Wants" categories below are by no means fully inclusive. I probably have missed many items of expense that you will need to add to your own budget, and decide if they fall in the Must, or Want category.


- Include all grocery items

- Premiums
- Doctors, labs, and hospital charges
- Dentist charges
- Chiropractors
- Massages
- Drugs
- Home help care

Mortgage or rent
- Principal and interest payments
- House or renters insurance

- Water and sewer
- Electricity
- Gas
- Trash removal
- Security service
- Termite bonds & inspections

- Toiletries
- House supplies

- Auto loan or lease payment
- Auto maintenance
- Gasoline
- Auto insurance
- Tag fees

- Life insurance
- Long term care insurance
- Personal insurance

- Personal loan payments
- Equity loan payments

- Personal cash for incidentals


Eating out
- Restaurants
- Bars
- Events

- Home phones
- Cell phones
- Mail

- Movies
- Shows
- Television channels
- TV services (EG Netflix)
- Books and magazines

- New clothes
- Shoes
- Jewelry
- Accessories

- Food
- Grooming
- Vet charges

- Nails
- Spas

- Internet
- Maintenance
- Software

- Local travel
- Vacations
- Family visits

Gifts - Birthday gifts
- Holiday gifts
- Political gifts
- Charitable gifts

- Membership fees
- Homeowners associations fees
- Business or government fees

House & Garden
- General maintenance
- Repairs
- Upgrades
- Furniture
- Lawn maintenance
- Plants
- Watering
- Linens
- Office supplies

By examining your expenses over the last year or so, you should be able to build a personalized list of expenses like the one above. This will take some work because you will have to look at your records and charges on cards to separate out the expenses into the various categories you have selected.

If your records aren't adequate for that, you will have to start keeping records going forward in a manner that lets you break out your costs by category. There are software packages like "Quicken" which help you with that task, and most charge cards will allow you to download your monthly statements so that you can determine where your money is being spent by category.

This may sound like an enormous pain to carry out, but it is really the only way you will be able to find out where most of your money is going and then take some actions to reduce the spending in the areas that can be controlled.

Sunday, May 9, 2010

A Canadian tax calculator

I came across another more sophisticated calculator for determining Canadian taxes at:

You can select the Province you live in and calculate the total Federal and Provincial taxes based on your income. It allows allows pension splitting and takes into account all the various deductions and investment advantages.

It is a great tool for estimating your annual taxes.

Friday, May 7, 2010

Budgeting for pension cut-2 Taxes

Part 2. Taxes on Gross Income.

After projecting my gross income for the next five years based on what I know at this point, I worked out the income taxes and property taxes that I will have to pay based on the income I estimated.

There are many other taxes of course such as sales tax and VAT in Canada as well as property and licensing taxes. I decided to exclude them at this stage and build those taxes into my expense costs later on. Since many of the expenses will incur some form of tax and those number s are variable this seemed to make most sense to me.

If you live in the US you will have to pay Federal tax, State tax and local property tax.

There are 9 states that don't require income tax though they offset that with sales and other taxes. They are:
New Hampshire
South Dakota

There are other states which provide exemptions for seniors such as Georgia (where I live). Georgia provides a $35K exemption for people over 62 on retirement income such as pensions, annuities, and interest. Two people can claim $70K exemption as long as each individual brings in $35K in retirement income, so you have to carefully examine how you name the bank accounts and annuities to make sure each partner has enough income to take advantage of the exemption.

The following web site provides a wealth of information on taxes by state and is very useful if you are contemplating moving to a lower cost environment.

In order to determine your taxes you will have to work out your taxable income which is your gross income minus exemptions and deductions.

Exemptions are allowed for yourself your spouse and any dependents and are worth $3650 for each. If you and your spouse are over 65, that merits another deduction of $1100 each, or $1400 if single. In addition the standard deduction is $11,400 for a married couple and if you paid State tax you are allowed another $1000.

You may be able to claim more deductions by itemizing if you have state income tax, or sales tax, mortgage interest,property taxes,medical costs over 7% of your gross income, and charitable deductions that exceed the standard deduction. By examining that carefully you may be able to reduce your taxable income and therefore the amount of tax you have to pay both federal and state.

The following are the US federal rates for 2010 based on the calculated taxable income.

Tax Bracket Married Filing Jointly ----------Single

10% Bracket $0 – $16,750 -------------$0 – $8,375
15% Bracket $16,750 – $68,000 --------$8,375 – $34,000
25% Bracket $68,000 – $137,300 -------$34,000 – $82,400
28% Bracket $137,300 – $209,250 ------$82,400 – $171,850
33% Bracket $209,250 – $373,650 ------$171,850 – $373,650
35% Bracket Over $373,650 ------------Over $373,650

In Canada you will have to pay Federal and Provincial or Territory taxes as well as local taxes.

The Federal tax rates for 2010 are:
15% on the first $40,970 of taxable income, +
22% on the next $40,971 of taxable income (on the portion of taxable income between $40,970 and $81,941), +
26% on the next $45,080 of taxable income (on the portion of taxable income between $81,941 and $127,021), +
29% of taxable income over $127,021.

Taxable income is determined using all the gross income minus some expenses that are specific to Canada. There are no personal exemptions or standard deductions similar to the US system. The T1 return is generally used and may be viewed at:

To help understand how to work out the taxes you owe the following few sites provide a wealth of information about taxes in Canada:

The following site is a very useful calculator which provides you with a calculation by Province of your total taxes based on your taxable income, so you can compare province by province to see if you want to make a move.

Working out taxes is a complicated process which can be assisted by some free online software such as turbo tax. For this budget projection you need to be close to the answer but it doesn't have to be accurate to the last few cents, so make use of previous tax returns and estimates where possible so that you can determine what your net income will be after income taxes.

At that point I suggest you also reduce your income by the amount of property tax that you will need to pay each year. Your past record should give you an idea of what that amount is and for 2010 the assessed value of your house may have fallen somewhat due to the economy, and your city and county can tell you what house value they plan to assess your property tax on. Once you have that estimate, deduct it from your net income after taxes and you have your basic disposable income going forward over your planned period.

In the next post I will outline the various expenses that I build into my budget planning, and will include as many ideas as I can regarding the expenses you should budget for. The intent is to make sure that your disposable income is greater than your overall expenses so if that is not the case looking forward with the pension cut, then you ( and I) will have to start making sacrifices and reducing the overall expenses incurred.

Wednesday, May 5, 2010

Budgeting for Pension Cuts 1- Income sources

Spending some time thinking about your current and future sources of income is a worthwhile exercise that will really help when trying to determine what needs to be cut from expenditures.

Income may vary from month to month if you are using investment returns and it will help to understand what is fixed and what is variable.

Likely sources of income are:

Current pension from Nortel.
Pension from other companies.
Federal pension like CPP or social security or other countries.
State pensions.
Old age pension in Canada.
Annuity payments.
Payments from IRA, or 401K's or other US tax deferred vehicles.
Payments from RIF's in Canada.
Interest from CDs or GICs.
Interest from bank accounts.
Dividends from investments.
Withdrawals from savings.

Each of the items that specifically apply to you should be examined to separate those that are going to last a lifetime, and those that will only last for a set number of years at the rate you are withdrawing from them.

You may have to adjust your withdrawal rate in order to make up for the pension cuts and that means you will have to be sure the rate of withdrawal does not deplete your resources too quickly.

You may also have some income that will start at some time in the future. For example your spouse may become eligible for social security or CPP at some time in the future, so you should take that into account as you start to create this information.

You will need to look forward a number of years and forecast what your income will be from each of these sources so that you can determine what to expect as time moves along. I suggest a minimum of five years but use what you are comfortable with.

In all cases you should use your gross income to start because taxes will vary depending on how your gross income alters.

Once you have your annual gross income determined as it is now. Next you should reduce the amount from Nortel by 40% to reflect the impact on your total from October 2010 onwards.

In the next post I will discuss the impact on taxes that the reduction will create so that you can find out what the change in your net disposable income is.

Tuesday, May 4, 2010

Budgeting for pension cut- Summary

We are facing a cut in our Nortel Canadian pensions starting October this year. The cut may be around 40% and we need to be prepared to manage that reduction in income. To help do that I plan to write a few posts that give the essence of my budgeting method and how I will handle a reduction in income.

This first post in the series is a summary of what I plan to write about in terms of my budget process.

To work out a reasonable budget plan you will have to do some research on your spending and savings habits, and start building some records. As well I suggest that you keep a record on a monthly basis of the various accounts and expenses that you incur.

Budgeting has two basic aspects to it. Income and expenses. Balancing those two is the goal.

Additionally it is really worth while understanding how much money you have in various accounts, and keeping track to make sure you don't deplete them too quickly.

This whole process is similar to financial statements of a business and you should treat your own situation in the same manner.

It doesn't have to be onerous however, with lots of accounting jargon and gimmickry.

Hence the following sessions I will write about each of the following in turn:

1. Income sources
2. Taxes
3. Expenses
4. Savings
5. Bill records
6. Liquid accounts
7. Tax deferred accounts
8. Investments
9. Expense reduction decisions
10. Record keeping

I usually keep records on excel spread sheets and that helps understand the trends that I am facing as I review my position each month.

I hope you will find this useful as we all prepare for this traumatic cut.

US Nortel Claims tax implications

Earlier I wrote about my question to the IRS about the possibility of rolling over any payments from my Nortel US claim into a tax deferred IRA. I was contacted yesterday by the tax advocate who had forwarded my letter on to a pension tax expert.

The response was that any distribution from a non-qualified pension was not eligible to be rolled over.

I don't think they spent much time examining my question, so I plan to continue with the next step. The tax advocate told me that I could write what is called a private letter appeal. I plan to do that and will let you all know the results of my enquiry.

Yesterday I wrote about budgeting for the Canadian pension cut. I will post the first article on that later today. So look back later for that first bit of information that will hopefully be useful for you.

Monday, May 3, 2010

Budgetting for pension cut

There are 5 more months of full Nortel Canadian pension payments remaining before October when the plan winds down, and our payments will be cut somewhere between 30 and 40 percent.

That's a lot of money lost on an annual and monthly basis. If you haven't already done so, now is the time to work out how to survive with that reduced income.

For some people it may not be a big deal since they have other sources of income and support, but for many it is a nightmare that they are facing, and it is best to be prepared than to waken up on October 1st and start trying to put your life back together with a huge income cut.

My family and I have always used a budget method to keep track of our income, our expenses, and our savings. It has helped us live within our means and still have a very good life. Over the next few days I will post some basic details of how we manage our budget and maybe it will help some people realign their expenses with their new income.

There is no magic formula or silver bullet. But information is power, and knowing how to use it to manage with less will help improve peace of mind. The best approach is to be optimistic, but pragmatic, and to learn to live within your means whatever they may be.

Saturday, May 1, 2010

False sense of security

Since Nortel declared bankruptcy in January last year we have all gone through many emotional ups and downs as it became apparent that we eventually stand to lose. Some people have suffered terribly as a result of loss of benefits, some have died as a result of this disastrous event, and most of us are worried.

Those of us with Canadian pensions have been lucky enough to have had continued payments each month out of the trust fund. As a result many people feel that things are continuing as always, and I think there may be a false sense of security built among our population, and an irrational trust in Nortel that they won't let us down.

Completely wrong!!

The Nortel today is no longer the Northern of old. The people who have been running the company for the last year don't care about you. They want to see the pension burden off their books and that is the only driving force behind their settlement agreement. There is no compassion for the retirees, the sick, and the disabled in the modern day Nortel. There is only numbers, and lawyers fees, and accounting plans. It is is no longer an organization whose strength is people. It is solely a shell of its former self, intent only on cash and feeding the legal frenzy that is devouring it.

Come October our pensions will be reduced. By what factor we don't know. We may be able to affect that by some of the actions proposed by the NRPC, and it behooves us to take that action and write to the elected officials proclaiming our displeasure and concern caused by the inadequate bankruptcy laws in Canada and the disregard for pensioners. Check out their suggestions at the NRPC site shown on the right hand column.

Writing and protesting is the only recourse we have. We can't sue Nortel whilst they are in bankruptcy, and the settlement agreement prevents us from suing them anyway. The power of the pen however, has always been underestimated, so write or email, or call, and include the media in your actions. It's your money. Don't become victim to government and corporate apathy and incompetence.