MORTGAGE INSURANCE RULES ANNOUNCEMENT

This morning, Federal Finance Minister Jim Flaherty announced prudent changes to mortgage insurance rules intended to come into force on April 19, 2010. CAAMP and it’s members was actively engaged in the discussions around these changes which are as follows:

 1. All borrowers must meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term;

2. The maximum amount one can withdraw in refinancing their mortgage will be reduced to 90% from the current 95% of the value of one’s home;

3. Non-owner occupied properties will require a minimum down payment of 20%.

There were no changes to down payment requirements or length of amortizations for owner-occupied residences.

We will continue to monitor developments including transition rules and update you accordingly

If you or anyone that you care about could benifit from being updated or have additional questions, please introduce us over an email acalla@dominionlending.ca or call 604-802-3983

Garry Marr, Financial Post   

Canadian real estate sales and prices are poised to set records this year, according to a new forecast that is bound to reignite calls in some quarters for tighter lending rules.

The Canadian Real Estate Association, which represents 100 boards across the country, said Monday it expects existing-home sales to reach 527,300, a 13.3% increase from a year ago and a 1.2% increase from the record high set in 2007.

The new-home market appears to be picking up steam, too. Canada Mortgage and Housing Corp. said there were 186,300 starts in January on a seasonally adjusted annualized basis, the highest level of new construction since October 2008.

Bank of Canada governor Mark Carney has warned about rising levels of household debt, which is reaching record levels. Finance Minister Jim Flaherty has suggested he is prepared to tighten mortgage requirements and continues to monitor the market.

“One of the legitimate concerns of the Finance Minister might be if you make qualifying for mortgage default insurance prematurely restrictive that it will quell housing activity even as erosion in affordability continues,” said Gregory Klump, chief economist with CREA.

There are have been some rumblings that the government is considering new rules that would require buyers who need mortgage insurance to have at least 10% down and amortize their mortgage over just 25 years instead of the current 35 years.

Anybody with less than a 20% downpayment must get mortgage insurance, if they are borrowing from a financial institution governed by the Bank Act.

Mr. Klump’s group contends the market is going to correct on its own in the second half of 2010. CREA has called for sales to drop 7.1% in 2011. The group says that while prices will rise by 5.4% in 2010, to a record high of $337,500, they will drop by 1.5% in 2011.

That view of the housing market is not out of step with some economists, who say that once interest rates rise and inventory levels increase, price increases will shrink. Year-over-year price increases in some markets, such as Toronto, have been around 20% for the past few months.

“There is still a sense of urgency to get into the market. The market will continue to be strong over the next few months,” said Benjamin Tal, senior economist with CIBC World Markets, adding he could see new construction also touching 200,000 starts before beginning to fall.

Part of that urgency in the housing sector is being driven by the introduction of the harmonized sales tax in Ontario and British Columbia on July 1. The tax would apply to real estate services and could increase the cost of buying a home by a few thousand dollars.

“It’s a factor fuelling a higher level of activity in Ontario and British Columbia,” Mr. Klump said. “What’s more Canadian than avoiding taxes?”

Elton Ash, vice-president of Re/Max of Western Canada, said he thinks the forecast put out Monday was a little optimistic for 2010, specifically the 4.2% price increase for British Columbia. “But I also think the market will be better in 2011 [than CREA].”

Mr. Ash is actually in favour of some measures to cool the market, like reducing the amortization period back to 25 years. But he wonders whether increasing the downpayment will take some people out of the housing market.

“I think leaving it at 5% would be okay,” Mr. Ash said.

Looks like a V shaped recovery afterall

Paul Vieira, Financial Post 

OTTAWA — Despite all the angst in financial markets over sovereign debt and the populist influence on banking reform proposals, the economies in the United States and Canada have chugged along the road to recovery at a pace that’s surprising even the most skeptical of analysts.

Data released Friday indicate U.S. GDP grew in the fourth quarter, an estimated 5.7%, at its fastest pace in six years. Meanwhile in Canada, data show November growth was stronger than expected, at 0.4%, while revisions to September and October figures indicate the economy was much stronger than earlier thought.

“It couldn’t have been that easy, could it?,” asked Stewart Hall, economist at HSBC Securities Canada, who in previous notes had expressed caution about a slow, uneven recovery. “Yet charting out the month over month GDP looks an awful lot like a “V” shaped recovery.”

Prior to the release of this data, markets had been consumed with worries in the aftermath of the financial crisis, be it the debt levels of industrialized countries; a slowdown in Chinese growth as Beijing looks to tighten credit conditions, and measures proposed by the U.S. White House that could scale back the size of U.S. banks, leading them in the meantime to restrict credit growth as given their uncertain future.

“One of the important lessons of the crisis was that it was often helpful to focus squarely on more comprehensible macro-cyclical dynamics than on the noise and complexity of these other areas,” Dominic Wilson, director of global macro and markets research for Goldman Sachs, said in a note this week.

“The latest focus on the banks might inadvertently restrict credit or tighten financial conditions in ways that do alter the macro path. But we think it makes sense to stay more focused on the economic news rather than shifting views too much on the basis of handicapping the twists and turns of possible legislation and the inevitable news from Washington.”

As for the nuts and bolts of the data, analysts had mixed views.

In the U.S., economists at Capital Economics argued the big estimated headline gain was largely due to inventory rebuilding – hence, there’s some skepticism that will kickstart a self-sustaining recovery.

But Dawn Desjardins, assistant chief economist at Royal Bank of Canada, said the U.S. data suggest “the consumer, after being in hiding the previous-six quarters, re-emerged in the second-half of 2009. … This was a reflection of rising confidence that the recession was ending, the effect of government programs and a very low interest rate environment. Going forward, we expect that consumer spending will remain positive but that increases will be moderate as the hangover from the buying binge in previous years constrains activity.”

It is not just the consumer. Business investment also surprised on the strong side, with growth of 2.9% after a 5.9% drop in the previous quarter. Investment in equipment and software jumped 13.3%, well above the 1.5% expansion in the third quarter. Net exports also added to U.S. GDP, in a sign that the country is beginning capitalize on its weaker currency and stellar productivity when it comes to trade.

In Canada, the surprisingly strong November data – and upward revisions to September and October – have economists indicating that the recovery is for real, with some now penciling in growth of at least 4% for the fourth quarter, or above the Bank of Canada’s own projections. And remember, the central bank’s forecast is at the upper end of market projections.

“This is one of the most convincing signs so far that the Canadian recovery is for real, and neatly dovetails with the robust U.S. GDP result,” said Douglas Porter, deputy chief economist at BMO Capital Markets.

Don’t count on it. For the Bank of Canada to raise rates before the middle part of 2011 would be totally inconsistent with its current forecast

David Rosenberg Published on Wednesday, Jan. 27, 2010

David Rosenberg is chief strategist for Gluskin Sheff + Associates Inc. and a guest columnist for Report on Business

Canadian market watchers will get some good news this week. The predictions for a “blowout” reading on fourth-quarter GDP are already out there and it is likely to be an abnormally strong number. But for anyone who thinks a big number is likely to help lock in a rate hike this summer, I would suggest that is not going to happen. In fact, my view is that the Bank of Canada will not be raising rates until mid-2011 – at the earliest.

This is critical to the outlook for Canadian money market and bond yields since futures have priced in nearly 100 per cent odds of a 25 basis point rate hike this June, and another 25 basis points by September. (A basis point is 1/100th of a percentage point.) The central bank has already told us that its base case is for 2.9 per cent real GDP growth this year and 3.5 per cent next year, with the starting point on the “output gap” being 3.7 per cent (“output gap” is the gap between the actual level of real GDP and where real GDP would be if the economy were at full capacity). Remember that an output gap that big in any given quarter classifies as a 1-in-20 event. Moreover, baselining these expected growth rates against the latest estimates of potential growth puts the output gap at a smaller level of 1.55 per cent this year, narrowing further to 0.25 per cent in 2011.

The history of the Bank of Canada is such that – outside of when it had to defend the Canadian dollar – it typically does not embark on its tightening phase until the output gap is close to closing. Even during the aggressive John Crow era, the bank’s modus operandi was to time the first rate hike just as spare capacity was being eliminated, and not much before. On average, the first central bank rate hike following a recession takes place one quarter before the output gap closes (there is still a gap, but it is small at 20 basis points). If such a strategy is replicated this time around – and the cause for being on pause longer in the context of a historic deleveraging cycle is certainly quite strong – then the very earliest the bank will move is the second quarter of 2011.

Under this scenario, based on some back-of-the envelope calculations I just did, the unemployment rate at no time declines below 7.5 per cent through to the end of 2011. The peak in the jobless rate was 8.7 per cent in August, 2009. Going back to prior recessions, the central bank does not begin to tighten rates until the jobless rate is down an average of 150 basis points with a range of 130 basis points to 170 basis points.

Unless the bank wants to be pre-emptive – highly unlikely when it acknowledges in its economic outlook last week that “the recovery continues to depend on exceptional monetary and fiscal stimulus” and that “the overall risks to its inflation projection are tilted slightly to the downside” – then to raise rates before the middle part of 2011 would be totally inconsistent with its current forecast. More to the point, while bored Bay Street economists analyze every word to see if the bank is more or less “hawkish” than in its previous outlook, what is important for investors is to assess the bank forecast and decide what it means for the degree of excess capacity in the economy and what that implies for the future inflation rate.

The bottom line is that even with the fragile recovery, the bank sees more downside than upside risk to its inflation projection, and, to reiterate, for it to start tightening policy until the jobless rate falls below 7.5 per cent would be a break from past post-recession actions.

And whatever future “policy tightening” is needed could also come via the overextended loonie, limiting any need for an interest rate adjustment in the time horizon that the markets have discounted. This is a source of debate on Bay Street, but the bank is still sensitive to the growth-dampening impact of an exchange rate too firm for its own good. To wit: “The persistent strength of the Canadian dollar and the low absolute level of U.S. demand continue to act as significant drags on economic activity in Canada,” the bank says.

In a nutshell, the Canadian market is already braced for 50 basis points of tightening from the Bank of Canada by September. With that in mind, it is difficult to believe that there is any significant rate risk here; if anything, the surprise will be that the bank is on hold for longer. If that proves to be true, then there is actually more downside than upside potential to Canadian bond yields, particularly at the front end of the coupon curve.

The reason the markets think the bank may pull the trigger is because of this one sentence that shows up in every press statement: “Conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target.”

So the central bank has really only given a pledge to keep rates where they are until mid-year. But June is only five months away and so one would have to think that at one of the next three meetings, the Bank is going to have to update this particular sentence or cut it entirely and leave the market without a de facto time commitment. Either way, the moment the bank changes this sentence is the moment the market will put on hold its expectations of a new rate-hiking cycle coming our way.

Until then, homeowners opting for variable rate mortgage financing will likely not have to face the interest rate music.

To hear more about the changes in the mortgage market, tune into The Mortgage Show, with AMP of the Year Angela Calla on CKNW AM980 Saturdays at 7pm

Transunion Canada

Tune into “The Mortgage Show,” with AMP of the Year Angela Calla on CKNW AM980 Saturdays at 7pm for more tips on how you can save money on your mortgage.

OTTAWA – Canada’s economy is becoming more solidly entrenched with the private sector beginning to play an increasingly pivotal role in leading the country out of recession, the Bank of Canada said today in its latest policy report.

In a mildly upbeat assessment of the recovery, the central bank’s quarterly outlook contains some upward revisions for growth in the United States, China, Europe and Japan that should help Canada’s battered exporters and manufacturing sector in the next two years.

And it says Canada’s economy will grow faster going forward than expected, in part because it got off to such a slow start last summer.

Overall, the bank appears more optimistic about the sustainability of the recovery that is happening around the world, although it also cautions that risks of a stall remain.

There is also some upside hope, the bank adds, that conditions may continue to improve better than projected.

“It is thus possible that the recovery in global demand could be more vigorous than projected, resulting in stronger external demand for Canadian exports,” the bank judges.

In Canada, it adds: “Economic growth is expected to become more solidly entrenched over the projection period as self-sustaining growth in private demand takes hold.”

The analysis is broadly similar to what the bank said last October, when it last issued a comprehensive forecast on the economy, but the tone is brighter at the margins and the danger signals less frequent.

For months, bank governor Mark Carney has been cautioning Canadians not to get overextended in purchasing homes, but there is no such warning this time. In fact, the bank says it expects the housing market to cool this year and next as a result of pent-up demand becoming satiated and relatively high home prices.

As well, the bank appears more confident that the private sector is ready to take the handoff from governments as the main driver of economic growth.

The bank says Canada’s reliance on government stimulus spending likely hit its peak at the end of 2009, representing about two per cent of all economic output for the country, and will decline this year.

By 2011, the private sector will be the sole driver of Canadian growth, the bank said.

But while Canada’s domestic demand continues to be the key driver of economic growth, the big change from October’s outlook is that prospects are also improving for the country’s battered export and manufacturing sectors.

“Export volumes are expected to continue to recover over the projection period in response to growing external demand and higher commodity prices. Export growth is projected to be somewhat stronger than was expected last October, owing to a more favourable outlook for the U.S. economy, particularly in the sectors that figure most importantly for Canadian exporters,” the bank says.

Those volumes would be even greater but for the strong Canadian loonie, it adds.

Canada’s auto and forest products sectors were particularly hard-hit during the recession, the bank notes, and will benefit most from renewed growth in the U.S. Canadian manufacturers shed about 200,000 jobs last year.

The central bank now says the U.S. gross domestic product will grow by 2.5 per cent this year, largely as a result of improvement in the financial sector. Three months ago, the bank estimated U.S. growth at a mere 1.8 per cent.

In Canada, the bank says the economy likely grew by 3.3 per cent in the last three months of 2009. For 2010, the economy will advance by 2.9 per cent, followed by a 3.5 per cent pickup in 2011.

In retrospect, the bank noted that Canada’s recession, while severe, was not nearly as damaging as it was in other industrialized countries, partly because of Canada’s solid banking system.

But neither has the recovery been particularly impressive in Canada, starting with a disappointing 0.4 per cent advance in the third quarter of 2009, which the bank attributes to a surprisingly strong influx in imports. The U.S., backed by a weak currency, rebounded more strongly with a 2.2-per-cent increase in the third quarter and a bouncy 4.7-per-cent advance in the fourth quarter of 2009.

The bank believes Canada will make up for the slow start this year, projecting it will advance stronger than the U.S., Japan and Europe.

The main engine of global growth remains China, however, which is expected to be back close to double-digit growth this year.

Does my reno qualify for a tax credit?

Bryant Renovations at a Leslieville home where they’re renovating the bathroom and replacing the flooring of the main floor. Fred Lum/The Globe and Mail

With days until deadline, Canadians scramble to take advantage of the government’s home renovation tax credit

•  Roma Luciw  Globe and Mail

With the Jan. 31 deadline just around the corner, anyone who still wants to take advantage of the federal government’s popular home renovation tax credit had better hurry.

“The most important thing for people to know is that they still have a week to buy and take delivery of materials that they are thinking of using for renovations,” Jamie Golombek, managing director of estate and tax planning with CIBC Private Wealth Management, said in an interview Wednesday.

Although it is likely too late to get the labour done in time, “anyone thinking of doing anything in their home in the next few months should try to get that material now… otherwise you are really losing out.”

The home reno tax credit, introduced as a limited-time program in the 2009 federal budget, has proven extremely popular with housing-obsessed Canadians. “Anecdotally, it is the topic of almost every single presentation I give in terms of personal tax. The Canada Revenue Agency has responded to more technical interpretation questions in terms of what qualifies and what does not than any other topic in recent history,” Mr. Golombek added

“ Anecdotally, it is the topic of almost every single presentation I give in terms of personal tax. ”— CIBC’s Jamie Golombek said of the HRTC

The CRA estimates that as of last Friday, more than four million Canadians had enquired about the program. From Jan. 2 to 15 alone, 302,501 people visited the CRA website or phoned to ask about the HRTC.

Timing has played a role in the HRTC’s success, says Mr. Golombek, given that rates for home equity lines of credit are still historically low. “Even if people don’t have the actual cash to do the renos right now, they can borrow the money at very attractive interest rates and get a 15-per-cent non-refundable credit from the government.”

Here’s how the HRTC works:

Each family is allowed to claim on their 2009 income tax return a 15-per-cent non-refundable tax credit for eligible renovation expenses made to their dwelling. The credit allows tax payers to get up to $1,350 in tax relief for projects worth between $1,000 and $10,000. The $10,000 spending limit applies to homes, cottages or condos, provided the combined total does not exceed the $1,350 limit.

To qualify, all of the renos must take place after Jan. 27, 2009 and before Feb. 1, 2010. The supplies and materials must be bought and in your possession before Feb. 1st, 2010 to be eligible. Likewise, any work done by a contractor must be finished by the deadline, which means that signing a contract for the work ahead of the deadline is not sufficient.

To qualify for the HRTC, renos must be of “an enduring nature and integral to the dwelling.” So putting in a permanent swimming pool or hot tub, a new dock or septic system at the cottage, fixing a retaining wall or doing some landscaping all qualify. Cleaning your carpet, house or eavestrough would not qualify, nor does buying furniture, appliances or electronics.

Who’s using it?

Dan Wilson is one many Canadians taking advantage of the credit. He and his neighbour spent most of the fall rebuilding the front porch on their east-end Toronto semi. He also had a contractor fix a flat roof in his backyard, put in a new deck, installed two fireplaces and painted.

“I spent at least three times the limit for the tax credit,” said the 45-year-old Ontario government worker. “I think almost everyone on my street had something done to take advantage of it.”

Robert Katzer had a contractor redo both bathrooms in his Victoria condo, putting in marble sinks and faucets, along with a new bathtub with marble wall linings. Not done there, he upgraded most of the lighting in the unit, replaced the carpets, painted, caulked the windows and retiled the fireplace. “It wasn’t cheap but I love the end result,” he said.

Across Canada, the tax credit seems to have provided the push many Canadians needed to get those home reno projects going.

Mr. Wilson says he might have taken care of the renos in the next year or two, but the tax credit prompted him to do it now. “I love this credit. The prospect of getting $1,350 back is just so appealing. If it were continued next year, I would definitely consider re-doing my kitchen next year.”

How long will it last?

Contractors and home renovation retailers would also like to see the tax measure extended, arguing that it would continue to boost the economy and allow the recovery to fully take hold.

But Finance Minister Jim Flaherty said this week the measure was “not inexpensive” and the government’s plan is to let it expire at month’s end. He also ruled out any kind of extension back in December, when he said: “Well, that’s our plan to end it at the end of January, yes.”

RBC Dominion Securities Inc. chartered accountant and certified financial planner Suzanne Schultz says the credit, which was part of the conservative government’s stimulus plan, has been successful. “The point of this was to get the economy going and it seems to have done that. People are spending, retailers and contractors are saying they are busy.”

She says people who bought materials in order to qualify for the home renovation tax credit but ran out of time to get the work done before next week’s expiry date will likely keep contractors busy for the first part of 2010. After that, however, she expects to see a lull.

Ms. Schultz urged people to get out and make their purchases before the Jan. 31st deadline. “Make a list of what you need done and get shopping. This is not common, for the federal government to introduce short-term tax measurers like this.”

Retirement: Three magic numbers

by David Aston, MoneySense Magazine
Monday, January 18, 2010provided by

Nothing is more frustrating than trying to figure out how much to save for retirement. You know the amount you’ll need to save depends on what kind of retirement lifestyle you want. But how can you decide that without having some idea of how much it will cost? Is dreaming of endless vacations and a 44-ft yacht realistic? Or should you be aiming for walks in the park and the occasional meal out? Many people have no idea what they’re aiming for—and after a lot of sweating and calculating, they end up right back where they started.

We can help. While many retirement plans use complex formulas to calculate what you’ll need, we find that many Canadians just want a ballpark to aim for. If your retirement is still quite a ways off, it’s often good enough just to know what you’ll need to save to achieve each of three levels of potential retirement: a bare-bones basic retirement; a middle-class retirement with two cars, some restaurant meals and vacations every year; and finally, a deluxe retirement complete with a vacation home or regular jaunts around the world. Interested to know what kind of dent each of these three scenarios will make on your nest egg? Read on and we’ll price them out for you.

No-frills retirement

This is the worst-case scenario, but it’s good to know what you’ll need if you just want to scrape by, if only because it gives you a starting point to build from. For this scenario, the costing has already been done for us in a recent study, called Basic Living Expenses for the Canadian Elderly, by three University of Waterloo researchers. The study describes a no-frills retirement as one in which a couple rents (rather than owns), has no vehicles (so they take public transit), and it doesn’t include spare cash for even minor indulgences such as cable TV or alcohol. This is not the stuff of most people’s retirement dreams, but the study does budget for three nutritious home-prepared meals a day, a one-bedroom apartment plus utilities, along with typical health-care costs and other essentials like clothing and personal-care products.

How much do you need?

The study’s authors conclude that the annual cost of such a retirement in five major Canadian cities ranges from $20,200 to $27,400. Here’s the good news: to achieve this bare-bones scenario you don’t have to save a penny. The combination of full Old Age Security (OAS) and the Guaranteed Income Supplement (GIS) program for low-income seniors pretty much covers all your basic needs, at least outside the highest-rent cities. If you and your spouse are at least 65, those government programs would provide you with a combined $22,750 a year if you have no other income. “We’ve kind of made sure the Canadian elderly don’t live in poverty but we’ve given them, like, 50 cents more than the poverty line,” says study co-author Robert Brown.

Canadians who have worked most of their lives can also usually count on substantial Canada Pension Plan payouts in retirement. A couple which receives the average CPP payout, plus maximum OAS, and maybe a little bit of GIS, can expect to receive almost $30,000 a year. So you can relax about the worst-case scenario: Even if you don’t save at all, you’re not going to have to live off cat food.

Middle-class retirement

Most Canadians, of course, hope to do better than bare-bones. Bill VanGorder, 66, the Nova Scotia chair of CARP, a group representing older Canadians, says he wants the same level of comfort he enjoyed while he was working—maybe even a bit better. He finds that increasingly seniors want to travel, pursue sometimes pricey hobbies like golf, eat out at restaurants, and maintain cottages or second homes in warm places. For the most part, this lifestyle is about having experiences and being active, rather than having more possessions. In fact, some seniors are downsizing to smaller homes to help finance their active lifestyle, he says. Active senior couples with different interests are more likely to want to keep two cars to allow both spouses to stay mobile. And VanGorder himself aspires to do more traveling, including an Alaska cruise, seeing the British Isles, visiting his sister in Australia, and seeing the rest of Canada. He’s also interested in woodworking and was surprised to find the hobby is much more expensive than he anticipated.

According to Statistics Canada, median spending by a couple over 65 is about $40,000 a year, and average spending is about $51,000. But VanGorder says to enjoy the type of retirement he wants, you might spend as much as $60,000 a year.

How much do you need?

Assuming you receive about $30,000 a year from CPP and OAS and have no employer pension, you’ll need a nest egg that can support an additional $10,000 to $30,000 a year in extra spending, plus inflation adjustments. Financial planning research suggests that you need retirement savings that amount to 25 times your annual retirement spend (not including CPP and OAS) if you want to keep spending that much for the rest of your life. So for a typical middle-class retirement, you need a nest egg of $250,000 if you just want to spend the median amount, but if you want a higher-end retirement of the kind VanGorder describes, you’ll need to save up $750,000.

Retirement deluxe

Once you get beyond the typical middle-class retirement, costs tend to skyrocket. Norbert Schlenker, a fee-only financial planner with Libra Investment Management on Salt Spring Island, B.C., says that at this level the fundamentals don’t change—people still typically have a house, two cars, restaurant meals and vacations—it’s just that the house is bigger, the cars are fancier, the restaurants are more exclusive, and the vacations more exotic. Here you are more likely to find the trophy kitchen, memberships in a golf or boating club, professionally designed and maintained gardens, and, says Schlenker, perhaps “the boat their brother-in-law saw.” Such retirees are more likely to own a vacation home, and there is more money available for spoiling the kids and grandkids. There’s no hard and fast cutoff for the deluxe life, but if you’re spending $100,000 or more each year per couple, you’re well into the realm of truly disposable income.

How much do you need?

If you don’t have an employer pension, you’ll need to be a millionaire to afford it. Assuming you get $30,000 a year from CPP and OAS, you’ll need retirement savings that can provide you with an additional $70,000 a year, which means a $1.75-million nest egg. If that sounds outrageously high, welcome to the club. Schlenker says that when he does similar calculations for his clients, invariably they’re “just shocked.”

There’s an interesting exception here though. If you and your spouse both had long careers as public employees, your public sector indexed pensions might be the ticket to the high life. For instance if you and your spouse earned an annual salary of $63,000 each working in the public sector, and you both retired at age 65 after working for 35 years, you can expect to live like royalty when you retire. Your combined pensions plus OAS will typically pay about $100,000 a year plus inflation adjustments—the equivalent to saving up a $1.75 million nest egg. That’s why many public sector workers discover that they actually have a much higher standard of living in retirement than they did when they were working.

Keep the dream alive

In the end you have to match wants to means. If you’re no millionaire, there’s no need to give up on your retirement dreams, says Schlenker. Instead try to find a lower-cost version of what you’re looking for that fits your budget. For example, if you planned on owning a luxury beach front condo in a swanky part of Florida, but you’re worried you won’t be able to afford it, you could try renting a condo away from the beach in a less sought-after locale. Or you could do what VanGorder is doing. After retiring he decided to go back to work for three days a week as business development manager for HiringSmart, a systems software and services provider. The extra cash is helping him live the good life, and he loves the work too. “I’m meeting a financial need in a way that, fortunately, turns out to be very enjoyable for me.”

OTTAWA – The global recovery is under way but expansion of the Canadian economy remains dependent on government support and historically low interest rates, the Bank of Canada said today.

As expected, the central bank again pledged to keep its trendsetting policy rate at the lowest practical level of 0.25 per cent until mid-2010, saying the economy at the moment is performing slightly worse than it projected three months ago.

To reinforce the commitment, the bank said it was extending its emergency lending instruments to April, with maturity dates beyond June, at the low policy rate.

The announcement contained few surprises for markets, but the tweaking of growth rates — although at the margins — was somewhat unexpected.

“Economic growth in Canada resumed in the third quarter of 2009 and is expected to have picked up further in the fourth quarter,” bank governor Mark Carney and his policy-making council said in an accompanying note.

“Nevertheless, considerable excess supply remains, and the bank judges that the economy was operating about 3.25 per cent below its production capacity in the fourth quarter of 2009.”

Carney had been among the most bullish of forecasters for the economy this year, although by historic standards, even Carney was not anticipating a robust recovery.

Now the bank says the economy likely contracted by 2.5 per cent last year, a little worse than the 2.4 per cent it had predicted in October.

As well, it says growth this year will be 2.9 per cent, one-tenth of a point less than it had previously forecast and more in line with the private sector consensus of 2.6 per cent.

The good news is that the economy will make the up ground in 2011, says the bank, with a growth rate of 3.5 per cent. It had earlier pegged next year’s growth at 3.3 per cent.

The bank’s message to Canadians is that although conditions are improving, strengthened by a global economy that is expanding faster than expected, the recovery still is dependent on “exceptional monetary and fiscal stimulus, as well as extraordinary measures taken to support financial systems.”

In Canada, the bank says the private sector won’t become the sole driver of domestic demand until 2011.

As has been the case throughout the recession, Canada’s recovery continues to be hampered by the slow pick-up in U.S. demand for Canadian products and the high Canadian dollar, which makes those exports less competitive.

That means Canada’s internal domestic economy, largely reflected in consumer spending and the hot housing market, will be the main engine of the recovery.

The bank noted that inflation has been rising faster than it anticipated, but appeared not to be overly concerned, especially with the large amount of slack in the economy.

Although economists forecast inflation likely hit 1.6 per cent in December, after being below zero through much of the summer and part of the fall, the bank said it still doesn’t believe inflation will return to the two-per-cent target until the third quarter of 2011, when it expects the economy to be firing on all cylinders.

Bank of Canada maintains overnight rate target at 1/4 per cent and reiterates conditional commitment to hold current policy rate until the end of the second quarter of 2010

OTTAWA — The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1/4 per cent. The Bank Rate is unchanged at 1/2 per cent and the deposit rate is 1/4 per cent.

The global economic recovery is under way, supported by continued improvements in financial conditions and stronger domestic demand growth in many emerging-market economies. While the outlook for global growth through 2010 and 2011 is somewhat stronger than the Bank had projected in its October Monetary Policy Report, the recovery continues to depend on exceptional monetary and fiscal stimulus, as well as extraordinary measures taken to support financial systems.

Economic growth in Canada resumed in the third quarter of 2009 and is expected to have picked up further in the fourth quarter. Total CPI inflation turned positive in the fourth quarter and the core rate of inflation has been slightly higher than expected in recent months. Nevertheless, considerable excess supply remains, and the Bank judges that the economy was operating about 3 ¼ per cent below its production capacity in the fourth quarter of 2009.

Canada’s economic recovery is expected to evolve largely as anticipated in the October MPR, with the economy returning to full capacity and inflation to the 2 per cent target in the third quarter of 2011. The Bank projects that the economy will grow by 2.9 per cent in 2010 and 3.5 per cent in 2011, after contracting by 2.5 per cent in 2009.

The factors shaping the recovery are largely unchanged – policy support, increased confidence, improving financial conditions, global growth, and higher terms of trade. At the same time, the persistent strength of the Canadian dollar and the low absolute level of U.S. demand continue to act as significant drags on economic activity in Canada. On balance, these factors have shifted the composition of aggregate demand towards growth in domestic demand and away from net exports. The private sector should become the sole driver of domestic demand growth in 2011.

Conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target. Consistent with this conditional commitment, the Bank will continue to conduct term Purchase and Resale Agreements based on existing terms and conditions and according to the accompanying schedule: http://www.bankofcanada.ca/en/notices_fmd/2010/notice_fad190110.pdf

In its conduct of monetary policy at low interest rates, the Bank retains considerable flexibility, consistent with the framework outlined in the April 2009 MPR.

The risks to the outlook for inflation continue to be those outlined in the October MPR. On the upside, the main risks are stronger-than-projected global and domestic demand. On the downside, the main risks are a more protracted global recovery and persistent strength of the Canadian dollar that could act as a significant further drag on growth and put additional downward pressure on inflation. While the underlying macroeconomic risks to the projection are roughly balanced, the Bank judges that, as a consequence of operating at the effective lower bound, the overall risks to its inflation projection are tilted slightly to the downside.

Information note:

A full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the Monetary Policy Report on 21 January 2010. The next scheduled date for announcing the overnight rate target is 2 March 2010.