Retirement made simple

If you love your job, you're richer than you think. No, I'm not talking about some vague quality of life that can't be measured in dollars and cents. I'm saying you are actually going to have more money in your golden years than someone who hates his job, but makes twice as much as you do.

How can that be? It's a result of how pension plans work. If you love your job, or at least don't mind it, odds are you'll happily work at it until you're 65, then ride off into the sunset on a full pension. On the other hand, if you wake up screaming at 6 a.m. and curse every moment of your working day, chances are you'll choose early retirement - and pay a massive financial penalty for doing so.

To demonstrate my point, let me introduceyou to Jasper. He's a highly paid, miserable ad executive who works 60 hours a week, purely out of fear. He's stressed out, finds his work boring, and can't stand the megalomaniac who runs the ad agency. During his lunch break you'll find Jasper staring out the window of his corner office with a funny half-smile on his face as he imagines himself somewhere -anywhere- but the office. He has earned an average salary of $120,000 while at the agency, and yes, he plans on retiring the second he hits 55.

Jasper crunches the numbers most weekends. Since joining the agency at 30, he's been enrolled in its defined benefit pension plan. It's a fairly standard plan, offering a pension worth 2% of his average annual earnings, multiplied by the number of years he works there. However, like most defined benefit plans, it reduces benefits if you retire early. Jasper's plan cuts his pension by 3% for every year before 65 he retires. What does that mean in dollars? If Jasper sticks it out until he's 65 (a prospect that reduces him to quivering panic), he'll collect an annual pension of $84,000. But if he bolts at 55, he'll have 10 fewer years in the plan and suffer a further 30% reduction as well, so he'll get a pension of only $42,000.

Now meet Janice. She used to be a high-powered marketing executive, but traded it all for a lower-paying job that she loves after she started having trouble remembering her kids' names. (And when did they get that dog anyway?) Today she makes $60,000 a year writing columns for a personal finance magazine. She wakes up every morning with a song in her heart, and the thought of hammering out her 210th column when she's 65 doesn't bother her one bit. Her company, amazingly enough, offers the exact same pension plan as Jasper's agency, but because she expects to work until 65, she doesn't worry about being hit with reductions for early retirement.

Here's where the numbers get interesting. Assuming Janice started working for the magazine at 30, she'll receive the exact same pension as Jasper -$42,000 a year- when she retires at 65. Granted Jasper starts receiving his pension a decade earlier, but Janice actually likes coming into the office so working longer doesn't bother her a bit. And don't forget that between 55 and 65, she'll be pulling in her full salary while Jasper will be making do on his reduced pension. As a result, her average yearly income from 55 onward will actually be $6,000 higher than Jasper's if both live to 85.

The kicker is that when she does retire, Janice will probably enjoy her time off much more than Jasper. While many of us have vague ideas of lounging in a tropical paradise or touring the vineyards of Provence during our final years, the reality is different, says Patrick Longhurst, a Toronto-based financial planner who specializes in pensions. In fact according to a study by the Canadian Centre for Management Development, 30% of Canadians have real problems adjusting to not having a job, with many experiencing boredom, stress and even depression. The people who enjoy their retirement the most are the ones who had the time and energy to pursue friendships and interests outside of work before they retired.

So what's the lesson here? When you're planning your retirement strategy, consider the big picture. If you're working at a job you hate and gambling on high-risk investments purely to amass a million-dollar portfolio that will allow you to retire early, maybe you should reconsider your strategy. Chances are you're enduring needless stress and making yourself miserable for no good reason.

If you want to enjoy the good life both before and after you retire, relax. Stop scouring the financial pages for exotic high-return investments. Take a look at the careers pages instead.