Blog

By: Brian Adams, CLU, CH.F.C

You have worked for a company (or perhaps several companies) over the years, and you now want to hang up your skates and retire, however no one has shown you how to do that. In other words, where will my income come from?

Yes, you know you have a pension that you have been paying into, for what seems like forever, but how do you change that into income for you and your family?

First, you get a quote on how much is in that pension or pensions of yours and then you find out if that pension is portable (can it be transferred). Some, such as the ones with the federal government, are not.

Next you find out if your pension is indexed or not and, if so, at what percentage. If your pension is indexed, you may want to just leave it right where it is.

Let’s assume yours is portable and not indexed. So now you want to transfer that locked-in (taxed under pension rules) plan under your former employer, to a locked-in plan under your name.

You are allowed to move it to a Locked-In Retirement Account (LIRA) tax free. When you are ready to start taking an income from that account you can move it to a Life Income Fund (LIF). Which is essentially the same thing as a RRIF, that most people have heard of.

When you move it to a LIF in Ontario, you are allowed to unlock up to 50% of the value that was in your LIRA and put it into that RRIF or an RRSP.

That 50% that is still in the LIF has minimum and maximum amounts that can be taken each year as income, based on age. However, that other 50% in the RRIF or RRSP can be taken whenever you want and in any amount you want.  All income will be taxable whether in the form of LIF or RRIF income.

Combine this with your Canada Pension Plan (CPP) and Old Age Security (OAS), which are both indexed, along with any RRSP and TFSA savings you have, and you have your income.

For more information, click HERE.

By Louai Bibi, Advisor Associate

Should you take your Canada Pension Plan (CPP) as early as possible, at the default retirement age of 65 or defer to age 70?  I have included a handy calculator before to help us find out!

Click HERE

With this calculator, you’ll be able to map out at what age you’ll breakeven on taking CPP at age 65 vs 70. In this example, the breakeven age is 75 for a 50 year old. If this individual has a life expectancy of 75 years or less, it is more optimal to take CPP early on paper. If their life expectancy is > than age 75, they may be better off deferring to maximize the monthly pension amount.

The beauty of this calculator is that you can plug in your age, life expectancy (you can use the average of 84 for men, 87 for women), the rate of return your investments are achieving if you were to collect early & invest some/all of the monthly pension, the rate of inflation and benchmark a “start collecting early” versus a “start collecting late” scenario.

The reality is that we don’t have a crystal ball to know whether we’ll live to age 75 or 100, so we can’t base these decisions purely off the most optimal number a calculator spits out, which is where the qualitative considerations come in.

You may want to spend more money in retirement to visit your loved ones or check off some of the exciting items on your bucket list. I for one, would not want to wait 5 or 10 years to receive my optimally deferred pension to do these things, as long as my retirement/estate plan is sustainable and I know I won’t run out of money.

This is where we come in – whether it is Shawn, Corey, Mike, or myself. We help bridge the gap between what the calculator spits out and the values/motivations that prompted you to open that calculator in the first place. You are never too young or old to start planning for financial independence/retirement but like most things in life, it’s generally easier when you start early. You can book yourself into any of our calendars or reach out via email if you’d like advice on building out a financial plan.

Click HERE

You spend your entire working career accumulating retirement savings, but it seems that we forget that we have a right to spend it. The calculator is a great way to start this conversation, but not the way to end it!

Most optimal does not always = most appropriate!

Employers are seeing a trend of their employees quitting their jobs. The Covid-19 pandemic has caused many to re-evaluate how they are spending their lives. Employees are valuing their time more than ever and are looking for opportunities where work life balance is a top priority. One worry that employees may have as they embark on their next stage of life: What happens to my pension?

The three most common retirement savings plans in Canada are: Defined Benefit Pensions (DBPP), Defined Contribution Pension Plans (DCPP), and Group Registered Retirement Savings Plans (Group RRSP). Regardless of which type of plan you are enrolled in; all is not lost once you leave your job. Each type of plan has special rules and provisions for what you can do with the money when you leave your employer.

What You Need to Know

1. Defined Contribution Pension Plans – Defined Contribution plans are typically made up of a combination of employer and employee contributions. The retirement benefit is dependent on how much is in the account at the time and how it has performed in the markets. When you leave your job, you will have to transfer your pension into either a LIRA, LIF, or RRIF, depending on your province of residence. A LIRA is a locked in retirement account holding the pension money until it comes time to take an income from it, when it will be converted to a LIF. It is also possible to transfer pensions directly to a LIF, if age requirements are met. Provincial authorities are responsible for regulating pension money and most pension money is “locked-in”, which means there are age restrictions on when you can withdraw the money and limits on how much you can take. Rules differ from province to province.
2. Defined Benefit Pension Plans – Defined Benefit Pension Plans guarantee an income to employees in their retirement. Defined Benefit plans may be made up of both employer and employee contributions, or just employer contributions. When you leave your employer and have a Defined Benefit plan, you will have two options: 1. Leave the money in the plan and take an income based at retirement based on contributions up until the point you leave. 2. Take the commuted value of the plan and transfer it to a LIRA. The LIRA will be subject to the same locking provisions as mentioned above. Whether or not to take the commuted value of a Defined Benefit plan is a financial planning issue that should be worked through with a professional. They will help you determine whether the income or lump sum would be more beneficial to your retirement plan.
3. Group RRSPs – Group RRSPs are the most flexible pension option. When you leave your employer, you will be able to transfer your Group RRSP directly into your individual RRSP. Alternatively, you could withdraw the account in cash, but be prepared to take a tax hit.

The Bottom Line

There are exceptions to locking-in rules and each province has a different set of regulations. A financial advisor can help you understand the rules in your province and help you determine the best course of action of your pension money.

Book an Appointment with us – CLICK HERE