Thank you! My wife and I are both RNs in BC so this video is perfectly relevant. We've been ignoring the MPP and calculating our retirement based on investments alone. We plan to treat the pension as some bonus spending money as we are on tract to hit our retirement goal without it. Important note: starting Jan 2022, the pension calculation will be different. It will now be a flat lifetime benefit accrual rate of 1.9 per cent of your highest annual salary (HAS) instead of the 1.3/2.0 system.
Outstanding video Adam. A huge tax hit on the cash portion, being responsible for all investment decisions and having some built in inflation protection convinced me not to take the CV. So glad I left it alone as I love getting guaranteed income every month. Another consideration is the health of the pension plan. If the plan is facing financial hardship and a large unfunded liability, it might be worth getting your money out while you can (think Sears and Nortel). These are more likely to be corporate pensions and not teachers, gov't employees, nurses etc...
Awesome video. I’m a nurse in BC and plan on fully retiring in the next few years. The other piece to the puzzle is taxes and beneficiary. You can control the taxes in retirement to some extent if you take the CV. Also you leave behind assets with CV where as the pension is just gone when when you pass.
Great and timely video. I just commuted my pension. I submitted a t1213 to cra request to reduce tax deductions at source form-I received the full cash portion and was able to put it into my rrsp as I had contribution room.
Beautiful that you covered this, I took the CV from OMERS in Ontario after 34 years as a medic. One thing I found out was if you have rrsp room, it will take a couple of months for the CRA to get back with the required letter to OMERS so they can send the money to you without any withholding. No health care options here.
I am looking at this and there is also the idea of leaving a chunk of change at the end of life for your spouse or kids. Thanks for the walk through...
I had the option when I was laid off last year. My CFP ran the numbers for me. I had a horrendous tax bill, but it still made sense to convert. I also took into account I am single, so no survivor benefit, and I was working for a foreign company and I was concerned with the company leaving Canada. I’d hate to have a Sears situation.
It is definitely a personal decision. I am 51 years old. Up to 50, my work offers the commuted value but after 50, you are locked in to the defined benefit pension. I chose to stay but the almost $300,000 (before taxes) value was tempting. Another coworker turning 50 in the same year decided to leave. His commuted value was higher and truthfully he really did not like his job. I actually like my job and decided the salary over the years, contributing to my CPP etc… was more beneficial. I guess I should have got a financial advisor because I certainly did not do these above calculations.
My wife's pension commuted value was about $650K which sounds like a lot. However, she is only two years away from a fully qualified pension which, if she lives until 80 (a reasonable estimate since life expectancy for women is higher than this) the payout will be worth $1.4 million not including inflation adjustments. The other key factor is that it's essential that the commuted value is invested and saved for retirement. My father-in-law, a retired principal, saw many of his friends cash in their pension to pay off debts. They ended up needing to work in retirement to make ends meet. Cashing in your pension requires discipline.
Great video Adam. I find there is not a ton of information out there on defined benefit pensions and commuted values as not many people have them anymore. Both my husband and I have defined benefit pensions, he will be retiring in a couple years and will collect his monthly payments but I am doing the math for me and leaning towards taking the commuted value. I think it might be the best of both worlds!
Ontario nurse here. HOOPP doesn't make it easy to know that you have to take the CV before you turn 55. The option disappears once you are 55 and you HAVE to take lifetime.
@@ParallelWealth Made the decision to take CV. Quit my job as of March 15. Very informative information on this channel. Thank you so much. My situation is vastly different from the average. Life changing for me thank you!
Great video! Here in Alberta, my benefit provider no longer provides a commuted value statement until you retire, they say it’s “industry standard.” So you’re saying the cash value can be put in RRSP (if there’s room) to avoid taxes? Good to know.
Love the videos, I believe you left out a major key point of the commuted value, If you keep in a DB pension on x amount is paid to your spouse and x amount left to your estate if you both pass away. If you take the commuted value it at least can be left for your kids,grandchildren ect. Would that not make more sense? Just wondering
Great video, Adam. Could you estimate what percentage a cash portion of a commented value would decrease from Nov. 2021 to Sept. 2022 due to the increase in interest rates?
The problem I have found is that because of my defined benefit pension, I don't have very much RRSP room available. It's around 65K available after 23 years. I'm looking into everything now because I have to take the commuted value before I turn 55 for some reason, otherwise it is locked in and have to draw pension
Highly recommend meeting with a CFP Professional and having them compare apples to apples for you and map out a plan. You only get one chance at this, so do it right! We offer the service at www.parallelwealth.com/planning and search for other CFP planners that offer fee for service.
Could u do a video on this scenario What is the best option to take 45yrs old currently Scenario 1 Company 1 20 yrs pension Left company and start a new company with a different pension. Scenario 2 20yrs pension but take a commuted value pension and start a new pension at a new company Scenario 3 20yrs at one pension then move the value to the next pension plan at a new company. Which is best
Thanks for the video. I love how you said "two defined pensions in a family?". I know a lot of teachers that marry teachers. Isn't there also an age maximum where you can commute a defined pension?
The example of your wife’s commuted values are prior to the change in CV calculations that took effect at the end of 2020. The change in calculation is drastically reducing the commuted value, especially for younger people that are not close to retirement age. Have you worked with any people recently that have seen this reduction in CV? As a younger person who will soon be faced with this decision I’m struggling to decide what I’ll do. I don’t know what the CV will be yet as my pension plan won’t tell you till you’re ‘no longer employed’, but from my calculations it will be about half of what it would have been prior to the new calculation rules.
Hi Adam! I have to take a decision on what gov calls a cashout pension before I turn 50 years old.. im going on 49. I built a excel spreadsheet with a lot of your tips ..trick on a 30 year plan..with cpp..oas..etc..but I need help cause huge decision running out of time..how much would tgis type of guidance cost?
I got my pension statement this summer and I'm strongly considering commuting. It's federaly regulated, so I believe the LIRA portion I can receive can be put into a RLIF, then I can put 50% into a RRSP, and the remainder into a RLSP. I am waiting for the LIRA video to see if this is correct.
isn't there also an issue with beneficiary? I have DBA and for the pension, if I pass, the pension stops, but if you took commuted value, the beneficiary is listed with your estate...
Should health be the main factor to make this decision? One who is in good health and has family members living till 90 better to stay with the lifetime payments. But the diabetic BBQ smasher going from one surgery to another would be better with the commuted value.
Are commuted values only for people who have less than say 25 years of service with their company? My husband and I both have defined benefit plans and are recently retired and neither of us were given a commuted value option to choose when we did our selections.
So we were bought out and the former company wound up a DB and will pay out next year. Most to LIRA and 60K to RRSP. Will that large RRSP deposit count as income, or be tax deferred? What kind of tax benefit will come from that 60K deposit if not considered income for that year?
Assuming you have the RSP contribution room for the entire amount, you will receive the $60k as income, and you will in turn contribute it to your RSP. In this scenario you will not pay tax on the $60k, nor will you get a refund as a result of this contribution as they effectively cancel each other out. Make sure you have the room, and make sure you contribute within the timeframe to offset the income.
In another poster’s comment they pointed out you will likely have to complete form T1213 to request no tax deduction from your employer. For this you generally have to prove to CRA that you have the contribution room
@@James_48 Have contribution room and the deposit should come in the spring. It's the same HR Group just with a new company name so they are depositing it directly into my rrsp and have all that information already. Hopefully it all goes without a hitch. Thanks.
Thank you! My wife and I are both RNs in BC so this video is perfectly relevant. We've been ignoring the MPP and calculating our retirement based on investments alone. We plan to treat the pension as some bonus spending money as we are on tract to hit our retirement goal without it.
Important note: starting Jan 2022, the pension calculation will be different. It will now be a flat lifetime benefit accrual rate of 1.9 per cent of your highest annual salary (HAS) instead of the 1.3/2.0 system.
Outstanding video Adam. A huge tax hit on the cash portion, being responsible for all investment decisions and having some built in inflation protection convinced me not to take the CV. So glad I left it alone as I love getting guaranteed income every month. Another consideration is the health of the pension plan. If the plan is facing financial hardship and a large unfunded liability, it might be worth getting your money out while you can (think Sears and Nortel). These are more likely to be corporate pensions and not teachers, gov't employees, nurses etc...
Wish I had seen this video a year ago when I faced this decision! I may have made difference choices! Great video, thanks again.
Awesome video. I’m a nurse in BC and plan on fully retiring in the next few years. The other piece to the puzzle is taxes and beneficiary. You can control the taxes in retirement to some extent if you take the CV. Also you leave behind assets with CV where as the pension is just gone when when you pass.
Great and timely video. I just commuted my pension. I submitted a t1213 to cra request to reduce tax deductions at source form-I received the full cash portion and was able to put it into my rrsp as I had contribution room.
Beautiful that you covered this, I took the CV from OMERS in Ontario after 34 years as a medic. One thing I found out was if you have rrsp room, it will take a couple of months for the CRA to get back with the required letter to OMERS so they can send the money to you without any withholding. No health care options here.
I am looking at this and there is also the idea of leaving a chunk of change at the end of life for your spouse or kids. Thanks for the walk through...
I had the option when I was laid off last year. My CFP ran the numbers for me. I had a horrendous tax bill, but it still made sense to convert. I also took into account I am single, so no survivor benefit, and I was working for a foreign company and I was concerned with the company leaving Canada. I’d hate to have a Sears situation.
Perfect. Been looking for a video like this!
Glad it was helpful!
The company that I work for allows us to stay on the benefit plan if we take the CV.
It is definitely a personal decision. I am 51 years old. Up to 50, my work offers the commuted value but after 50, you are locked in to the defined benefit pension. I chose to stay but the almost $300,000 (before taxes) value was tempting. Another coworker turning 50 in the same year decided to leave. His commuted value was higher and truthfully he really did not like his job. I actually like my job and decided the salary over the years, contributing to my CPP etc… was more beneficial. I guess I should have got a financial advisor because I certainly did not do these above calculations.
My wife's pension commuted value was about $650K which sounds like a lot. However, she is only two years away from a fully qualified pension which, if she lives until 80 (a reasonable estimate since life expectancy for women is higher than this) the payout will be worth $1.4 million not including inflation adjustments. The other key factor is that it's essential that the commuted value is invested and saved for retirement. My father-in-law, a retired principal, saw many of his friends cash in their pension to pay off debts. They ended up needing to work in retirement to make ends meet. Cashing in your pension requires discipline.
you got that right. Also are the current stock market returns going to continue. Good luck!
Great video Adam. I find there is not a ton of information out there on defined benefit pensions and commuted values as not many people have them anymore. Both my husband and I have defined benefit pensions, he will be retiring in a couple years and will collect his monthly payments but I am doing the math for me and leaning towards taking the commuted value. I think it might be the best of both worlds!
seek professional advise from a CPA! LOL
Doing a video on those payments options when the pension is chosen over the CV would be great! Obviously, this is a complex issue!
Interest rates will not stay low forever! With a DB you have zero investment risk. With A CV you have all the investment risk.
I know someone who took commuted value. Problem is, paralysis set in when it came time to decide how to invest the funds.
You talk about if you keep the defined benefit plan you are also entitled to health benefits, what does this include and is their additional costs?
Every plan is different, so check with your HR
Ontario nurse here. HOOPP doesn't make it easy to know that you have to take the CV before you turn 55. The option disappears once you are 55 and you HAVE to take lifetime.
Kathleen, many (most) DB plans have an age 55 limit. Thanks for sharing.
@@ParallelWealth Made the decision to take CV. Quit my job as of March 15. Very informative information on this channel. Thank you so much. My situation is vastly different from the average. Life changing for me thank you!
Great video! Here in Alberta, my benefit provider no longer provides a commuted value statement until you retire, they say it’s “industry standard.” So you’re saying the cash value can be put in RRSP (if there’s room) to avoid taxes? Good to know.
Ya, this is common for the statements now.
Love the videos, I believe you left out a major key point of the commuted value,
If you keep in a DB pension on x amount is paid to your spouse and x amount left to your estate if you both pass away.
If you take the commuted value it at least can be left for your kids,grandchildren ect. Would that not make more sense? Just wondering
It's part of the equation and consideration which way you go. Lots to take into account when deciding.
Great video, Adam. Could you estimate what percentage a cash portion of a commented value would decrease from Nov. 2021 to Sept. 2022 due to the increase in interest rates?
The problem I have found is that because of my defined benefit pension, I don't have very much RRSP room available. It's around 65K available after 23 years. I'm looking into everything now because I have to take the commuted value before I turn 55 for some reason, otherwise it is locked in and have to draw pension
Highly recommend meeting with a CFP Professional and having them compare apples to apples for you and map out a plan. You only get one chance at this, so do it right! We offer the service at www.parallelwealth.com/planning and search for other CFP planners that offer fee for service.
Could u do a video on this scenario
What is the best option to take
45yrs old currently
Scenario 1
Company 1 20 yrs pension
Left company and start a new company with a different pension.
Scenario 2
20yrs pension but take a commuted value pension and start a new pension at a new company
Scenario 3
20yrs at one pension then move the value to the next pension plan at a new company.
Which is best
Hey, I was wondering how it is determined how much goes into the LIRA and how much is lump sum cash. Thanks!
Thanks for the video. I love how you said "two defined pensions in a family?". I know a lot of teachers that marry teachers. Isn't there also an age maximum where you can commute a defined pension?
Usually 55, but some pensions allow later as well.
65 is ON rule
"Health care coverage small amount", haha. I think a couple is at least $180/month extended & $100/dental.
The example of your wife’s commuted values are prior to the change in CV calculations that took effect at the end of 2020. The change in calculation is drastically reducing the commuted value, especially for younger people that are not close to retirement age. Have you worked with any people recently that have seen this reduction in CV? As a younger person who will soon be faced with this decision I’m struggling to decide what I’ll do. I don’t know what the CV will be yet as my pension plan won’t tell you till you’re ‘no longer employed’, but from my calculations it will be about half of what it would have been prior to the new calculation rules.
Just cashed one out last week! 39 year old.
If you don’t have enough RRSP contribution room are you able to contribute to your spouse’s RRSP to avoid a huge tax bill?
You could, but it wouldn't avoid the tax bill for you as she would receive the tax break on the RRSP contributions.
I do have city pension plan. How do incorporate cop and city pension plan.
You may not be able to
Hi Adam! I have to take a decision on what gov calls a cashout pension before I turn 50 years old.. im going on 49. I built a excel spreadsheet with a lot of your tips ..trick on a 30 year plan..with cpp..oas..etc..but I need help cause huge decision running out of time..how much would tgis type of guidance cost?
Isn't a CV large now that interest rates are so low?
Yuppers
yeah will the rates stay that low forever. I doubt it!
Thanks for this video, Adam. I'm wondering, was your wife's CV more than the total contributions (employee + employer) made to the pension?
Yes
I got my pension statement this summer and I'm strongly considering commuting. It's federaly regulated, so I believe the LIRA portion I can receive can be put into a RLIF, then I can put 50% into a RRSP, and the remainder into a RLSP. I am waiting for the LIRA video to see if this is correct.
Hoping to drop the LIRA video next week!
isn't there also an issue with beneficiary? I have DBA and for the pension, if I pass, the pension stops, but if you took commuted value, the beneficiary is listed with your estate...
Yes this can play a big part in the decision
In many DB plans, if you are married when the DB plan was given your spouse could get 50% of the montly payments. It depends on the DB plan structure.
Should health be the main factor to make this decision? One who is in good health and has family members living till 90 better to stay with the lifetime payments. But the diabetic BBQ smasher going from one surgery to another would be better with the commuted value.
Health is a factor, but just one of many things to look at.
Are commuted values only for people who have less than say 25 years of service with their company? My husband and I both have defined benefit plans and are recently retired and neither of us were given a commuted value option to choose when we did our selections.
Most typically under age 55 - but every pension is different. We have seen clients have CV option into their 60s.
We don’t have the choice,at work, to get the commuted value.
So we were bought out and the former company wound up a DB and will pay out next year. Most to LIRA and 60K to RRSP. Will that large RRSP deposit count as income, or be tax deferred? What kind of tax benefit will come from that 60K deposit if not considered income for that year?
Assuming you have the RSP contribution room for the entire amount, you will receive the $60k as income, and you will in turn contribute it to your RSP. In this scenario you will not pay tax on the $60k, nor will you get a refund as a result of this contribution as they effectively cancel each other out. Make sure you have the room, and make sure you contribute within the timeframe to offset the income.
In another poster’s comment they pointed out you will likely have to complete form T1213 to request no tax deduction from your employer. For this you generally have to prove to CRA that you have the contribution room
@@James_48 Have contribution room and the deposit should come in the spring. It's the same HR Group just with a new company name so they are depositing it directly into my rrsp and have all that information already. Hopefully it all goes without a hitch. Thanks.