Pension buyback vs Annuities vs Self direct RRSP
Let us say you can buy back 2 years define benefit pension services without employer match @ lump sum of $22,000. That will increase pension say $250/m from 60. Let 's assume another 20 year until retire at 60.(male ,40, good health)
I think it is reasonable to compare these three scenario:
a. put $22000 to RRSP invest for 20 years @ rate of 3% gain yearly
b. buy $22000 annuities and start payout 20 years later , how much I can get this way monthly?
c. buy back pension to increase payment $250/m (There will be CPP reduction of $50 after age of 65, so after 65 it is only $200/m)
I know all people is saying buyback pension is a good choice. But I am not convinced. It is not only the money locked in vs self-direct RRSP.
Money wise, it almost takes 8 years before you can even break even. Not sure how annuities works, is it something like Defined Benefit pension plan or DCPP?
I'll only speak to the issue of buyback being a good choice.
If you have a government pension your investment is guaranteed no risk. In a company you would need to weigh the strength of the plan.
The RRSP option is a wild card for return.
I was thinking on the same lines to puchase some buy back years, but I will be drawing within the next 5yrs or less.
Did you look at also contributing voluntary cash to the pension fund too. That also increases your pension.
Annuities and Segregated Income Funds I am just trying to get my head around those. The fees are much higher so less real nett but guaranteed to a point.
Hope this helps as I too am wandering along the same path. Rose
Not sure how much I will get at 65 if I put 22,000 into annuities now.Any one know?
Originally Posted by RedRose
What is "contributing voluntary cash to the pension fund "? Never heard about this.
Impossible to say without knowing your age and gender. Here's a generic overview of the product you (might) be looking for - a deferred annuity:
I did the calculations in that article - that's me in that staircase - and they will not have changed significantly since the time the article was written, because interest rates have not changed significantly.
You might also (depending on your age) consider some of the other financially-engineered products which are a hybrid of an annuity and a traditional stock market investment, such as Manulife's Pensionbuilder or any of the guaranteed minimum withdrawal benefit products available from the large insurance companies (you are too far away from retirement to actually invest in any of these, though).
Money Gal, Thank YOU for that link. I have read it and several of the link to that one.
Great stuff...I am learning as I go, getting close to making a decision.
It's been a tough year.