# Any PSSA calculation experts here?



## fourtwenty (Jan 9, 2021)

My wife and I are working on a plan to stop working (atleast for the feds) right before I turn 50 with an eye to cashing out my PSSA rather than leave it alone. This is the only way we can afford to stop working at that age. Once you hit 50 you no longer have the transfer value option which is why I've picked that age. When I turn 50 I will have 19 years of pensionable service.

The current transfer value of $600k ($215k within limits) is incredibly attractive right now. I understand this is due to current low interest rates etc. If I stopped working today and waited until 60 to collect it the lifetime amount would be $1900/month and the bridge benefit is estimated $434. Obviously these will both be higher by the time I reach age 50.

Things I already know (to save you some time )
I know the transfer value calculation is complex and based on a lot more than just interest rates but this is just for discussion purposes so lets keep it simple. In general as interest rates go up, the transfer value goes down and visa versa (all else being equal).
I know that just because it's worth $600k today, that doesn't mean it will be worth that much in 4 years. It could go up or down based on what the markets look at the time I opt to collect it.
I know that a portion of that will be taxed. If I receive the funds at the end of a year that I earned income, the net value would be ~$440k.
I know that if I collect the transfer value in a year where I earn no income that can save me $53k in taxes due on the "outside of limits" transfer value - that is in my plan.
We have other investments, and once the kids have left the house we would downsize to access some of that capital.
We live way below our means having made a huge effort to pay off over $500k mortgage in the last 15 years. 
I estimate we will need 40-50% of our current income to live a comfortable lifestyle. 
I value free time way more than getting an extra few years of income. The sooner I can stop working the better.

Before everyone goes off on how they think this is bad idea, leave it alone etc, I completely understand the risk involved in cashing it out. I have not made a decision, we are just exploring options on ways to make early retirement work. My wife also works for the feds and we would leave her pension alone to be collected once she turns 60.

What I really want it find out is if there a way to figure out what the transfer value could be in the future under different market conditions?

Any comments, suggestions or other things to consider while we think about this? I think we're in really good shape financially and this is a workable plan.

FYI We have a 1hr appt. to work with a professional financial planner who is an expert on the PSSA. We've given him a few scenarios to work out for us. 

I'm just trying to figure out as much as possible ahead of time so we can maximize our time with him.

Thanks for any insight!


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## GreatLaker (Mar 23, 2014)

Here are 2 web pages that explain Maximum Transfer Value:
Advisor.ca: Understanding maximum transfer value rules
Million Dollar Journey: How to Calculate Pension Maximum Transfer Value (MTV)


CV of a pension must be calculated using actuarial standards of the Canadian Institute of actuaries. Here is info on calculating the CV of a pension:
What is the formula for calculating the lump sum present value of a pension?

The formulas can be found in the Standards of Practice section 3500. Note that there are different formulas for indexed vs. non-indexed pensions.
Standards of Practice

It's been about 5 years since I have investigated this. Pls ensure you are using the most recent versions; I believe there were some recent changes to the calculations. 

I have taken 2 CVs and don't regret either. My more recent one was an underfunded pension plan from a [email protected] Canadian company that was bought by a [email protected] US company that did not seem to know what a DB pension was, so taking the CV appears to have been the right decision for me (although ask when I am 90 years old so I have a better idea of the future).  A lot of my coworkers would ask if thought they should take the CV. I would not make a recommendation either way. I would ask a series of questions like are they already investing that much money, how would they feel if their investments dropped 50% and took a decade to recover like in 2000, if they use an advisor, what to they charge and what is the impact of fees on portolio growth, does their advisor have a fiduciary obligation to act in their best interest, etc. Most of them would stand there slack jawed as they realized they had no clue how to manage their own pension.

Sounds like you have a good understanding of the issues, unlike so many of my coworkers. Personally I would think very hard before walking away from a guaranteed, indexed public service pension that gives income for life without worrying about investment returns, inflation, economic conditions and running out of money if I lived a very long time.


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## fourtwenty (Jan 9, 2021)

GreatLaker said:


> Here are 2 web pages that explain Maximum Transfer Value:
> Advisor.ca: Understanding maximum transfer value rules
> Million Dollar Journey: How to Calculate Pension Maximum Transfer Value (MTV)
> 
> ...


Thanks, I will check those out. My wife also is also in the PSSA and hers will be higher than mine so that's our plan to hedge against running out of funds on mine. The federal government pension website includes a calculator so I am confidant in their current value calculations. Understanding how future market conditions could affect the TV is more what I'm after so maybe I can figure it out using those sites.


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## Thal81 (Sep 5, 2017)

I'm not quite clear on what you mean by "future market conditions". If you mean the stock market, I think the correlation between stock market and TV is weak. As you know, the TV depends on long-term interest rates, and those could go either way regardless of what happens in the stock market. In my opinion anyways.


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## fourtwenty (Jan 9, 2021)

Thal81 said:


> I'm not quite clear on what you mean by "future market conditions". If you mean the stock market, I think the correlation between stock market and TV is weak. As you know, the TV depends on long-term interest rates, and those could go either way regardless of what happens in the stock market. In my opinion anyways.


Sorry for not being clear on that. I meant the things that are used in the TV calculation. Standards of Practice section 3500 that GreatLaker referred to was useful in understanding what things are used for the calculation. I started calculating the variables noted in this section but I could not find the final formula to input these variables. It was late and I gave up looking. 

I'm wondering, if the rates used for these calculations go up 1%, does that cut the TV value by 10%, 25%, 50% etc. Once i can figure out that formula, I can track the values as they change over time, compare them to the TV value at the same time and start recognizing how they influence the TV changes.


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## GreatLaker (Mar 23, 2014)

fourtwenty said:


> Sorry for not being clear on that. I meant the things that are used in the TV calculation. Standards of Practice section 3500 that GreatLaker referred to was useful in understanding what things are used for the calculation. I started calculating the variables noted in this section but I could not find the final formula to input these variables. It was late and I gave up looking.
> 
> I'm wondering, if the rates used for these calculations go up 1%, does that cut the TV value by 10%, 25%, 50% etc. Once i can figure out that formula, I can track the values as they change over time, compare them to the TV value at the same time and start recognizing how they influence the TV changes.


The Standards and Practices document defines how an actuary should do the calculations and what input factors to use for converting a future cash flow into a present value, but it does not provide a formula. For your purposes you could get a finance textbook and look up present value factors. Or using the PV formula in a spreadsheet would probably be sufficient.

Number of periods is based on life expectancy from mortality tables. There is an adjustment for the age of the spouse.

Interest rates used for the first 10 years are based on 7 year Canada bonds plus a spread adjustment for the difference between Canada bonds, and provincial / corporate bonds. After 10 years the rate used is Canada long bonds plus a spread adjustment for the difference between Canada bonds, and provincial / corporate bonds. Nominal bond rates are used for non-indexed pensions and real return bond rates are used for indexed pensions.

Canada bond rates can be found here.

You could build a spreadsheet model using the PV formula to determine present value of a cashflow series starting some time in the future when the pension would start to be paid. 

It was about 5 years ago that I ran some calculations for my pension, so the details are kinda fuzzy.

Hope this helps.


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