# Early Retirement Gut Check



## simplesimon

I’ve noticed that people on this forum provide amazing, well thought out feedback to inquiries here, so I figured I would ask for some advice.

I’m 56, my wife is 55, and I wish to retire by the end of this year. My wife wants to retire when she is 59. Let’s just say that her job is more fulfilling than mine.

I make about $120,000 per year, she makes $40,000.

We live in a fairly big house, and have no debts.

I get cold feet thinking about leaving a six figure income job, but I don’t want to fall into the trap/huge mistake of making the accumulation of money a goal in and of itself.

Some of our adult children remain semi dependent on us, and of course you never know what can happen as far as them needing more support. 

Some statistics;

If we retire when planned;
My defined benefit pension, $72,000/yr, *not* indexed, reducing to $65,000/yr at age 65. Leaving some money on the table because I'm short of 35 years time served.

Her defined benefit pension, $11,000/yr, indexed, reducing to $6,000/yr at age 65.

Both eligible for Canada Pension and OAS.

Non Registered investments, US$130,000 equity ETF’s, CAN$50,000 MAW105

My RRSP, $114,000, mostly balanced mutual funds, a lot of MAW104

Her RRSP, $247,000, mostly balanced mutual funds, a lot of MAW104

My TFSA, $47,000, mostly balanced mutual funds

Her TFSA, $49,000, mostly balanced mutual funds

I’ve run scenarios on RRIFmetic, as well as other retirement calculators, and they all seem to indicate that we are going to be ok, using 3% inflation and 4% rate of return on investments, die broke at 95.

The beer and grocery money available from the calculations is a good match for our current expenditures.

I didn’t factor home equity into any of the calculations.

I’ve done a lot of reading on this and other forums, and these numbers look pretty good.

Taking the retirement plunge is a big deal, not to mention a one way ticket out of a good paying job, so I’m looking for some seat of the pants feedback on whether or not early retirement looks like a reasonable decision, particularly based on the fact that we only live once, and we are still healthy.

Much thanks in advance.


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## Islenska

Financially will be fine but more important do you have a plan of action what exactly you want to achieve in retirement?


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## My Own Advisor

Looks to me you are in tremendous shape....

Even with (only?) $65,000 before tax income, at age 65, that is a good sum of money for retirement. You don't even need to touch your other investments, but you will, living the good life, as you draw down your RRSPs in your 50s and 60s before OAS kicks in. I would keep your TFSAs intact for as long as possible. 

With no debt, after-tax, from your pensions alone you can spend close to $4,000 per month. I would assume after basic necessities are covered (heat, hydro, food, property taxes, internet), you'd have at least $1,500 per month left to spend. That is a very healthy budget IMO.

Pull the trigger and don't look back. Congrats on doing so well financially!


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## simplesimon

While she works, become more useful around the house with cooking, cleaning, etc., to make her life easier; do repairs to and around the house that I never seem to have time to do now, resurrect old hobbies.

After she retires, do a bit more travelling, reconnect with the outdoors, enjoy potential grandkids.

Really no hard core plans at this time, but you are right, what to do with your life after retirement is a most important consideration.

The first piece of the retirement puzzle is financial, which I want to make sure of best that I can, and a big part of the need to retire is that work for me has become extremely stressful.


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## Jorob199r

What do you plan on doing in retirement? Travel? Hobbies?

Have you figured out how much you'll get from CPP?

I would retire in a heartbeat if I were you. I'd live off the pensions and let the investments keep growing until at least age 71. 

It all depends what your expenses will be in retirement.

My father found out he had terminal cancer on the day of his retirement at age 62. He had all these plans for travel he never got to do. He died shortly after. Just an example of not being able to count on future time.


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## Itchy54

you didn't really say how much you spend each month? Will your pensions cover your costs?

If so....fly away...I would!!

Hubby and I have watched far too many friends pass away young, really young....one of them just shy of his early retirement, two still working. All in their forties. if you are stressed then you should go. 

Hubby is 58, I am 57 (for a bit...) and I am semi retired (just part time at the university) and him full time. He will get a pension that, for now, is indexed always subject to change) His pension will be about $50,000/yr before 65 and maybe $36000 after....I like your numbers better, lol. I get, right now, a very small pension --about $3000/yr and may get an even smaller one for the job I have now....I will call it movie money. After tracking our spending for three years I know we need about $3500/mth which includes our spending money (gym for me, golf for him) and the additional costs for health . We will be just fine when he signs the papers to retire next year at this time. he will get full CPP, mine is smaller as I stayed home with kidlet. Both will get OAS. We should have about $900,000-1,000,000 in various accounts at that time. House paid for, not included in the 900,000. Income from investments will be our holiday fund...and we are planning lots of holidays! 

Good luck with your decision


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## NorthernRaven

Itchy54 said:


> he will get full CPP, mine is smaller as I stayed home with kidlet.


Don't forget about the Child Rearing Provision for CPP, which can allow primary caregivers to eliminate years where they had reduced or no earnings because they were taking care of young children - it can boost the CPP amount. I think it is now part of the main CPP application (although perhaps not for everything), but in the past it was a separate form that many people didn't know about. I got my mom a hefty retroactive payment some years back by coming across this.


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## Davis

It is always good to be conservative it your assumptions, but no t to the point that you worry unnecessarily over money. And you don't want to make so many conservative assumptions that your plan becomes so unrealistic that you live an unnecessarily miserly life, and leave a big pile of money at the end. Keeping the house out of the picture ius great insurance against elder care costs.

The 4% withdrawal rate is very conservative. 

Assuming that you want income to keep up with inflation is also very conservative - people often spend big the first two or three years after retirement, then settle in and their spending drops by 20-30%. 

Your assumption of 3% inflation is building in another layer of insurance in your plan. Do you need even more? The Bank of Canada aims for 1-3% inflation each year. The average over the last 20 years has been 1.82% per year. The range of annual average inflation rates from 1995 to 2014 was 0.31% to 2.72%. 

Try running RRIFmetric again with a more realistic 2%, and see what you get.


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## RBull

Your situation seems to be A1 to do whatever you want, and considering you're using RRIFmetic no doubt you've been thorough on your plan. A very enviable position for many folks I'm sure. The key to confirming you are good to go it is to know what you expect your expenses to be in retirement ensuring you have plenty-as Jorob199r also suggested. With your wife working another 4 years or so you've also got a great cushion for a while. Also make sure you have enough to do to keep you satisfied/challenged as no doubt you are used to that with your occupation. From your comments just getting away from your work will be a nice relief. Been there, done that and at the same $ level about 10 years ago when I left that rat race to operate my own company. 

I took the retirement plunge last May on my 55th birthday and my wife went ~3 years earlier. Comparatively, we have considerably less in pension money (also not indexed) but a fair bit more savings however likely slightly less $ income than your situation, dependent on investment returns. I only plan for a 3.5% return (1% nominal-above inflation factor of 2.5%) with 56/44 equity/FI currently so am likely conservative on expectations here. So far we're way ahead until markets adjust! However we will adjust our discretionary spending to a point each year based on the previous years return and our situation to plan. We are living very well on our plan (to age 95) including current spending at the rate of $30K/yr on travel (our main expenditure). We plan to defer CPP until 65 and have adjusted our original plan to exclude OAS since we aren't confident it will be there for the long term. Our house is excluded from our plans also. The biggest challenge for me currently is figure out how to draw money for income tax efficiently over the long term. 

In your situation I would run and not walk for the front door of your job to leave. I left with NO pension. We are LOVING retirement (as I sit here in south Texas 30 degrees c today), and want to do as much as we can at a younger age. 

Hope this helps. Happy to answer anything else you might need.


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## RBull

Davis said:


> It is always good to be conservative it your assumptions, but no t to the point that you worry unnecessarily over money. And you don't want to make so many conservative assumptions that your plan becomes so unrealistic that you live an unnecessarily miserly life, and leave a big pile of money at the end. Keeping the house out of the picture ius great insurance against elder care costs.
> 
> The 4% withdrawal rate is very conservative.
> 
> Assuming that you want income to keep up with inflation is also very conservative - people often spend big the first two or three years after retirement, then settle in and their spending drops by 20-30%.
> 
> Your assumption of 3% inflation is building in another layer of insurance in your plan. Do you need even more? The Bank of Canada aims for 1-3% inflation each year. The average over the last 20 years has been 1.82% per year. The range of annual average inflation rates from 1995 to 2014 was 0.31% to 2.72%.
> 
> Try running RRIFmetric again with a more realistic 2%, and see what you get.


I agree pretty much with what you're saying. 

If you take it another 20 years -1974 to 2014 inflation is 3.84% however. 3% is likely very conservative as it seems BOC has a better handle on things now and seriously targets 2% ish range-although economies seem much more globally impacted/connected today.


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## Itchy54

My small CPP has been estimated using the child rearing dropout...it's still small as most of my work was part time and during the school year only (so only eight months every year when I did work, and not full time)


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## piano mom

With over $70k in DB pensions between the two of you, are you kidding me? If you can't retire on that, what chance do most of us have?


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## nortel'd

simplesimon said:


> ... Some of our adult children remain semi dependent on us, and of course you never know what can happen as far as them needing more support. ....


Discuss your retirement plans with your children. Because you have semi dependent children, I see nothing wrong with you both working an additional 4 years until, as your wife has suggested, she is 59. 

Twelve years ago I could have retired with a reduced 20 year DB pension but my 27 year old daughter was enrolled in Engineering and living at home. She has been happily working in her engineering field for the past 11 years. I continued to work until Oct 31, 2013 and retired with an unreduced 30 year DB pension worth less than yours but way more than I know how to spend. I have no regrets.

You are debt free, own your own home and will have combined non-indexed DB pensions of 71K per year at age 65. I say when you retire, enjoy and try to spend your DB pension income. 

If and when you feel your children need additional support use only the income created from your investments.


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## Daniel A.

I retired five years ago at 56 my wife still works.
She was happy I pulled the pin, had worked all my life shift work.
Her plan was always to work till 65.

There are times jealousy gets in the way mostly because I'm doing just what I want while she still gets up and heads to the office. 

I also left a six figure job which I knew I would not be able to replace once gone.
For the first 3.5 years I spent plenty of time reading and taking my travel trailer out spring and fall.

In the past year I've had the opportunity to work at other jobs here and there and I do some even though the money is not even close to what I was getting.
I do like having the experience and being engaged but my attitude is if I'm not having a good time I'm gone.
Given that I was a long term employee I never had the chance to try different things so I guess this is why I enjoy it and I can do it now without financial pressure.


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## Mookie

Simplesimon, I don't need to get out my calculator to figure this one out. It looks like you're in great financial shape to retire as planned or sooner.

As a couple others have pointed out, you* never know when health problems might strike, so have fun while you and your wife are fit and able.

My only question to you is about your adult children that you say are semi-dependent on you. I hope there is a good reason for this and it's not a situation that will hurt them in the long run. You don't want them to become dependent on the Bank of Mom and Dad.


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## OnlyMyOpinion

Mookie said:


> My only question to you is about your adult children that you say are semi-dependent on you. I hope there is a good reason for this and it's not a situation that will hurt them in the long run.


I could relate to Simplesimon's comment. Insofar as we'd all love for our children to grow up successful and fully independent, sometimes that is not in the cards we are dealt. It is really great if a couple's financial means & plan can accomodate needs beyond their own retirement when/if necessary. Same would apply on the other side of the sandwich - when a mom & dad need some help through no fault of their own.


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## simplesimon

Thanks for all of the replies, advice and kind words!

My "semi dependent" children are finishing off their education, or are in the early stages of marriage, (We have 4 kids), but they are bright and motivated to do well in life, so that's about all you can ask for, but you never know in this economy.

We always lived fairly frugally, so I think it's time to enjoy things a bit more, and like I said before, work is very stressful, to the point of potentially affecting my health, although I know in the grand scheme of things I really should be extremely thankful for everything!

I sincerely appreciate all of your feedback, because even though I've put lots of effort into the planning, it's such an important decision that I feel like I need reassurance from a common sense perspective, and from people that have been there and done that.

And that RRIFmetic is an awesome tool!


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## 1980z28

Great job,looks like a great idea


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## steve41

The guy that wrote it is a REAL tool, as well.


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## diharv

Please excuse my ignorance but could someone explain to me what is this RRIFmetric ? Is it like a retirement calculator ? I have been looking to plug my numbers into various retirement calculators to see if I am ok or on track to go relatively soon , if not sooner. how do I get it and use it or can I give my numbers to someone here who can run some scenarios for me ? Thanks.


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## GreatLaker

diharv said:


> Please excuse my ignorance but could someone explain to me what is this RRIFmetric ?


Readin, writin, RRIFmetic
http://www.fimetrics.com/rmpers.shtml


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## diharv

GreatLaker said:


> Readin, writin, RRIFmetic
> http://www.fimetrics.com/rmpers.shtml


So what do I do with this site ? Do I send my info to the fellow indicated in the free trial or do I buy the kit and attempt to do it myself ? I would love to have a detailed report like the one in the sample report but I am unsure how to go about this. Maybe its me but it seems a tad confusing.


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## Letran

diharv said:


> So what do I do with this site ? Do I send my info to the fellow indicated in the free trial or do I buy the kit and attempt to do it myself ? I would love to have a detailed report like the one in the sample report but I am unsure how to go about this. Maybe its me but it seems a tad confusing.


:hopelessness: My apologies, I'm a bit loss for words right now.


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## steve41

PM me and I will run a plan for you.


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## peterk

Awesome work simplesimon. Sounds like you have multiple safety nets, including a large paid off house, a substantial pension, a smaller pension, and 600k invested. Plus 4 well raised children who I'm sure could help you out down the road if something awful should somehow wreck havoc with your finances.

You are a perfect example of a couple who are doing so well you can afford to retire in your 50s with a bit over 100k/year in retirement income, yet you and your wife will receive full or very near full OAS payments coming straight off the cheques of us younger folks. 

Cheers


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## RBull

peterk said:


> Awesome work simplesimon. Sounds like you have multiple safety nets, including a large paid off house, a substantial pension, a smaller pension, and 600k invested. Plus 4 well raised children who I'm sure could help you out down the road if something awful should somehow wreck havoc with your finances.
> 
> You are a perfect example of a couple who are doing so well you can afford to retire in your 50s with a bit over 100k/year in retirement income, yet you and your wife will receive full or very near full OAS payments coming straight off the cheques of us younger folks.
> 
> Cheers


That time is nearly a decade off for the OP...(and also applies to our situation). A lot can change by then but if it doesn't we'll try to remember to thank you and others for the gift. You can thank us for the tax deferral we made with our RRSP in the previous decades so that we can continue to prop up the economy with those taxes due over the next 40 years. (Plenty more than OAS)


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## My Own Advisor

RBull said:


> That time is nearly a decade off for the OP...(and also applies to our situation). A lot can change by then but if it doesn't we'll try to remember to thank you and others for the gift. You can thank us for the tax deferral we made with our RRSP in the previous decades so that we can continue to prop up the economy with those taxes due over the next 40 years. (Plenty more than OAS)


Good one


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## PrairieGal

> We always lived fairly frugally, so I think it's time to enjoy things a bit more, and like I said before, *work is very stressful, to the point of potentially affecting my health*, although I know in the grand scheme of things I really should be extremely thankful for everything!


Nuff said, time to retire!


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## simplesimon

PrairieGal said:


> Nuff said, time to retire!


Unfortunately, my earliest retirement date without a pension penalty is this December, so I'm stuck until then!


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## My Own Advisor

Lots of light it seems...at end of pension tunnel!


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## RBull

You can "gut" it out until then!


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## janus10

simplesimon said:


> Unfortunately, my earliest retirement date without a pension penalty is this December, so I'm stuck until then!


You and your wife seem to be set up extremely well - I suspect there are a lot of people like me that would be happy to be in your financial position. 

However, is the penalty so onerous that it makes enough difference to withstand the stress you are facing, i.e. is it actually worse for you to stay? Or, can you somehow adjust your thinking that whatever issues are at work, you really don't have to put up with them for much longer? 

My wife had that at a recent job - she knew she wouldn't be there for long and it was a real eye opener to her how little she let it bother her just by knowing that it was temporary. A big difference is that she didn't have any kind of history, let alone a long one, at her employer unlike yourself.


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## simplesimon

janus10 said:


> You and your wife seem to be set up extremely well - I suspect there are a lot of people like me that would be happy to be in your financial position.
> 
> However, is the penalty so onerous that it makes enough difference to withstand the stress you are facing, i.e. is it actually worse for you to stay? Or, can you somehow adjust your thinking that whatever issues are at work, you really don't have to put up with them for much longer?
> 
> My wife had that at a recent job - she knew she wouldn't be there for long and it was a real eye opener to her how little she let it bother her just by knowing that it was temporary. A big difference is that she didn't have any kind of history, let alone a long one, at her employer unlike yourself.


It would be an approximate $20K yearly hit if I don't make it to my factor, so obviously, that's a big deal!

I do find more and more peace of mind possible as the time approaches, but there's always pressure to conform, because a screw-up could still get somebody fired, regardless of how unlikely that is.


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## My Own Advisor

No doubt you can gut it out....geez....that is a massive penalty!

You're going to be set with the pensions alone. An enviable position!!


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## janus10

simplesimon said:


> It would be an approximate $20K yearly hit if I don't make it to my factor, so obviously, that's a big deal!
> 
> I do find more and more peace of mind possible as the time approaches, but there's always pressure to conform, because a screw-up could still get somebody fired, regardless of how unlikely that is.


Wow! I've never worked at a place that offered DB plan so I had no idea that the threshold could be so lucrative. It sounds like for working the next 10 months and one week minus holidays and vacation could net you an extra $500k at least if you live another 25 years after retirement.

That's like saying you are now getting a bonus of $50k per month or $2500 per day at work. Very, very nice!


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## Davis

Some DB plans are like that. I can retire at 59 on full pension. If I retire early, I lose 5% for each year before I reach 65. So at 58, I'd lose 7 x 5% = 35%. It sucks, but I'm not willing to wait that long. I'll go at 50, and use my own savings until I get a reduced pension at 65.


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## cougar

I left at 51 and took a reduced pension at 55-I think my penalty was 3% per year since I had not yet hit the magic 85 factor of age plus years of service. Initially I planned to take my pension at age 60 but for how much more I got per month vs an extra 5 years of pension payments my husband and I did the Math and decided it was to my advantage to take it earlier-which I never would have guessed. Always do the calculations and see which would give you the most $ over your expected lifespan( for me we used about 30 years until age 85).


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## janus10

Davis and cougar - your examples make much more sense to me. I can't understand a DB plan that would go from $52k per year to $72k per year by simply working another 10 months as implied by simplesimon. Or did I read his posts incorrectly?


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## Davis

I think the "$20K hit" is a $20K _reduction_ in the pension, not a reduction _to_ $20K.

So if it is like my plan, retiring before the "factor date" means a reduction 5% per year counting back from age 65. if that is 6 year, then a 30% reduction to a $72K pension is about a $20K reduction. 

But OP says he is 56, not 58-59, so that doesn't work. It may be that there is a different reduction rate of different formula.


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## Pluto

This has all been discussed in terms of retire or not, as if there are only two options. The word that stands out in the first post is "fulfilling" and you imply your job is not that fulfilling. So the third option could be retire, and then work at a more fulfilling job. Even if the latter is not as high paying, you still get your pension so you could still be over 100K. I think it is important to do what you enjoy and then let the money take care of itself.


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## janus10

Davis said:


> I think the "$20K hit" is a $20K _reduction_ in the pension, not a reduction _to_ $20K.
> 
> So if it is like my plan, retiring before the "factor date" means a reduction 5% per year counting back from age 65. if that is 6 year, then a 30% reduction to a $72K pension is about a $20K reduction.
> 
> But OP says he is 56, not 58-59, so that doesn't work. It may be that there is a different reduction rate of different formula.


5% reduction per year sounds reasonable and similar to CPP. However, Simplesimon said "it would be a $20k yearly hit" if he didn't make it to his factor and he would have to work until December in order to not suffer a pension penalty.


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## OldPro

It's funny how some people perceive things. When I retired at age 43, 25 years ago, I told my two sons that I was retiring. Both were finished school (I was a child bridegroom) and working. I told them that I was retiring from work and that also meant I was retiring the bank of Dad. It's called, 'you're on your own and I may come back asking for a refund down the line.'

Re waiting for another year to improve a pension etc., that's called, being greedy and not knowing when enough is enough. That resulted in my divorce 3 years after I retired when my wife still couldn't give up work. 'One more year, one more year she kept saying.' I said, 'I'm gone'. When it comes to choosing between more (than enough) money and time, I would advise choosing time every time. Time is the one thing you can't bank.

I understand people wanting to be comfortable financially in retirement and I understand but don't agree with using planning tools that will tell you that you will still be solvent at age 95. But the reality is as I am here to tell you after 25 years, is that 25 years from now, your life will be nothing like you planned for. There's this little thing that gets in the way of that plan. It's called life. Things change all the time. You may think you are planning all the way to the end (ie. age 95) but the reality is you'll be lucky if your plan stays intact for 10 years.

Whether it goes pear shaped and you end up living on the 'bank of my kids' or whether it goes better than planned as in my case, you have no way of knowing. All you know is it will change just as everything in life is constantlly changing.

So here's my advice, retire as early as you think you possibly can on as little as you think you can manage it on financially. Each year you are retired will be one of the best years of your life. Retiring even a year later means you will miss out on one of those best years of your life. No amount of money that working that year might bring you is worth it.


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## simplesimon

OldPro, that's sort of the way I'm thinking about it as well. I'm waiting to year's end so as to not take the big pension hit. I suppose that's my way of being responsible to my family.

I agree that incrementally building a pension through a 2% per year linear process is probably foolhardy if you can afford to go and have your factor for no penalty, but taking a big hit with so little time left is just something I can't stomach

Having said this, going as soon as I can without the big pension penalty is almost a certainty for me now; sealing that thought process were the great responses to this thread; thanks to everyone.

So good to hear that most retirees enjoy that phase of their lives!

Cheers


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## OldPro

A word on how much is enough?

It's less than you think it is. When I retired 25 years ago, I quit a $100k/year job, I had no pension and an income of around $20k per year I could expect. I was quite sure that it was entirely possible for me to live on $12k a year and I was right. In fact, in some years I lived on less than that, but that is another story.

What I did not do is assume anything had to be the same as before I retired. I did not assume I had to be able to buy a new car every 3 years or have 3 TVs, each the latest and greatest in features and size. I did not assume and this is a big one, that I had to live in the same house in the same place. I lived in the Beach area of Toronto in a house with no mortgage. I actually ended up leaving Canada and living in several different countries for years but it would not have been necessary to even do that if I didn't wish to. My Brother sold his condo in Toronto about 4 years ago and moved to a small town elsewhere in Ontario where the money from his condo would have bought 3 houses twice the size of his condo. 

When you retire, your interests and your costs change and they can change considerably, without that meaning you actually have to give up anything really meaningful to you. But you need to figure out the difference between what you want and what you need to be happy. The saying is, 'money doesn't buy happiness'. In fact, that's not true. It's very hard to be happy and content with your life if you're living on Kraft dinners. But studies have shown that beyond a certain point, money doesn't INCREASE your happiness. That's a totally different thing altogether. In fact, it is possible to figure out how much money you need to be happy and the number that the studies have come up with is $75k. That number however can vary a great deal by individual. It also includes saving for retirement which obviously a retiree no longer needs to do. It also refers to the average family. Retireees don't usually need money for rent or a mortgage (all retirees should own their home in my opinion) and don't have kids to feed and cloth any more. So if $75k is the average family income to be happy, what is it for a retired couple to be happy? Obviously, quite a bit less. http://www.forbes.com/sites/robertglatter/2012/07/27/how-much-money-do-you-need-to-be-happy-2/

You do have to keep in mind that it doesn't mean you can't happily spend more if you have it. What it is saying is more will NOT make you MORE happy. I figure a retired couple in Canada who own their own home can live comfortably on $30-40k per year. What's more, if even one of them is 65, with income splitting and property tax credit (65 year old can claim it) their net income will be nearly the same as their gross income!

Learn about the wonder of Property Taxes. If you live in a 3 bedroom ranch style home in say Brampton, you might pay $5k in property tax. Buy an equal house even on a bigger lot(they don't do 40ft lots in small towns) in a small town somewhere else in Ontario and you might only pay $2500 in property tax. That's not because they don't charge as much per $1 of asssessed value in property tax, it's because you pay a heck of a lot less dollars for the same house! What cost $450k in Brampton might cost only $150k in small town Ontario. Like I said, my Brother's condo would buy 3 houses twice the size of his condo in Toronto.

Property tax is not like home value. You can leave your home to your kids. The money you invest in your home is generally speaking an increasing asset over time. Property tax is like a gas bill, when you pay it the money is gone forever. More importantly to the retiree though is that you have to take that money out of your income EVERY year. So suddenly, that $2500 difference in property tax becomes much more signifigant to you. As I said, your costs can change signifigantly and their impact on how much you need to be happy can be impacted signifigantly. if you drop $2500 of your property tax per year that means you need $2500 per year less income to be happy. Property tax should a major factor in any retirees choice of where to live for that reason.

So how much do you NEED to be happy and content? That's the big question. Figuring out the 'need' vs. 'want' can be difficult. In one way, it is nearly impossible since until you actually are retired for a while, you don't have any way of knowing what will change in that regard. Travel is a big item in many peoples plans for example. It was in mine. Now I can take it or leave it. If I never travelled again, I'd be quite content staying right where I am. There's no way to know that ahead of time. Someone might plan to golf (makes you a living cliche of a retiree though) 3 times a week and figure they need the money for green fees and membership. Then they develop an bad hip, the golf goes out the window and they discover a new hobby that costs far less that gives them equal satisfaction. My neighbour planned to golf his days away and now can't any more. He builds birdhouses and sells them at the end of his driveway. He was a banker who never built anything in his life before. Now he does stuff like this:
http://www.yardenvy.com/images/pz/23753/cozy-cottage-bird-house.jpg I'd say the birdhouses probably give him more satisfaction now than golf ever did. Who gets satisfaction out of golf anyway? It's about forever being not quite good enough yet. 

Things change over time and no one knows what will change or when. Winters in Florida can get boring after a while. You might find you are happy to have the excuse of 'we can't afford the travel insurance after age 70 (it jumps way up) any more, so we've had to give up our winters in Florida'. When that time comes, the income you need will be less. No need to worry about maintaining that $75k average forever.

Again, there may be a minimum but more doesn't make you MORE happy. You just spend more that's all.


----------



## OldPro

I should have added somewhere in case it left people wondering, I no longer have an income of $20k or expect to live on $12k a year.

I remarried after 10 years of retirement and my wife and I now have a combined income of around $65k per year. Mine went up through investment and her's is about equal to mine.


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## Todd1966

After a health scare (related to a high stress job) I retired at 48. I was lucky to have a large bank account and no debt, so money wasn't a factor. My wife still enjoys her career and we have children still in school so I have assumed the role of stay at home parent by default. I get to spend valuable time with my kids, volunteer for the community and church, and support my wife by "holding down the fort". The only thing that was a difficult adjustment for me was my self esteem....changing from a well respected businessman in a leadership role to a house husband for lack of a better term. Many of our friends and neighbors, and surprisingly, other housewives, didn't seem to understand and as a result sometimes made comments that were demeaning (although I doubt they even realized that).

I now do work part time helping a farmer plant and harvest his crops. That gets me back in the workforce part time and the modest pay goes towards a family vacation every year. I suppose my point is that you should do what feels right for you and don't let the mainstream hold you back. To me, retirement doesn't mean I must stop working, just that I can do what I want, when I want! Good Luck.


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## simplesimon

...........and then you see stuff like this.........

http://www.inc.com/chuck-blakeman/d...rement-is-a-bankrupt-industrial-age-idea.html


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## OldPro

That's about as much nonsense as I've ever read simplesimon. 

The problem with surveys and statistics on any issue is that you can ask the questions and interpret the statistics in any way you want them to come out. The writer of the article has a 'point' he wishes to make and writes accordingly. You can read what he writes and continue to work or you can read an opposite view with 'statistical' data to back it up and decide to retire early. http://www.benefitspro.com/2013/08/21/retire-early-live-longer

Who's right? I would suggest that instead of listening to either, that you ignore both and consider what really determines who lives longer or not. Things like diet, exercise, smoking, etc. are the real major factors that impact life expectancy. To suggest that if you keep working you will live longer is a ridiculous simplification of things.


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## simplesimon

OldPro said:


> That's about as much nonsense as I've ever read simplesimon.
> 
> The problem with surveys and statistics on any issue is that you can ask the questions and interpret the statistics in any way you want them to come out. The writer of the article has a 'point' he wishes to make and writes accordingly. You can read what he writes and continue to work or you can read an opposite view with 'statistical' data to back it up and decide to retire early. http://www.benefitspro.com/2013/08/21/retire-early-live-longer
> 
> Who's right? I would suggest that instead of listening to either, that you ignore both and consider what really determines who lives longer or not. Things like diet, exercise, smoking, etc. are the real major factors that impact life expectancy. To suggest that if you keep working you will live longer is a ridiculous simplification of things.


I'm with you OldPro!


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## janus10

simplesimon said:


> ...........and then you see stuff like this.........
> 
> http://www.inc.com/chuck-blakeman/d...rement-is-a-bankrupt-industrial-age-idea.html


So, people who were happier and more relaxed lived shorter lives? What's wrong with that? Why have a longer, less happy more stress filled life?


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## Mechanic

I think I like Old Pro's thoughts on this. How much do you really need ? I read a longevity study a while back that also said retiring early leads to longer life. Not that it really matters. I liquidated my business about 3 yrs ago and have had a lot less stress since. I have been self-employed since 1985 and have worked as hard as I could to build our net worth for probably the past 10 years or so, knowing that there would come a point to retire, and` hopefully do it young enough to enjoy less working to exist time. I haven't really planned everything as things keep changing. Sure, I play more golf. I still have other things to do. I have a home that I have done lots of reno work on (all diy) I like to spend time cleaning and taking care of our vehicles and motorhome. We have a dog that we love to take out daily. We always have work around the home. I like to fish occasionally. I like to get away from the constant snow shovelling in the winter in my motorhome. I spend lots of time following/looking at stocks, etc and making a few investments and trades. The stock market always interested me but I didn't know anything and had to start educating myself after "retirement". I also spend time reading and keeping up with everything that's going on around me. I am now 58 (feel a lot younger) and although part of me is always open to starting a new venture, it would have to be a lot less "hands on" as I don't know how I would find enough time. I don't have a pension btw. I may take my CPP at 60, not sure on the wife's.


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## RBull

simplesimon said:


> OldPro, that's sort of the way I'm thinking about it as well. I'm waiting to year's end so as to not take the big pension hit. I suppose that's my way of being responsible to my family.
> 
> I agree that incrementally building a pension through a 2% per year linear process is probably foolhardy if you can afford to go and have your factor for no penalty, but taking a big hit with so little time left is just something I can't stomach
> 
> Having said this, going as soon as I can without the big pension penalty is almost a certainty for me now; sealing that thought process were the great responses to this thread; thanks to everyone.
> 
> So good to hear that most retirees enjoy that phase of their lives!
> 
> Cheers


You're bang on with this approach. Don't think of taking that kind of penalty. However as soon you're penalty free jump at the opportunity. You're in fantastic financial shape to do it. 

Did I say how I enjoy the decision to go at age 55 9 months ago? Big time.


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## OldPro

Just to clarify RBull, I wasn't trying to suggest earlier that Simon not wait till the end of this year. I was referring to people who then keep putting it off for another year and another year and another year. All to gain a couple of percent more pension and then they get near the next 'big jump' which means waiting JUST 2 more years. Next thing they know, they're 65.

My point is that in my opinion the sooner you can pull the plug the better. Yes, you need enough to be happy with your life but waiting till you have even more does not make you more happy. Having a happy wife can make you more happy, catching a record size fish can make you more happy, money can't. Once you have enough, more stops being a 'hapiness factor'.


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## My Own Advisor

After reading the comments here, all I can say is SimpleSimon, RBull and others are in an enviable position - you have pulled the plug or are ready to pull the plug b/c you are FI.

Good on you!


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## RBull

OldPro said:


> Just to clarify RBull, I wasn't trying to suggest earlier that Simon not wait till the end of this year. I was referring to people who then keep putting it off for another year and another year and another year. All to gain a couple of percent more pension and then they get near the next 'big jump' which means waiting JUST 2 more years. Next thing they know, they're 65.
> 
> My point is that in my opinion the sooner you can pull the plug the better. Yes, you need enough to be happy with your life but waiting till you have even more does not make you more happy. Having a happy wife can make you more happy, catching a record size fish can make you more happy, money can't. Once you have enough, more stops being a 'hapiness factor'.


Understood and completely agree.


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## RBull

My Own Advisor said:


> After reading the comments here, all I can say is SimpleSimon, RBull and others are in an enviable position - you have pulled the plug or are ready to pull the plug b/c you are FI.
> 
> Good on you!


Once again thank you. 

Your turn is coming.


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## simplesimon

RBull said:


> Once again thank you.
> 
> Your turn is coming.


My thanks to everyone as well.


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## avrex

OldPro said:


> I retired at age 43, 25 years ago...
> 
> Re waiting for another year to improve a pension etc., that's called, being greedy and not knowing when enough is enough. That resulted in my divorce 3 years after I retired when my wife still couldn't give up work. 'One more year, one more year she kept saying.' I said, 'I'm gone'. When it comes to choosing between more (than enough) money and time, I would advise choosing time every time. Time is the one thing you can't bank.


I'm not trying to bring up any old wounds for @OldPro, but I wonder if this is something that we all need to keep in mind.

Make sure that you and your spouse are in sync about your goals and future plans.


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## OldPro

Yes that's a good point avrex. The funny thing was that my wife was instrumental in my initial decision to go for early retirement. She said to me one day when we were both 35, that she didn't want to 'work forever'. That was when the light bulb went on for me and I decided to go for financial independence. The problem arose along the way to that goal which we both appeared to share.

Some people as I'm sure you know, can just coast along and do very well compared to others who work much harder yet may even achieve less. My wife and I both fell into that category. So when we decided to apply ourselves and put nose to grindstone, we both rose very quickly within our respective companies. I ended up as a National Sales Manager and she became a VP of Finance. Therin 'lies the rub' as the saying goes. (misquote from Hamlet)

Position power is seductive in oh so many ways. Unfortunately, my wife couldn't bring herself to let go of that position power. For most people it is no doubt the 'more money' that keeps them saying, 'one more year'. That's what I was suggesting in my comment you quoted but in fact in my ex-wife's case, that was not the real problem, it was the position power she didn't want to give up.

You know, when you walk into a trendy and expensive restaurant with no reservation and they always manage to find you a table because you are 'somebody'. LOL


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## avrex

thank you for sharing your story.


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## simplesimon

Hi Everyone.

A bit of an update, just asked HR about my pension amounts, and I'm curious about what to do if offered the commuted value of my pension.

It is $1.37M.

If I retire this December at age 57, I'll get un-indexed $72K per year until 65, then $65K per year also un-indexed.

I'm in pretty good health, so I expect to live at least into my mid eighties. My wife is 55, also in good health, and she would get 2/3 rds survivor pension.

I think the pension plan is safe.

I assume if I take the CV, I will lose my health care benefits.

With interest rates low, the CV is probably unusually high?

Any advice on how to calculate which way to go?

I assume income tax is a factor?

By law, can I elect to take the CV?

Thanks in advance.


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## gibor365

> If I retire this December at age 57, I'll get un-indexed $72K per year until 65, then $65K per year also un-indexed.


 Is it DB plan? Strange that you get different amounts before and after 65 .... 
Also I assumed that all DB plans are indexed ...:upset:


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## simplesimon

gibor said:


> Is it DB plan? Strange that you get different amounts before and after 65 ....
> Also I assumed that all DB plans are indexed ...:upset:


DB plan with a bridge benefit until age 65, supposedly to make up for CPP delay, non-indexed. Not government gold plated, but not bad.


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## Charlie

My very quick calc puts that at a 3% to 3.5% annual return for 35 yrs. (so you live to 92). 

Didn't adjust for spousal benefits/estimated at 65K/y or 70K/y so could be off by a half point or so. 

So better than purely safe investments...not great overall. Haven't factored in your med.


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## GreatLaker

I made a detailed response on another thread here, with links to several resources that will help with your analysis.
http://canadianmoneyforum.com/showthread.php/44130-To-Commute-or-not-to-Commute-Help!?p=687362&viewfull=1#post687362

Yes, the CV will be high because interest rates are low. May go even higher because rates dropped in 2014 and again in 2015.

Tax will be a factor. There will be a Maximum Transfer Value that your employer should give you. It is the maximum amount you can transfer to a Locked-In Retirement Account without incurring tax on it. Anything above that value must either be contributed to an RRSP (if you have room) or paid as a lump sum subject to income tax. But it is paying tax now, as opposed to paying it later when you w/d it from a RRSP or RRIF.

Not sure if there is a legal requirement to be able to take the CV instead of pension. If they have quoted the CV value, then you can probably take it.

To me it really comes down to how comfortable you are managing that much money, and the risk of out living your money if you take the CV, vs. how stable the pension is and the risk of leaving money on the table if you die early.

As I said in the thread I linked, It's not a simple decision and you should seek advice from a fee only financial planner or accountant that can do present value calculations on a reasonable set of assumptions. One that will not be biased by a large commission or trailer fee from managing your money.


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## fraser

You may not be able to shelter your entire CV. I was in a similar position. I could only roll over $850K in to a sheltered account. $400K of the CV had to be taken into income over three years. I did a split. Took the DB, but took the $400K out over three years (supplemental pension)

You might want to read Pensionize your Nestegg. Good read with lots of info.


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## simplesimon

Thanks for the responses! I'll definitely look at the reference material listed.

I'm hoping that the pension in general looks better or close to equal to the CV, because I don't really want to be responsible for handling it.

I know that assumptions play a huge factor, I just wanted to explore the lump sum in case it was an obvious winner with a little elbow grease required.


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## fraser

I had not choice on the $400K. My employer changed the supplementary component to a three year payout vs a monthly entitlement. I was ok with that.

I did delay taking my pension for two years after leaving. I wanted to reach a specific age plus service number so that my early penalty would be reduced from 5 percent to three percent of the DB number.

I was leaning heavily towards the pension because of good health, longevitiy in my family, and for a base income level that we could count on. Pensionize your Nestegg really helped me solidify this decision. It is as much about your personality as it is about the numbers/returns themselves. No regrets after 2 plus years. I would make the same decision again.

Plus, my father retired early in 1980. At that time, the average lifes expectancy of a pensioner in his company was just under 70 years of age. He had that pension for 37 years, longer than his service. And then my mother had it for another few years. Your health and longevity is certainly a factor.

Good luck with your decision. It is great to have choices.


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## Woz

There are two main factors: the return and the mortality assumption.

For the return, the commuted value is calculated assuming an interest rate equal to the 7-year bond rate plus 0.90% for the first 10 years and the long term bond rates plus half the difference between the 7-year and long term plus 0.90% for the remainder. Currently that’s 2.23% for the first 10 years and 3.61% after that. If you can get a better return than that then you’re better with the commuted value.

For the mortality assumption, they use a standard mortality table, so if you’re a non-smoker, in good health, and have good genes then you’ll probably do better with the pension. Some pensions are required to use a blended mortality table for men and women which makes the pension more valuable to women than men.


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## Eclectic12

simplesimon said:


> .... I assume if I take the CV, I will lose my health care benefits.


A co-worker is asking the same in for my private DB pension. My gut feel is that as taking the CV is leaving the pension, I'm doubting most companies would want to take on the overheard of such benefits without also paying a pension. 

The various posts identifying what individuals are experiencing has taught me that whenever I am sure no one has it ... someone posts their plan offers it. So I'd recommend asking your plan administrator or benefits people directly.

When I hear from the co-worker, I'll try to remember to post the answer for my plan/company.




simplesimon said:


> ... I'm hoping that the pension in general looks better or close to equal to the CV, because I don't really want to be responsible for handling it.


If it were me ... unless there is concern about the pension funding - I'd go with the pension. I could do a lot with that level of retirement income and will likely be nowhere close with my private pension.

The other question is what experience you have managing investments ... if not a lot, I'd expect the economy of scale as well as spreading the price of any experts the pension is hiring would be more beneficial compared with someone learning on the fly.


For my parents, my dad collected for around fourteen years before he passed on and mom has collected the survivor pension for another ten years. She has mobility and health issues but shows no sign of leaving yet. I doubt they'd have been able to save/management investments to come close to this (maybe she could have, without his interference).

Of course there are a lot of factors beyond the $$$ amount (where does one plan to live, what sort of retirement activities etc.) to make it a YMMV situation so take your time to think it through.




GreatLaker said:


> ... Tax will be a factor.


+1 ...




GreatLaker said:


> simplesimon said:
> 
> 
> 
> ... By law, can I elect to take the CV?
> 
> 
> 
> ... Not sure if there is a legal requirement to be able to take the CV instead of pension. If they have quoted the CV value, then you can probably take it.
Click to expand...

I can say with confidence say that the choice of a CV versus pension is likely not a legal requirement as all of the three DB pensions I have participated in offer a retiring employee the choice of *when* to start the pension - not the choice of a CV. AFAICT, likely the only legal requirement that applies to all DB pensions is when an employee quits as I have always been offered the choice in this situation.

In this respect - DB pensions are a lot like mortgages ... the term sets a few parameters but after that, there is a lot of room for variation where what is in one's plan matters. For example, I know of at least two public pensions which offer the CV versus pension choice. 




GreatLaker said:


> ... To me it really comes down to how comfortable you are managing that much money, and the risk of out living your money if you take the CV, vs. how stable the pension is and the risk of leaving money on the table if you die early.
> 
> As I said in the thread I linked, It's not a simple decision and you should seek advice from a fee only financial planner or accountant that can do present value calculations on a reasonable set of assumptions. One that will not be biased by a large commission or trailer fee from managing your money.


Where there is no concern about the pension viability ... I'm not sure one needs to sweat it too much as having a stable, well paying pension should also set one up to pass on money to one's heirs, while one is alive.

The flip side of the coin is I've seen people think they are far better at investing than what followed when they took control.


I have no idea where the OP is on the spectrum but I am a firm believer that a choice with limited down sides that is beneficial plus allows one to sleep soundly far outweighs sweating the last quarter. 
.... just my 2 cents.


Cheers


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## simplesimon

Just found out it's a moot point, with actual retirement, we can't elect to take the CV.

It's only available if you terminate.

I'm probably being thick here, but if I quit before my early retirement date, which is calculated by an 85 factor, I can get the CV, but not get a pension.

This doesn't make sense to me.


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## gibor365

piano mom said:


> With over $70k in DB pensions between the two of you, are you kidding me? If you can't retire on that, what chance do most of us have?


Ha ha ha  you're very right! With such income I'd be running to HR to submit resignation 

what is it CV?


----------



## My Own Advisor

simplesimon said:


> Hi Everyone.
> 
> A bit of an update, just asked HR about my pension amounts, and I'm curious about what to do if offered the commuted value of my pension.
> 
> It is $1.37M.
> 
> If I retire this December at age 57, I'll get un-indexed $72K per year until 65, then $65K per year also un-indexed.


If you can retire with a pension of $72k per year, for the rest of your life, un-indexed or not - I'd do it now! 
I mean congrats!!


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## Eclectic12

simplesimon said:


> ... I'm probably being thick here, but if I quit before my early retirement date, which is calculated by an 85 factor, I can get the CV, but not get a pension.


 ... maybe I'm splitting hairs here but for someone who is taking the extreme position of preferring the CV (plus any taxable income it generates), I'm not sure the early retirement date matters, unless one retires. When one quits, the employer had no idea whether one is retiring or going to another job so I'd expect the usual choice of keeping the pension or taking the CV would kick in.

I want the pension so I've never asked the question or confirmed any requirements.




simplesimon said:


> ... This doesn't make sense to me.


Do you mean you prefer the pension - therefore quitting to get the CV makes no sense? 
Or is there something else you are wondering about?


Cheers


*PS*

The times I can recall my private DB pension providing a CV was when I quit. So I am a little surprised they'd tell you the CV when it's not an option when retiring. Or maybe HR thought you were considering whether to stick around until early retirement or move to anther job?


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## RBull

I have the same thoughts and questions that eclectic12 has after reading your post. 

If I understand correctly-

You have a wife wanting to work for another 4 years and making a good base of income, who will have an indexed pension at retirement. You have an exceptionally good pension or large CV. (Take the pension if you can, for safety and peace of mind and also enjoy health care benefits) You also have significant savings. You will be eligible for other government pension benefits. 

By most anyone's standards what you have buys a large and safe retirement. And your wife wants to keep working for years. If I was in your situation and your age, especially given the stress of your work, I wouldn't be walking or running to retirement. I would be sprinting. 

Good luck.


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## 0xCC

gibor said:


> Ha ha ha  you're very right! With such income I'd be running to HR to submit resignation
> 
> what is it CV?


CV = Commuted Value - the amount the pension is worth today in absolute dollars basically based on the present value of the monthly/yearly pension payments. The calculation is more complicated than a present value calculation but that is the basic idea.


----------



## sags

GM recently received government approval to offer retirees a choice of commuted values or monthly benefits, so it can be done but requires approval from the regulators.

I also recently learned that commuted values are paid out at 100%, regardless of funding shortfalls in the plan, unless the plan funding has changed since their last audit.

It seems to me a disincentive for companies to offer commuted values at 100% and increase the deficit they have may have to make up later.

A $72,000 a year pension is way above an average pension. I know a long time teacher and she gets about $50,000 a year and no other benefits.

An auto worker for the Big Three gets about $24000 a year at age 65..............so $72,000 a year is the "gold plated" pension.


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## simplesimon

I agree that I shouldn't complain or worry.

My only confusion about the commuted value, which I just discovered can't be choosen anyway as a pension alternative, is that it is supposedly of comparable value to the actual pension cashflow, and would be available to me immediately if I quit, but on the other hand, I can't get my pension without a severe penalty until I reach my 85 factor in December of this year.

Again, no complaints here, just kinda curious and confused about why there would even be a CV option if I quit.


----------



## Eclectic12

sags said:


> GM recently received government approval to offer retirees a choice of commuted values or monthly benefits, so it can be done but requires approval from the regulators.


Is this for the US or Canada or both? 

It would seem it would also depend on one's definition of "recent" as the St. Catharines UNIFOR199 pension rep's web site has a letter saying the CV option became available Dec 31st, 2012 as part of the fall 2012 negotiations. The letter also talks along the lines that the union does not like the CV option but did not see it as worth labour unrest as it is at the employee's choice.




sags said:


> It seems to me a disincentive for companies to offer commuted values at 100% and increase the deficit they have may have to make up later.


True ... though where management thinking is accepted - what makes sense might not be what is done. 

Some companies that capped the DB pension, switching new employees to a DC one have been surprised that cost savings can be decades down the road. Common sense should have identified that running two plans is more expensive than running one.


Cheers


*PS*

As usual ... it's complicated.

According to this link, a drop of 10% in the transfer ratio (i.e. the ratio of assets to liabilities, assuming the plan is terminated as of the day of calculation) and is below 0.9, then that means an Ontario plan sponser must get approval from the superintendent before allowing terminating members to transfer their commuted value or buy an annuity. 

http://www.benefitscanada.com/pensions/db/new-limits-on-ontario-commuted-value-transfers-10079

The link is from 2009 so I'm not sure if there have been updates since.


----------



## gibor365

0xCC said:


> CV = Commuted Value - the amount the pension is worth today in absolute dollars basically based on the present value of the monthly/yearly pension payments. The calculation is more complicated than a present value calculation but that is the basic idea.


So , if I understand correctly, it's one time amount you can get when you have DB and leaving the company?


----------



## gibor365

simplesimon said:


> DB plan with a bridge benefit until age 65, supposedly to make up for CPP delay, non-indexed. Not government gold plated, but not bad.


Interesting ... is government workers have the best DB pension? How good is considered DB of our "big banks"?



> Just to clarify RBull, I wasn't trying to suggest earlier that Simon not wait till the end of this year. I was referring to people who then keep putting it off for another year and another year and another year. All to gain a couple of percent more pension and then they get near the next 'big jump' which means waiting JUST 2 more years. Next thing they know, they're 65.


 Good point! When time comes my wife gonna have same problems  Not only every year she working , she will get larger pension, but also every year she gets bunch of vested RSU, big bonus etc... So, its important to establish "the point of no return"


----------



## Eclectic12

simplesimon said:


> ... My only confusion about the commuted value, which I just discovered can't be choosen anyway as a pension alternative, is that it is supposedly of comparable value to the actual pension cashflow ...


The pension is guaranteeing based a formula plus usually a set period.

The CV is intended to provide a lump sum that in theory, one could invest to end up in the same situation. Of course, it's always a crap shoot as bad investing or market performance, among other things - could mean the CV paid is more than need, just right or not enough. 


and would be available to me immediately if I quit, but on the other hand, I can't get my pension without a severe penalty until I reach my 85 factor in December of this year.




simplesimon said:


> ... Again, no complaints here, just kinda curious and confused about why there would even be a CV option if I quit.


Really?

One situation where one would want the CV is where one is joining a company with a comparable DB pension that will accept the CV on a similar basis. Otherwise, one would have a capped Db pension being paid by company A and then a second DB pension being paid by company B.

Or another scenario would be if one quit a company with a crappy pension to get a gold plated pension. If the gold plated one is sufficient, one likely would want to take the CV and put it into a TFSA.

Or the super investor might be able to take the CV cash, make risky investments that the pension is now allowed to make and end up with far more money than the formula will pay out.


Bottom line is where one has quit ... leaving a small pension with the old company may not make sense hence the choice of pension or CV is provided.


Cheers


----------



## Eclectic12

gibor said:


> So , if I understand correctly, it's one time amount you can get when you have DB and leaving the company?


Correct ... though as I say, there are a few pensions that also provide the choice at retirement or with some lobbying, companies like GM have had this added to the pension where in years gone by, it was not a retirement choice.


Cheers


----------



## Eclectic12

gibor said:


> Interesting ... is government workers have the best DB pension?


Unquestionably ... some gov't pensions have had a payout as high as 70% of income, include a bridge benefit in the employer/employee contributions.

My private DB pensions on the other hand, at best pay 60%. Two of the three only had bridge benefits for executives (or so I assume). The third has optional bridge benefits but I have to pay for it on my own.


At the same time ... back in the day when I was paying about 4.5% into my pension, my friend was paying 9.5% so some of the bigger benefits are also because of bigger employer/employee contributions.




gibor said:


> How good is considered DB of our "big banks"?


I heard they are reasonable but had been capped years ago so that new employees have a DC pension instead. I haven't investigated though.


Plus I would suspect the executive DB pensions as well as executive supplemental pensions are running along just fine ... :biggrin:



Cheers


----------



## gibor365

> I heard they are reasonable but had been capped years ago so that new employees have a DC pension instead. I haven't investigated though.


 My wife is working there for 5 years and she has DB.
She doesn't contribute anything, all $ from employer.
It's: 0.8% of salary up to YMPE x credited service + 1.5% above YMPE x credited service.
Cannot find out if it's indexed or not....

I don't have any DB, it's just group RRSP, I contribute 6% and employer 9%


----------



## Eclectic12

gibor said:


> My wife is working there for 5 years and she has DB.
> She doesn't contribute anything, all $ from employer.
> It's: 0.8% of salary up to YMPE x credited service + 1.5% above YMPE x credited service.
> Cannot find out if it's indexed or not....


It would appear that DB pensions are not as dead as advertised ... (at least as far as banks go :biggrin: ).
I'd have to check the full details but with $0 contributions from the employee - this is sounding like it might work out *better* than the public pension.

TD bank's web site says:


> Employees who have a salary below the C/QPP maximum and participate in the fully bank-paid pension only will enjoy *a total pension (when combined with C/QPP) of 80% to 94% of their final average salary if they work at TD for 35 years.*


This sounds better than the 70% that I've read in public sector pensions. Interestingly, it was launched in 2009.
http://www.td.com/corporate-responsibility/crr-2009/case-studies/new-defined-pension-plan/index.jsp


RBC's pension update talks about both so they might have switched to DC.

BNS talks about a large DB one.





gibor said:


> ... I don't have any DB, it's just group RRSP, I contribute 6% and employer 9%


Interesting ... usually for Group RRSP it's been $ for $ (never had the choice as my employers thought contributing to the DB pension was enough).


Cheers


----------



## gibor365

> It would appear that DB pensions are not as dead as advertised ... (at least as far as banks go ).
> I'd have to check the full details but with $0 contributions from the employee - this is sounding like it might work out *better* than the public pension





> Employees who have a salary below the C/QPP maximum and participate ....


 Not many have salary in banking industry below C/QPP maximum 

In my wife case, the employer every year send statement... where they publish estimates....
For example if my wife retires at 55, her DB will be 16% of current pensionable salary, at 60 -> 26%, at 65% -> 37% (they recently increased penalties for early retirement). If she retires before 55, she can get lump sum (have no idea how it's calculated) or wait until at least 55 and start getting pension.

It also written that "The estimates below assume no inflation), so I'd speculate that DB is indexed 
They don't have RRSP, but allow up to certain % of salary to buy company stocks and employeer matching... 



> Interesting ... usually for Group RRSP it's been $ for $ (never had the choice as my employers thought contributing to the DB pension was enough).


 Employer pays 3% , and if can pay my 6% , employer matching 6% -> so in total I pay 6%, employer 9%....
The problem that I'm forced to invest in GWL offerend mutual funds that have high MER and just sux


----------



## GreatLaker

> TD bank's web site says: Employees who have a salary below the C/QPP maximum and participate in the fully bank-paid pension only will enjoy a total pension (when combined with C/QPP) of 80% to 94% of their final average salary if they work at TD for 35 years.





> This sounds better than the 70% that I've read in public sector pensions.


Doesn't CPP pay a max of 25% of YMPE if taken at 65? So 80% to 94% with CPP would be 55% to 69% before CPP. Average to generous.

My non-contributory non-indexed DB pension pays 55% of final 5 years average earnings after 35 years, less CPP (i.e. pension and CPP add up to 55% of final average salary.

Remember most public sector employees must contribute to their pension.

On the other hand it is really hard to beat an indexed pension. Even with 3% inflation, the purchasing power of a non-indexed pension is reduced more than 50% after 25 years. Indexed pensioners have it made in the shade, while non-indexed pensioners must sweat over inflation.


----------



## sags

Eclectic12 said:


> Is this for the US or Canada or both?
> 
> It would seem it would also depend on one's definition of "recent" as the St. Catharines UNIFOR199 pension rep's web site has a letter saying the CV option became available Dec 31st, 2012 as part of the fall 2012 negotiations. The letter also talks along the lines that the union does not like the CV option but did not see it as worth labour unrest as it is at the employee's choice.
> 
> *PS*
> 
> As usual ... it's complicated.
> 
> According to this link, a drop of 10% in the transfer ratio (i.e. the ratio of assets to liabilities, assuming the plan is terminated as of the day of calculation) and is below 0.9, then that means an Ontario plan sponser must get approval from the superintendent before allowing terminating members to transfer their commuted value or buy an annuity.
> 
> http://www.benefitscanada.com/pensions/db/new-limits-on-ontario-commuted-value-transfers-10079
> 
> The link is from 2009 so I'm not sure if there have been updates since.


Complicated is right. The GM/UAW pension agreement is 175 pages of legalese.

From what I understand the commuted value option was negotiated in 2012, but wasn't implemented until much later following regulatory approval.

Maybe St. Catherines had an earlier date.....it's possible. The pension agreement is full of different circumstances involving individual plants.

The plan is only funded at 67% in a full windup.........and the union doesn't see a problem with paying out 100% of the commuted value ?

I hope they are right.


----------



## fraser

As I recall, several provincial pension regulators have a rule in place that does prohibits full CV payout if the pension plan is underfunded by a certain amount. In those instances the firm is only allowed to pay out a percentage of the full CV.


----------



## Eclectic12

gibor said:


> Not many have salary in banking industry below C/QPP maximum


Agreed ... it was what seemed like an easy way to get an overview comparison. 
The trouble with the percentages is that the TD link is adding in C/QPP to end up with a pension + C/QPP percentage. 

Stripping it out, I end up with the TD bank employee in this particular plan who has contributed $0 into the pension over thirty five years appears to end up with 49% of salary prior to CPP integration at age 65.

The public pension I'm comparing with, has the employee contributing $131,600 over the thirty five years (at today's rates) to end up with what looks like 70% of salary prior to CPP integration at age 65.


I'm not sure how to estimate C/QPP for under YMPE to check TD's statement of " 80% to 94% of their final average salary" or what sort of retirement income to assign to the $131K the bank employee is not contributing that could be going into a TFSA or RRSP to top up their retirement income.





gibor said:


> In my wife case, the employer every year send statement... where they publish estimates....


 ... which likely will be tied to her years of service, influencing the numbers. That's why for most comparisons, there will be a set of assumptions to make the numbers comparable (ex. 35 years of service, $40K income that stays flat, employee contribution rates stay flat).

Once it gets down to the individual ... it can vary dramatically. For example, I've changed jobs several times for the max pension at age 65 is going to reduced compared to my co-worker who started at age 22.




gibor said:


> If she retires before 55, she can get lump sum (have no idea how it's calculated) or wait until at least 55 and start getting pension.


If she takes the lump sum (usually called commuted value or CV) ... will she be losing any retiree health care programs?

I've heard of the choice of a CV without quitting from a public pension but not so far in a private one. However, I'm also aware that unlike all the private DB pensions I've been in or offered - zero employee contribution DB pensions exist so YMMV.




gibor said:


> Employer pays 3% , and if can pay my 6% , employer matching 6% -> so in total I pay 6%, employer 9%....
> The problem that I'm forced to invest in GWL offerend mutual funds that have high MER and just sux


True ... though it likely beats the one I was mistakenly offered. Four funds in total (MM, Bond, US equity, Canadian equity). I seem to recall the MER being about 1.6%.

Trouble was the DB pension I was grandfathered into had employer + employee contributions of something like 6% where the DC plan has employer = employee contributions for a total of 2%. Switching didn't seem like a deal to me!


Cheers


----------



## Eclectic12

GreatLaker said:


> Doesn't CPP pay a max of 25% of YMPE if taken at 65?


As I understand it, where one has contributed to CPP for 39 years + is at YMPE for 39 years, one would be paid 24% of the 2015 YMPE. I'm not sure how many will hit this though.




GreatLaker said:


> So 80% to 94% with CPP would be 55% to 69% before CPP. Average to generous.
> 
> My non-contributory non-indexed DB pension pays 55% of final 5 years average earnings after 35 years, less CPP (i.e. pension and CPP add up to 55% of final average salary.
> 
> Remember most public sector employees must contribute to their pension.


It does require further analysis ... though for what seems to be a lower end scale of public pension contributions, it costs the member $113K+ to end up with a pension payment of 70% of salary instead of the bank employee's $0 pension payment for 49% of salary.

I notice you are comparing to your employer contribution only DB pension ... something I've never been offered (nor to my knowledge anyone in my industry). If I run the same parameters (ex. $40K salary, thirty five years, today's contribution rates) through my DB pension, where the employee contributions are rising. It costs around $72,800 to be paid 52% of salary. 

Whether it's generous or not may depend a lot on what one is used to ... 

With one in five in the private sector having access to *any* pension (never mind DB, never mind employer only contribution DB) ... this TD DB pension bucks the trend.


Note that to keep the comparisons simple, I've build in assumptions that might not be realistic such as no salary or employee contribution rate increases.


Cheers


----------



## gibor365

> If she takes the lump sum (usually called commuted value or CV) ... will she be losing any retiree health care programs?


 I doubt she has such program at all 



> Stripping it out, I end up with the TD bank employee in this particular plan who has contributed $0 into the pension over thirty five years appears to end up with 49% of salary prior to CPP integration at age 65.


 So it's pretty similar what my wife has... Every year of service adding about 2%, if she works until 65 (and I hope very much she won't  ),she gonna have 30year of service and her estimate is 37%


----------



## cannew

simplesimon said:


> I’ve noticed that people on this forum provide amazing, well thought out feedback to inquiries here, so I figured I would ask for some advice.
> 
> I’m 56, my wife is 55, and I wish to retire by the end of this year. My wife wants to retire when she is 59. Let’s just say that her job is more fulfilling than mine.
> 
> I make about $120,000 per year, she makes $40,000.
> 
> We live in a fairly big house, and have no debts.
> 
> I get cold feet thinking about leaving a six figure income job, but I don’t want to fall into the trap/huge mistake of making the accumulation of money a goal in and of itself.
> 
> Some of our adult children remain semi dependent on us, and of course you never know what can happen as far as them needing more support.
> 
> Some statistics;
> 
> If we retire when planned;
> My defined benefit pension, $72,000/yr, *not* indexed, reducing to $65,000/yr at age 65. Leaving some money on the table because I'm short of 35 years time served.
> 
> Her defined benefit pension, $11,000/yr, indexed, reducing to $6,000/yr at age 65.
> 
> Both eligible for Canada Pension and OAS.
> 
> Non Registered investments, US$130,000 equity ETF’s, CAN$50,000 MAW105
> 
> My RRSP, $114,000, mostly balanced mutual funds, a lot of MAW104
> 
> Her RRSP, $247,000, mostly balanced mutual funds, a lot of MAW104
> 
> My TFSA, $47,000, mostly balanced mutual funds
> 
> Her TFSA, $49,000, mostly balanced mutual funds
> 
> I’ve run scenarios on RRIFmetic, as well as other retirement calculators, and they all seem to indicate that we are going to be ok, using 3% inflation and 4% rate of return on investments, die broke at 95.
> 
> The beer and grocery money available from the calculations is a good match for our current expenditures.
> 
> I didn’t factor home equity into any of the calculations.
> 
> I’ve done a lot of reading on this and other forums, and these numbers look pretty good.
> 
> Taking the retirement plunge is a big deal, not to mention a one way ticket out of a good paying job, so I’m looking for some seat of the pants feedback on whether or not early retirement looks like a reasonable decision, particularly based on the fact that we only live once, and we are still healthy.
> 
> Much thanks in advance.


The mutuals charge at least 1% fees, you probably get hit with capital gains and the distribution yield is only 1.06%. Not that you are worried because of your pensions. Sure the fund has grown but it's not an income generation. To get income you must sell your capital.


----------



## gibor365

> I seem to recall the MER being about 1.6%.


Something like this.... it's not easy to find underlying fund as GWL has their own custom tickers and names.... but I was able to find 3 underying MF and found out that GWL doubles MER comparing to MER of underlying company....


----------



## Eclectic12

For the CV, I forgot to add that it's calculation is complicated as it tries to boil down a formula to a lump sum. Then too, when interest rates are low, the lump sum needs to be larger as the growth will be smaller at that rate.

Here is a link that talks about some of the factors that come into play.
http://www.cia-ica.ca/about-us/actuaries/ask-an-actuary/faq---pensions


Cheers


----------



## gibor365

> For the CV, I forgot to add that it's calculation is complicated as it tries to boil down a formula


 I just don't understand why employers don't have CV/pension calculator on secure website ? They have all data of employee.... jsut enter age you want to retire and get the numbers


----------



## fraser

It is impossible to provide a CV for a future date. CV's are based on current interest rates and projected rates over the next few years. They change every time the interest rate changes. They are the opposite of an annuity.


----------



## Beaver101

gibor said:


> I just don't understand why *employers don't have CV/pension calculator on secure website *? They have all data of employee.... *jsut enter age you want to retire and get the numbers *


 ... haaa haaa ...for a starter, employers do not determine cvs. Guess you haven't been following earlier Retirement threads.


----------



## gibor365

Beaver101 said:


> ... haaa haaa ...for a starter, employers do not determine cvs. Guess you haven't been following earlier Retirement threads.


Than tell me, if you want to know what will be your CV if you retire in December 2015, you cannot do it? Than how can you plan your retirement....?!
Just don't understand why everything is so complicated here :stupid: When I had government DB in Israel, I knew excatly how much will be my CV if I quit, if was enough to know my years of service and gross income... + unused vacations and sick days.

And I knew that after I have 25 years of service , I'd get pension = 70% of my gross salary...
btw, if i wouldn't come to Canada, I'd get this 25 years next year :upset:


----------



## Beaver101

gibor said:


> Than tell me, if you want to know what will be your CV if *you retire in December 2015, you cannot do it*?


 ... yes you can if you quit ...that's what Eclectric12 has been emphasizing all long.



> Than how can you plan your retirement....?!


 ... maybe you should ask: does your employer care about "your retirement"? 



> Just don't understand why everything is so complicated here :stupid: When I had government DB in Israel, I knew excatly how much will be my CV if I quit, if was enough to know my years of service and gross income... + unused vacations and sick days.


 ... can't say anything about retirement/social security programs in Israel but this is Canada and we have a complicated government so we produce complicated people. :biggrin: 

Think all the jobs' loss from government to private companies (including banks btw) if everything was determined to be so easy ... press of a button on the website .... poof your cv at your fingertip, monsieur.


----------



## sags

Commuted values defeat the purpose of DB pension plans, so it isn't surprising it isn't supported by unions and plan administrators.

Spreading out longevity risk, low management fees and providing a stable income is the reason DB pension plans exist.

Distributing large amounts of capital from the fund, changes the concept.

I also note that some posters differentiate between pensions where the employee contributes or not.

One way or the other all employees contribute. Their contributions are taken off their salary before wages or after wages.........makes little difference.

Employers consider the whole cost....... CPP, healthcare benefits, vacation time, wages, workers compensation, unemployment..........and pensions are all part of the package.

I have been in contract negotiations and the company knows what every benefit costs them................down to the penny.

If asked for a benefit of one free pair of safety shoes a year.............the company responds by saying it will cost 10 cents an hour out of the wage package.


----------



## GreatLaker

gibor said:


> Than tell me, if you want to know what will be your CV if you retire in December 2015, you cannot do it? Than how can you plan your retirement....?!


CV is based on providing a lump sum that is equivalent to the current value of all future pension payments, for the expected life span. If interest rates shoot up between now and Dec 2015, the lump sum needed to be equivalent will be less. Hence they cannot tell you now what the CV will be in 6 months, or any time in the future. 

And really how can we plan for retirement at all, not knowing how long we will live, what inflation will be, what investment returns and interest rates will be, what health care will cost... a whole mess of variable for which we can only make educated guesses. Which is why threads like this go on for 11 pages.


----------



## gibor365

> Hence they cannot tell you now what the CV will be in 6 months, or any time in the future.


 and I'm not sure that if you ask today, you get answer today (as they need to do a lot of calculations)  . Can they tell you at least what will be value in 1 months, or 1 week?!


----------



## Beaver101

gibor said:


> and I'm not sure that if you ask today, you get answer today (as *they need to do a lot of calculations*)


 ... how do you know it's "alot of calculations"? Or are you basing this on what you're being told?

Surely if the theory of relativity can be summed up in one equation, a man-made/determined cv can't? Besides, it's based on a bunch of assumptions, or estimates.


----------



## Eclectic12

gibor said:


> I just don't understand why employers don't have CV/pension calculator on secure website ?
> They have all data of employee.... just enter age you want to retire and get the numbers


As I understand it, the calculations have to be setup/approved by an actuary ... then there's the variable factors such as interest rates etc. 
Then if the employee has a long time frame before retirement ... all the variables may have changed so much that the numbers are useless.

An analogy I've used in the past is what's the point of getting a cost estimate to replace one's roof when one plans on replacing it fifteen years from now?




gibor said:


> Than tell me, if you want to know what will be your CV if you retire in December 2015, you cannot do it?
> Than how can you plan your retirement....?! Just don't understand why everything is so complicated here ...


Perhaps the complication is that there is an assumption that all DB pension members have the choice of taking a CV?

AFACIT ... the very few DB pensions which allow the retiring member to choose between:
a) decline the pension and take the CV $$$
or
b) take the pension and decline the CV
provide the CV at the time the member notifies them they are thinking about retiring.


For DB pensions such as mine (which I believe are the bulk of the DB pensions out there) - the *only* way to take a CV and decline the pension is to quit. For a pension such as this, there is additional costs and next to no value for the bulk of the plan members to know their CV that they *might* make use of or might not. 

Add to that - most struggle with understanding the basic features of a DB pension so that I suspect providing the CV would at best, be ignored and at worst cause confusion.






gibor said:


> When I had government DB in Israel, I knew exactly how much will be my CV if I quit, if was enough to know my years of service and gross income... + unused vacations and sick days.


Most private companies and public sector are getting rid of any form of unused vacation/sick day banking or payouts.

As of the gov't DB in Israel providing the CV ... unless the variables all stay constant - I'm not sure what it's worth for someone six years in to know that should they quit, they can choose to get a lump sum payment of $10K. But maybe the system is different there.




gibor said:


> And I knew that after I have 25 years of service , I'd get pension = 70% of my gross salary...


I'm not sure where the confusion lies for the DB pensions here. All the booklets I've read have this sort of "ideal situation" type setup to indicate what the maximum will be, with a disclaimer that one's years of service/salary increases will affect how close to the maximum one is able to attain.

The booklet also provides the formula (usually a factor for up to C/Q PP YMPE and a second for above C/Q PP YMPE) to end up with exactly what the pension that has to date been earned.


For my DB pension, if one does not want to do the manual process of
[(average 3 years YMPE) x 1.5%] + [(average 3 years above YMPE) x 2.0% ] multiplied by years of service to a cap

then the company also provides a pension calculator where one can plug in numbers to apply this formula based on one's estimates.




Beaver101 said:


> ... yes you can if you quit ...that's what Eclectric12 has been emphasizing all long.


Well what I'm trying to underline is that in terms of choosing a CV instead of a pension, there are two camps here. 

The ones whose DB pension allows for two situations for an employee to choose CV ... when one quits or when one retires. These types seem to be few in number. As others have posted ... getting a CV sounds relatively easy in this case.

The others only allow the employee to choose the CV *if they quit*, which means any other benefits granted to retirees such as health care are likely also lost.


A company going bankrupt or closing a DB pension can force an employee to take a CV but no matter how one slices it, a CV means no pension and possibly a larger than normal income generating larger than normal income tax.


Cheers


----------



## sags

Are you looking for something like this Gibor ?

https://hoopp.com/Learning-Resources/Pension-Calculators/

The HOOPP website provides a lot of information to it's retirees. They have calculators, full disclosure on investments, funding levels, annual statements, projections..........etc.

They are also "fully funded"..........overfunded actually, and recently voted to increase cost of living raises from 75% of the CPI to 100% of the CPI.

They even paid "retroactive" CPI increases back several years in a one time benefit cheque to current retirees or survivors.

The reason the fund is well managed and transparent............maybe because their pension board also has employees and retirees sitting on it ?

If HOOPP can provide all this information, the other pension plans could too. 

They just don't want to.


----------



## Eclectic12

gibor said:


> and I'm not sure that if you ask today, you get answer today (as they need to do a lot of calculations)  . Can they tell you at least what will be value in 1 months, or 1 week?!


When I've quit ... it's been about four weeks to get the letter outlining that should I choose to take the CV, $XXX can be rolled into a LIRA, $YYY can be rolled into my RRSP and $ZZZ can be contributed to my RRSP or taken as taxable income.

Having worked with HR departments for other IT areas, I'm pretty confident that the calculations were coming back in two weeks max.

As for how long the calculations hold true for ... one would have to review the various factors ... for example, except for possibly a drop in the rate, I'm not thinking interest rates are changing anytime soon.




Beaver101 said:


> ... how do you know it's "alot of calculations"? Or are you basing this on what you're being told?


It seems pretty obvious does it not? 

Or are you thinking that a 35 year old female who plans on taking retirement at age 65 and is likely to live until 95 needs the same lump sum $$$ as the 55 year old male who plans on retirement at age 68 and is likely to live until 75? 

I am making these different situations comparable by assuming they both have earned the same pension credits and have the same salary.


Cheers


----------



## fraser

I certainly do not believe that offering a choice between taking a CV or a pension entitlement defeats the pension plan in any way. Financially they are both approximately the same. The retiree gets the same benefit on that day no matter what he/she chooses. Choice is good. The only difference is the method of payment.

There is a HUGE benefit for some retirees to take a CV. Those that have health issues which indicate a shortened lifespan may be far better off financially-as will their spouses depending on the plan. Those same employees with no spouses but who wish to leave some of their earned benefits to children or others will be able to do so.


----------



## sags

The calculations actually change every day, as the commuted value decreases with age.

But as my post above..........some pensions manage to provide estimates that are close enough to provide context to someone considering the commuted value option.

The calculations won't be exact until the day the person actually quits, and the final calculation and payment will follow after they quit.

Unfortunately, there have been occasions when the "actual" didn't match the "estimates" and people need to be prepared to accept that could happen.

It could be the commuted value was higher or lower than estimated, but it shouldn't be a significant amount of difference.

Just a commuted value fact of life.


----------



## gibor365

> Are you looking for something like this Gibor ?


 yeap, something like this....



> As of the gov't DB in Israel providing the CV ... unless the variables all stay constant - I'm not sure what it's worth for someone six years in to know that should they quit, they can choose to get a lump sum payment of $10K. But maybe the system is different there.


 When I quit , i knew how much I get , as I mentioned, I just needed to know my last salary and years of service .... doesn't matter what will be inflation, as salary was adjusted to inflation ... also I could've estimate what will be raise every year as it depends on seniority, even more or less I knew when I gonna get next rank and accordingly additional salary increase... I didn't get other choice except getting CV, as I didn't work enough years (if even I could've just defer pension, I wouldn't do it).



> The others only allow the employee to choose the CV *if they quit*,


 also if they fired 
btw, in case if company fires employee for misconduct..... he still shoud get full CV, right?

If my wife will be working there until 55 she doesn't have CV option.
If before 55, she has 2 options: a. receive lump sum, b. leave accrued pension in the Plan and start receiving pension 55 or later...


----------



## gibor365

> It could be the commuted value was higher or lower than estimated, but it shouldn't be a significant amount of difference.


 That what I mean!



> There is a HUGE benefit for some retirees to take a CV.


 also , imho, it pension is non-indexed, it make a sense to take CV, especially if you defer it for several years (I mean retire earlier than 55)


----------



## Beaver101

Eclectic12 said:


> It seems *pretty obvious *does it not?


 ... no, from a link you have provided previously from the CIA-ICA.ca website,

Lump sum present value of pension = [pension amount] x [present value (PV) factor]

Where the complication or complicated calculations come in are what assumptions are used in determining the PV factor? 




> Or are you thinking that a 35 year old female who plans on taking retirement at age 65 and is likely to live until 95 *needs the same lump sum $$$ as *the 55 year old male who plans on retirement at age 68 and is likely to live until 75?
> 
> I am making these different situations comparable by assuming they both have earned the same pension credits and have the same salary.


 ... no, that's not what I'm thinking nor saying nor can you make these situations comparable given the mortality basis is inherently different between males and females. However, this is not to say a composite mortality assumption can't or won't be used to simplify the calculation of a cv with the above simple formula. Of course, realistically everyone's salary and pension credits are different but if the data is there, how complicated does the calculation has to be made or we're led to believe?

Of course, this is barring whatever legislation of the day/month is.


----------



## gibor365

> For my DB pension, if one does not want to do the manual process of
> [(average 3 years YMPE) x 1.5%] + [(average 3 years above YMPE) x 2.0% ] multiplied by years of service to a cap


 it's much better than my wife's.... do you contribute by yourself?


----------



## Eclectic12

gibor said:


> ... When I quit , i knew how much I get , as I mentioned, I just needed to know my last salary and years of service .... doesn't matter what will be inflation, as salary was adjusted to inflation ...


I thought you were asking for an ad-hoc, when one feels like it CV where the payout might be triggered say fifteen years later.

When I quit, I did not need to know anything about last salary/years of service. I was given a letter saying I had x number of days to choose between the following options.

Option 1 ... keep the pension.

Option 2 ... ditch the pension and take the CV of $$$. Where option 2 was taken, there may be a series of sub-choices.


In a situation where one has quit, there is only a limited time frame to make the decision so the variable aren't likely to affect much.





gibor said:


> ... also I could've estimate what will be raise every year as it depends on seniority, even more or less I knew when I gonna get next rank and accordingly additional salary increase...


If you've quit .... future salary increase are irrelevant as one has stopped earning pension credits by quitting.

Where one is in a pension that allows a choice at retirement of pension or CV and there is significant time between now and the projected date, then the other factors will come into play.




gibor said:


> ... I didn't get other choice except getting CV, as I didn't work enough years (if even I could've just defer pension, I wouldn't do it).


AFAICT ... the time when one would get a CV when one did not choose it is bankrupcy of the company (ex. Nortel) or where the company chooses to windup the DB pension. 





gibor said:


> ... also if they fired
> btw, in case if company fires employee for misconduct..... he still should get full CV, right?


Yes ... and I believe yes ... unless maybe the firing was for embezzling from the pension fund ...




gibor said:


> ... If my wife will be working there until 55 she doesn't have CV option.
> If before 55, she has 2 options: a. receive lump sum, b. leave accrued pension in the Plan and start receiving pension 55 or later...


If the details are available on publicly I'd be interested in reading them.

The public plans I've read off the choice of CV or pension to at least 65. I'd have to re-read that part of the plan as I seem to recall that where one chose to work to age 70 and then notified HR one planed to retire ... one would be given the CV choice at age 70.

My plan on the other hand, offers no CV choice *at all*. So if I work to age 68 and want the CV, I have to quit. As I say, I expect I'd lose too many benefits to make such a choice viable.


Sags has also pointed out that GM & the union have negotiated that in 2012 and onwards, GM retirees who used to be similar to my pension (i.e. quitting the job = CV offer) are now offered "pension or CV" when they apply for retirement benefits. This is at a special arrangement with the gov't.


Cheers


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## Eclectic12

Beaver101 said:


> Eclectic12 said:
> 
> 
> 
> It seems pretty obvious does it not?
> 
> 
> 
> ... no, from a link you have provided previously from the CIA-ICA.ca website,
> 
> Lump sum present value of pension = [pension amount] x [present value (PV) factor]
> 
> Where the complication or complicated calculations come in are what assumptions are used in determining the PV factor?
Click to expand...

From the link provided:


> [PV factor] is determined using actuarial software that takes into account the following:
> 
> • Ages of those involved at the calculation date
> • Genders of those involved
> • Assumed commencement date of the pension
> • Reduction factor, if applicable, for the pension starting before the earliest date when it can start to be paid without any reduction for early retirement
> • Form of payment (i.e., takes into account any guarantees and whether the pension continues in some form to someone else (typically a spouse) on the death of the pensioner)
> • Consideration for any automatic increases to the pension after it has started to account for increases in inflation
> • Interest rates and mortality rates in accordance with actuarial practice
> • Pension legislation at the time of the calculation.
> 
> The lump sum present value is usually determined assuming the pension commences at the date when it would have the highest value



... which leads into the example provided ...



Beaver101 said:


> [35 yr old Female needs same lump sum as 50 yr old male] ... no, that's not what I'm thinking nor saying nor can you make these situations comparable given the mortality basis is inherently different between males and females.


 ... and that's one factor in why it's complicated. 

The benefit formula makes no distinction between male/female or how long there is for investments to grow ... only salary & years of credit and likely a guaranteed minimum (ex. for my DB plan it's ten years). 

Despite one former employee being far younger than the other ... the CV calculated is supposed to provide a sufficient lump sum that they don't lose out on the benefit already earned, despite leaving the pension. 





Beaver101 said:


> ... Of course, realistically everyone's salary and pension credits are different but if the data is there, how complicated does the calculation has to be made or we're led to believe?


In the real world ... the pension credits are likely different but as I was trying to illustrate the challenge being faced ... I explicitly defined that:


> ... both have earned the same pension credits and have the same salary.


So what's your proposed simplification that will take into account that the 35 year old likely has thirty years for the CV to grow where the 50 year old has fifteen years?

They have earned the same credits on the same salary so the CV by definition is to provide enough to be in the same situation at age 65 (ignoring all the other factors for the moment).




Beaver101 said:


> Of course, this is barring whatever legislation of the day/month is.


Changes to the legislation may or may not affect the CV calculation but I don't think it is needed to illustrate why this is not a simple calculation.


Cheers


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## Eclectic12

gibor said:


> it's much better than my wife's.... do you contribute by yourself?


From post # 85, you said your wife's DB pension is employer contribution only so it becomes more complicated to compare.

Two years ago, below YMPE employee contributions were 3.6% and above YMPE was 5.4%. By 2017, this will have climbed to 5.2% and 7.0%. By pension legislation, the employee can at max pay half so the employer is contributing the same amounts as I am. 

So in 2017, for each year I earn credit in the pension, below YMPE 10.4% and above YMPE 14% will be contributed to be invested.


Then too, I'd have to check as there were three top ups scheduled to deal with under funding (i.e. 2009 + low interest environment). Two were done before the investments recovered to the point that the third could be cancelled. I seem to recall that the second top up was for $6 million.


Cheers


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## Beaver101

Eclectic12 said:


> From the link provided:
> 
> *So what's your proposed simplification* that will take into account that the 35 year old likely has thirty years for the CV to grow where the 50 year old has fifteen years?


 ... none as I'm not an actuary or a pensions expert but it is an excellent question for that trade. And don't be surprised that you'll get as many different answers from as many different same-trade experts. 



> They have earned the same credits on the same salary so the CV by definition is to provide enough to be in the same situation at age 65 (ignoring all the other factors for the moment).


 .. that is not possible since the PV factor is dependent on,

- _Interest rates and *mortality rates *in accordance with actuarial practice_

as per the above list or additional link you provided.




> *Changes to the legislation may or may not affect the CV calculation *but I don't think it is needed to illustrate why this is not a simple calculation.


 ... maybe not needed to illustrate the 'simple' calculation concept but definitely changes in legislation (or even their interpretation) will have a profound effect on the calculation/determination of the CV. 


Cheers too. :wink:


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## Eclectic12

Beaver101 said:


> ... none as I'm not an actuary or a pensions expert but it is an excellent question for that trade.


It sounded from you post that you had ideas of ways to simplify or thought some of the factors were not needed.




Beaver101 said:


> Eclectic12 said:
> 
> 
> 
> They have earned the same credits on the same salary so the CV by definition is
> to provide enough to be in the same situation at age 65 (ignoring all the other factors for the moment).
> 
> 
> 
> .. that is not possible since the PV factor is dependent on,
> 
> - _Interest rates and *mortality rates *in accordance with actuarial practice_
Click to expand...

Possible or not ... they have to try as both despite having different parameters both fictional employees have earned the same formula defined benefit. Given the list of factors to consider ... just figuring out which apply and what they are seems complicated to me.




Beaver101 said:


> ... as per the above list or additional link you provided.


 ... Not sure where the "or additional link" is coming from. 

For "Enquiring minds that want to know the source", I'd suggest what I did to confirm the link was the one that included the discussion of factors. Go back to post # 96 and click on the link. After confirming my memory of the factors being listed ... it was a straight copy/paste operation.


Cheers


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