# New Plan thats different..



## jmalias (Aug 10, 2010)

Retiring early, a different spin.

Working for the Ontario government has a rare few perks.

1. Good Pension (so I really don't have to worry)
2. Self funded leave

I am 13 years from retirement with a full pension (70% of best 5 years indexed with inflation). 2 kids, one in university and one going in 2 years. Wife is a occasional teacher, very occasional so very flexible. No mortgage, No debt. I have maximized RRSP and RESP in the past, but stopped about 5 years ago to start living for now. I am tired of planning/preparing for retirement.

So I am signing up for a very unused option public servants have, a self funded leave. I will reduce my pay to 75% for three years, then will be paid at 75% while taking the fourth year off. AND IT WILL NOT EFFECT PENSION!!

I can technically do this 3 times and and work one final year before retirement. Which will give me 12 years to become accustom to 75% of my salary. Then retirement at 70% will not be to big a stretch. A full year off is like testing retirement out every four years.

My question or point is, if I can learn to live at 75%. And know that I will receive 70% during retirement. Do I really need to keep saving for retirement?


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## George (Apr 3, 2009)

If you're confident in your pension provider (which makes sense for public servants), you shouldn't need to put a dime into an RRSP unless you're going to have a very high standard of living in retirement.

Keep in mind that when you retire, that 70% pension will probably equate to 90% of your current take-home pay, since you won't have deductions for CPP, EI, pension, union dues, and so on.


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## heyjude (May 16, 2009)

What a great deal! Go for it!
 Green with envy


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## Maltese (Apr 22, 2009)

jmalias said:


> Retiring early, a different spin.
> 
> Working for the Ontario government has a rare few perks.
> 
> ...



On the surface this deal looks great. But, before deciding it may be beneficial to verify that your information is correct. Here are some questions to ask/think about:

1. Will you have the required number of service years to receive the 70% pension? (In Manitoba it takes 40 years of service before a Provincial government employee is eligible for 70%.)

2. Does the 70% include integration with CPP, OAS or bath? If so, then your pension amount will decrease once you are elegible for these Federal benefits.

3. If the 70% includes integration, will this be a sufficient amount to live on without a significant amount of income from other income sources? 

4. Is your pension fully indexed and is the indexing guaranteed? Often Provincial Pensions are only partially indexed and indexing is dependent on the fund's ability to pay. (Manitoba government pension is indexed UP TO 2/3 of the CPI but this amount is not guaranteed as it is dependent on the amount in the cost of living fund.)

Just a few things to consider before making a decision.

Maltese


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## the-royal-mail (Dec 11, 2009)

Also, what about your career development? Even if you work for the gov't, it's never good to show an employer that they can function without you. It will cause them to question why they even need to keep you around. As well, you may get passed up for promotions and won't be around to sort of "defend your turf" if that makes any sense in a career context.

Not really what you are asking about, but I feel you should at least give these things some thought. Good luck and please keep us posted and let us know what you decide.


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## jmalias (Aug 10, 2010)

*additional info*

1. Will you have the required number of service years to receive the 70% pension? (In Manitoba it takes 40 years of service before a Provincial government employee is eligible for 70%.)

Ontario is approx. 2% per year of service, i will retire with 34.5 years, so just under 70%.

2. Does the 70% include integration with CPP, OAS or bath? If so, then your pension amount will decrease once you are elegible for these Federal benefits.

Integrated at 65, so my pension will drop at 65 the amount i will get from govt.

3. If the 70% includes integration, will this be a sufficient amount to live on without a significant amount of income from other income sources? 

yes, but some of my co-workers that have retired have taken early cpp reduced at age 60 and then their income will be greater from 60-65, but less 65 plus

4. Is your pension fully indexed and is the indexing guaranteed? Often Provincial Pensions are only partially indexed and indexing is dependent on the fund's ability to pay. (Manitoba government pension is indexed UP TO 2/3 of the CPI but this amount is not guaranteed as it is dependent on the amount in the cost of living fund.)

Indexed on inflation, not sure who makes the rules, but most Ontario govt retiree's will brag their yearly raise is better in retirement than anything they ever received while working. I went through 12 years without a raise and the now infamous bob ray days!! 



This idea has my whole way of thinking turned on its head.


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## jmalias (Aug 10, 2010)

*responce*

1. what about your career development? Even if you work for the gov't, it's never good to show an employer that they can function without you. It will cause them to question why they even need to keep you around. As well, you may get passed up for promotions and won't be around to sort of "defend your turf" if that makes any sense in a career context.

I am in IT\computers, I am at the top of where I want to be. My absence will give one of the guys in my group a chance to be the lead while I am gone. The only advancement would be management and I am adverse to loosing or seeing my hair graying before its time. My goal is to work less and enjoy life more.


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## Karen (Jul 24, 2010)

You mentioned that you had maximized your RRSP in the past but stopped five years ago. Byt you didn't tell us for how long you had maximized it; in other words, do you have a substantial amount of money in your RRSP? If so, that could make quite a difference to your plans.

I retired four years ago with what seems to be a very adequate income to support me comfortably for as long as I live, but it's reassuring to know that I have about $360,000 in an RRSP which I won't have to touch until the law requires me to convert it to a RIF. So that should cover any unexpectedly large increases in inflation, or other surprise crises. So I'm wondering whether your RRSP will be enough to provide you with some "comfort" money should things not go according to plan.


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## sprocket1200 (Aug 21, 2009)

you have to work for another 15 yrs just to get the pension? that sucks.

taking time off will hurt your income increases, just like any mother who takes time off and deserves less for doing so...


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## jmalias (Aug 10, 2010)

Karen said:


> You mentioned that you had maximized your RRSP in the past but stopped five years ago. Byt you didn't tell us for how long you had maximized it; in other words, do you have a substantial amount of money in your RRSP? If so, that could make quite a difference to your plans.
> 
> I retired four years ago with what seems to be a very adequate income to support me comfortably for as long as I live, but it's reassuring to know that I have about $360,000 in an RRSP which I won't have to touch until the law requires me to convert it to a RIF. So that should cover any unexpectedly large increases in inflation, or other surprise crises. So I'm wondering whether your RRSP will be enough to provide you with some "comfort" money should things not go according to plan.


worked just over 21 years, just over 70k in rrsp, just over 50k in resp, just about 50k in non rrsp invest, just over 50k in borrowed non rrsp invest matched by investment loan.

not much in rrsp, pension does not leave much room to invest.

My real question is if a pension is a guaranteed 70% and you can live well on 75%, does investing really make sense to build a large nest egg and take away living for now?


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## jmalias (Aug 10, 2010)

sprocket1200 said:


> you have to work for another 15 yrs just to get the pension? that sucks.
> 
> taking time off will hurt your income increases, just like any mother who takes time off and deserves less for doing so...


13 years left, trust me I am counting, but if I commit to this plan, I really will only work another 10 out of the 13 years

time off will not hurt any pay increases, self funded leaves have no effect on benefits, pay increases or pension.

The last comment I will pass commenting on


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## Guest (Oct 26, 2010)

Do you still need to plan for retirement? Well no, neither do I, the pension takes care of that ... or does it ... will you also be supporting your wife, or ex-wife and future wife, or ex-wife and girlfriend, or ex-wife and her new boyfriend ??? ... a separation and divorce can take a big chunk out of that pension ... so you might think contingency ... where was I ... sure, I have my pension ... the extra cash I'm saving is for the toys


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## Maltese (Apr 22, 2009)

rikk said:


> ... sure, I have my pension ... the extra cash I'm saving is for the toys


I'm with you. I believe that it's important to have a cushion in addition to the pension. Toys, travel and home repairs/renovations aren't cheap and not likely to be covered solely by a pension unless the pension is significant. Toys and travel can be excluded if necessary but the cost of home repairs will add up over the years.

Maltese


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## sprocket1200 (Aug 21, 2009)

you have worked for 21 yrs with 13 yrs left? glad i don't have that kind of pension.

save hard and get out of there early!!


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## HaroldCrump (Jun 10, 2009)

No offense to the poster or anyone else, but this is "benefit" for real?
So you guys are saying an Ontario Govt. public sector worker gets to take a 75% paid 1 year sabbatical every 10 years?
During the full duration of employment years, such a person can get 4 _years_ off with 75% pay!
Hmm...I wonder why we have a deficit budget and our taxes are so high.


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## Four Pillars (Apr 5, 2009)

HaroldCrump said:


> No offense to the poster or anyone else, but this is "benefit" for real?
> So you guys are saying an Ontario Govt. public sector worker gets to take a 75% paid 1 year sabbatical every 10 years?
> During the full duration of employment years, such a person can get 4 _years_ off with 75% pay!
> Hmm...I wonder why we have a deficit budget and our taxes are so high.


I've heard of similar plans.

If you check the first post however, you'll note that they have to give up 25% of their pay for the 3 working years. So essentially they will get 3 years of regular pay spread out over 4 years.

The fact that this doesn't affect the pension is the real bonus.


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## jamiechese (Jul 13, 2010)

HaroldCrump said:


> No offense to the poster or anyone else, but this is "benefit" for real?
> So you guys are saying an Ontario Govt. public sector worker gets to take a 75% paid 1 year sabbatical every 10 years?
> During the full duration of employment years, such a person can get 4 _years_ off with 75% pay!
> Hmm...I wonder why we have a deficit budget and our taxes are so high.


Lol true that man, it is kinda stupid (taxpayer wise) but I guess its great if you work for the government lol!


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## HaroldCrump (Jun 10, 2009)

Four Pillars said:


> I've heard of similar plans.
> 
> If you check the first post however, you'll note that they have to give up 25% of their pay for the 3 working years. So essentially they will get 3 years of regular pay spread out over 4 years.


So essentially, our provincial govt. is overstaffed by 25%.


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## kcowan (Jul 1, 2010)

HaroldCrump said:


> So essentially, our provincial govt. is overstaffed by 25%.


That would be true if everyone took it but they don't. My friend with the BC government took it once so that he and his spouse could travel around the world for ten months. Giving up 25% for 3 years is a major sacrifice because that top 25% funds many essentials.

Sure you have to be "dispensible" but in his case it was during a career transition. I suppose if it was only available once that would make it more tolerable. In his case, it prepared him for retirement like no amount of conselling could do.


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## OptsyEagle (Nov 29, 2009)

In the private sector if your company could do without you for 25% of the time they would just do without you.


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## andrewf (Mar 1, 2010)

Lots of companies have job-share arrangements. Also consider parental leave...


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## kcowan (Jul 1, 2010)

During their child-bearing years, many technical women would transfer to my development shop because we offered work-from-home and flextime. For about five years, the contributed big time I think because they appreciated the flexibility. Then 75% of them returned to their prior jobs on a staged basis and 25% stayed with us by choice.

Private enterprise has a lot more flexibility than you might think.


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## Guigz (Oct 28, 2010)

HaroldCrump said:


> So essentially, our provincial govt. is overstaffed by 25%.


No it is not, somebody still has to do the work.

To the people that said it cost more to the government, wrong (!) and look at the numbers below.

Let's do the math here. 

To make it simple, suppose that the government worker produces 100 unit of work (UW) and gets paid 100$ per year to produce these units of work.

We are not considering wage increases to make this example more simple.

Regular:

Year 1: 100 UW are produced at a cost of 100$
Year 2: 100 UW are produced at a cost of 100$
Year 3: 100 UW are produced at a cost of 100$
Year 4: 100 UW are produced at a cost of 100$
Total: 400 UW are produced at a cost of 400$ 

With the 3-1 plan:

Year 1: 100 UW are produced at a cost of 75$
Year 2: 100 UW are produced at a cost of 75$
Year 3: 100 UW are produced at a cost of 75$
Year 4: 100 UW are produced at a cost of 175$ (the position is staffed while you are away, the replacement earns 100$ (possibly less if he is not at the top of the scale) for 100 UW and you get 75$ for 0 UW)


The total cost for 400 UW is the same (400$) in both examples. 

The big advantage of doing so is that you do not get penalized when you take your pension. The sabbatical year still counts towards your years of service. 

Keep in mind that you DO pay 100% of your pension contributions during the entire 4 year period so it is not exactly free money.

I would appreciate it if people would stop "government bashing" whenever they get a chance. Especially when said people jump to conclusions based on their flawed "math".


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## jmalias (Aug 10, 2010)

Many companies both private and public offer paid and non paid leaves. Lets not discuss the merits of a benefit unless it is constructive. The ontario govt has a way for their employees to afford the unpaid leave and give the employer the time to plan for a temporary replacement. Win Win..

My real question is if a pension is a guaranteed 70% that will increase with inflation and you can enjoy life well on 75%, does investing really make sense to build a large nest egg and take away living for now? I have bought and paid for home, raised kids and traveled on a lot less while saving for retirement. 

My question revolves around putting aside $40K for an around the world trip in 3 years or buying RRSP for the future. If you had to choose knowing my plan.


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## kcowan (Jul 1, 2010)

jmalias said:


> My question revolves around putting aside $40K for an around the world trip in 3 years or buying RRSP for the future. If you had to choose knowing my plan.


I would choose the world trip even if it meant working longer in the end. It is very difficult to get away for a year even when you are retired.


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## Square Root (Jan 30, 2010)

The trade off between current or future consumption is a personal thing. Certainly a pension equal to 75% of previous comp reduces the need for savings. However, the uncertainty of the future and potentially high cost of health care (either private or public-higher taxes) coupled with the fun of spending money while retired, might cause one to save a little more than otherwise while working. In our case we are spending about 30% more in retirement then when I was working. More time often means more expense-and more fun! I doubt you would view a little extra money in retirement as a waste.


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## square one (Jan 19, 2010)

Life is short. Both my father and father-in-law died about 3 yrs before they planned to retire, ages 60 and 61. This is a chance to enjoy your time off while you are young and healthy. Besides if it's not as great as you thought you can just go back to work and not do it again. You have no debt and have thought this through. I say go for it!


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## Eclectic12 (Oct 20, 2010)

jmalias said:


> [...]
> My real question is if a pension is a guaranteed 70% that will increase with inflation and you can enjoy life well on 75%, does investing really make sense to build a large nest egg and take away living for now? I have bought and paid for home, raised kids and traveled on a lot less while saving for retirement.
> 
> My question revolves around putting aside $40K for an around the world trip in 3 years or buying RRSP for the future. If you had to choose knowing my plan.


Another question to consider is while considering this is that most Defined Benefit plans offer an option provide a pension to your spouse, if she survives you. Usually selecting this option decreases your pension to adjust for the likelyhood of having to pay the spouse later on.

I'd also recommend considering what sort of a lifestyle you plan to live, once retired. If it's spend, spend, spend - then likely no amount will be enough. If you don't see major changes and are likely to carefully plan when to replace the car, etc etc. - then you are probably okay.

You'll have more control over your time, so you might spend more but there are also potential savings via paying into pension, not needing to commute etc.

The better you know how yourself to gauge what you will or won't spend on, the better you'll have a handle on what to do.


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## kcowan (Jul 1, 2010)

The costs to elect joint survivorship are not high. Basically, it is insurance to finance the difference in longevity between you and your spouse. If you anticipate retiring on a COLA'd DB pension plan, then you only need to save for expenses above and beyond that amount. The 75% factor really takes into consideration that your spending over 30 years of retirement will drop.


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## bbsj (Aug 26, 2010)

kcowan said:


> The costs to elect joint survivorship are not high. Basically, it is insurance to finance the difference in longevity between you and your spouse. If you anticipate retiring on a COLA'd DB pension plan, then you only need to save for expenses above and beyond that amount. The 75% factor really takes into consideration that your spending over 30 years of retirement will drop.



The costs of joint survivorship (which is required by law to be at least 60% of the pension unless waiver signed by the spouse) can be considerable if the pensioner is a male and the spouse is a younger female. Further, the cost of living is guaranteed only upto 8% in Ontario, so, in an inflation scenario like 1980s, one could be clobbered. Also, the deductions for the govt employees and other public servants like teachers are so high that if one saved that much amount in private sector, the outcome would be better than civil service pension.


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## Rox (Oct 17, 2010)

OptsyEagle said:


> In the private sector if your company could do without you for 25% of the time they would just do without you.




That's true. 

But, in the olden days, IBM allowed her employees unpaid leave for a year or two. I think that benefit would not be around anymore today - after John F Akers,... these great things were gone.


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## Eclectic12 (Oct 20, 2010)

kcowan said:


> The costs to elect joint survivorship are not high. Basically, it is insurance to finance the difference in longevity between you and your spouse. If you anticipate retiring on a COLA'd DB pension plan, then you only need to save for expenses above and beyond that amount. The 75% factor really takes into consideration that your spending over 30 years of retirement will drop.


I'm wondering what "not high" means. But then again, it could be a difference between public/private plans as well as contribution rates. Usually the woman lives longer, so that private plans I've been in are dropping the pension by 10% or more.

As for the "saving for expenses above and beyond" - the desired retirement-style is key. Though things like at 46% increase in hydro are eating into some retirees carefully laid plans.


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