# Pension Decision



## GGuy (Mar 21, 2018)

I have a pension decision to make. Two options: I can take an annuity or a lump sum. Based on the value of the monthly payments of the annuity I would need to earn a 4.1% rate of return on the lump sum compounded annually over the next 25 years to have the same amount the annuity will cumulatively pay at the end of 25 years.

The guaranteed monthly income of the annuity is risk free, comforting and makes my life easier but I'm thinking I should take the lump sum and add to BCE and a couple of banks and maybe some 5% GIC's which would give me more than 4.1% just on the dividend income and interest.

Opinions?


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## sags (May 15, 2010)

I would buy brk and let buffet earn me money. It is down $100k since march 30 and will come roaring back.


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## like_to_retire (Oct 9, 2016)

GGuy said:


> _*The guaranteed monthly income of the annuity is risk free*_, comforting and makes my life easier but I'm thinking I should take the lump sum and add to BCE and a couple of banks and maybe some 5% GIC's which would give me more than 4.1% just on the dividend income and interest.


My bold.

Don't be silly, of course you would take the annuity. This guarantees your future forever. Then if you're feeling bold, invest any extra in all your schemes.

ltr


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## GGuy (Mar 21, 2018)

like_to_retire said:


> My bold.
> 
> Don't be silly, of course you would take the annuity. This guarantees your future forever. Then if you're feeling bold, invest any extra in all your schemes.
> 
> ltr


Actually just doing some analysis with the VPW spreadsheet to look at draw down scenarios on the lump sum and it looks like the annuity they are offering is much better option. Plus it removes managing it from my hands.


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## GGuy (Mar 21, 2018)

sags said:


> I would buy brk and let buffet earn me money. It is down $100k since march 30 and will come roaring back.


I probably will buy some brk. He's a smart guy but wouldn't trust him/them with the whole thing. He's one flight of stairs from the big one.


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## ian (Jun 18, 2016)

There are other considerations. Your health, and the health history of your parents. Same for your spouse if it is to be joint. You are betting on longevity when you take the annuity.

You could take the DB commuted value and backstop it with term life insurance. Life insurance payouts are not taxable, the value of the pension is declining so you would not need to match the policy with the commuted value in order to cover the risk. Especially if you a had 10 year payout gty on the pension annuity.

Also depends on your financial situation. Is this your main source of retirement income? And the pension plan itself....public sector, private sector, multi employer DB?

Are there any benefits attached, but separate from the DB that you will not be entitled to if you take the commuted value?

Will you be able to roll over all of the DB commuted value or will some of it will be immediately taxable?

I had longevity. I had other investments. 35-40 percent of my DB commuted value would have been taxed immediately in my hands at the top incremental tax rate. So I took the DB and considered it to be the fixed income component of my retirement investments.

There is no right answer IMHO. Each person will have different investment criteria, financial profile, risk profile, etc.


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## GGuy (Mar 21, 2018)

ian said:


> There are other considerations. Your health, and the health history of your parents. Same for your spouse if it is to be joint. You are betting on longevity when you take the annuity.
> 
> You could take the DB commuted value and backstop it with term life insurance. Life insurance payouts are not taxable, the value of the pension is declining so you would not need to match the policy with the commuted value in order to cover the risk. Especially if you a had 10 year payout gty on the pension annuity.
> 
> ...


Good points. I left out a few details.

If I choose the annuity, there are a couple of death benefit options. I can choose a guaranteed amount for a 10 year period so if I die my wife gets the full DB payments for 10 years or second option is my wife receives 65% of my pension for the duration of her life if I go before her. I'm choosing the second one since both of us have good health and our parents lived into their 90's. I plan on sticking around for at least 10 more years.

It's a private sector DB pension and if I did choose to roll over all of the DB commuted value it would be placed in a LIRA so none of it will be immediately taxable.

With regard to life insurance, it's not required at this stage. Kids gone, no dependants, not part of retirement plan.

I agree with your last statement and after my initial analysis this is where I ended up also.... *took the DB (annuity) and considered it to be the fixed income component of my retirement investments.*

Thanks for your post. Made me think.


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## Covariance (Oct 20, 2020)

GGuy said:


> I have a pension decision to make. Two options: I can take an annuity or a lump sum. Based on the value of the monthly payments of the annuity I would need to earn a 4.1% rate of return on the lump sum compounded annually over the next 25 years to have the same amount the annuity will cumulatively pay at the end of 25 years.
> 
> The guaranteed monthly income of the annuity is risk free, comforting and makes my life easier but I'm thinking I should take the lump sum and add to BCE and a couple of banks and maybe some 5% GIC's which would give me more than 4.1% just on the dividend income and interest.
> 
> Opinions?


A couple of random questions. 1. If there is any risk in the annuity it's worth at least considering the potential impact. Are you comfortable with the funded status of the pension? And the likelihood of continued comfort (viability of plan sponsor, age of work force, etc)? 2. Is the annuity (and any survivor benefit) fixed or does it adjust for inflation?


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## AltaRed (Jun 8, 2009)

I went through a similar decision in early 2006 and ended up taking the annuity for similar reasons. 1) Longevity insurance even though my DB is not COLA'd, 2) various annuitant benefits tied to taking the annuity, and 3) it became the primary fixed income portion of my portfolio that I don't have to think about ever. I have never regretted that decision one iota.


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## GGuy (Mar 21, 2018)

Covariance said:


> A couple of random questions. 1. If there is any risk in the annuity it's worth at least considering the potential impact. Are you comfortable with the funded status of the pension? And the likelihood of continued comfort (viability of plan sponsor, age of work force, etc)? 2. Is the annuity (and any survivor benefit) fixed or does it adjust for inflation?


Good questions.

I guess there is always risk but I'm pretty comfortable with the pension administrator.

Another detail I left out was indexation because I was trying to simplify my initial question. But yes, they offer an indexed annuity and a non-indexed annuity. I'm choosing the indexed one (I think).

Having said that, I have been trying to pin them down on how the indexation would work. They finally said it's fixed at a fixed rate every year at 2% with no consideration for actual inflation rate. I was initially considering the non-indexed because of the significantly lower monthly payments for the indexed option but I think I can outlive the break-even age. Other considerations on that though are having more up front money, returns on investing it and more. The analysis is endless. 

Right now just eliminating taking the lump sum option (I think).


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## GGuy (Mar 21, 2018)

AltaRed said:


> I went through a similar decision in early 2006 and ended up taking the annuity for similar reasons. 1) Longevity insurance even though my DB is not COLA'd, 2) various annuitant benefits tied to taking the annuity, and 3) it became the primary fixed income portion of my portfolio that I don't have to think about ever. I have never regretted that decision one iota.


It's good to hear others coming to the same conclusion even though some circumstances may be different. Such as in your case various annuitant benefits tied to taking the annuity. Do you mean health insurance? Mine has no other benefits.

Having less to manage is very appealing to me also.


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## AltaRed (Jun 8, 2009)

GGuy said:


> It's good to hear others coming to the same conclusion even though some circumstances may be different. Such as in your case various annuitant benefits tied to taking the annuity. Do you mean health insurance? Mine has no other benefits.


Subsidized group health insurance, including worldwide (travel) health insurance, was the valuable component but the main driver was simply having a guaranteed cash flow like CPP and OAS to provide baseline income. Not to ever have to think about it the past 16 years so far is exceptional peace of mind allowing me to be more adventurous with the rest of my portfolio.


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## Eclectic21 (Jun 25, 2021)

GGuy said:


> ... I have a pension decision to make. Two options: I can take an annuity or a lump sum.


Hmmm ... I wonder what's special about your DB pension.

My choices were to take the DB pension or take the lump sum. The place I could pick an annuity was if I took the lump sum into a LIRA. 




GGuy said:


> ... if I did choose to roll over all of the DB commuted value it would be placed in a LIRA so none of it will be immediately taxable.


Has this been confirmed?

My co-worker took his private DB pension CV but because of how much the CV total was, he could not roll all of it over into a LIRA, tax deferred. Both of my CVs were for less credits so the small totals were rolled into the LIRA with none of it immediately taxed.









Understanding maximum transfer value rules | Advisor's Edge


What clients need to know when commuting a DB pension




www.advisor.ca









GGuy said:


> ... Another detail I left out was indexation because I was trying to simplify my initial question. But yes, they offer an indexed annuity and a non-indexed annuity. I'm choosing the indexed one (I think).


Assuming the annuity is the pension - this is another difference. For all three DB pensions I have participated in, indexing was whatever it was without a choice. 

The last one had the choice of me putting in my own money to buy improvements. One of the offered but expensive improvements was to increase the partial indexing.


Cheers


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## AltaRed (Jun 8, 2009)

Eclectic21 said:


> Hmmm ... I wonder what's special about your DB pension.
> 
> My choices were to take the DB pension or take the lump sum. The place I could pick an annuity was if I took the lump sum into a LIRA.


My assumption was he can take his DB pension as a pension (which is an annuity) or take lump sum (into a LIRA).


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## GGuy (Mar 21, 2018)

AltaRed said:


> My assumption was he can take his DB pension as a pension (which is an annuity) or take lump sum (into a LIRA).


Correct.


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## GGuy (Mar 21, 2018)

AltaRed said:


> Subsidized group health insurance, including worldwide (travel) health insurance, was the valuable component but the main driver was simply having a guaranteed cash flow like CPP and OAS to provide baseline income. Not to ever have to think about it the past 16 years so far is exceptional peace of mind allowing me to be more adventurous with the rest of my portfolio.


I have no such benefits in my choices. Sounds like yours was an easier decision with the benefits included. Very nice.

I'm pretty much in the same situation if I take the annuity (DB pension) that plus CPP and OAS will cover our baseline as well. Leaves me the freedom to screw up the rest of my portfolio.


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## GGuy (Mar 21, 2018)

Eclectic21 said:


> Hmmm ... I wonder what's special about your DB pension.
> 
> My choices were to take the DB pension or take the lump sum. The place I could pick an annuity was if I took the lump sum into a LIRA.
> 
> ...


Likely won't choose the LIRA but don't see any restrictions there. My indexing decision is simply yes at a fixed 2% or no but with higher payments in early years until indexing catches up at 85. If I live past 85 then indexing is better option. But I'm liking more up front money. After 85 I'll be watching tv and eating pudding.


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## Freedom2022 (Oct 14, 2021)

Congratulations on getting a good pension.
It is good you will get 2% adjusted for inflation.
However, inflation is high and will be high for a while.
Fixed income investment using bonds and GIC yield more than 2% for now.

Nobody knows how long the current situation will last.
The uncertainty makes it difficult to make a decision.

You just follow your gut feeling and enjoy your pension.


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## AltaRed (Jun 8, 2009)

I think central bankers are more inclined to keep inflation in the 2-3% range long term rather than letting it run higher for longer. The current surge of inflation is just that... a short term surge of 2-3 years before the rate subsides. It is nothing to be overly threatened about. 

When I took my non-COLA'd pension in 2006, I used the rule of 72 to consider: 

at 2% annual inflation, my pension payments would be worth only half of original value in 36 years (I would most likely be dead)
at 3% annual inflation, my pension payments would be worth only half of original value in 24 years. By then I am over 80. That works fine given other resources.

CPI was 109.2 in 04 2006. It is 153.1 as of 07 2022. A 50% increase over 16+ years feels about right. Even if inflation is a bit higher and it is 200 by 2030, I'd still feel okay.


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## ian (Jun 18, 2016)

GGuy said:


> Good points. I left out a few details.
> 
> If I choose the annuity, there are a couple of death benefit options. I can choose a guaranteed amount for a 10 year period so if I die my wife gets the full DB payments for 10 years or second option is my wife receives 65% of my pension for the duration of her life if I go before her. I'm choosing the second one since both of us have good health and our parents lived into their 90's. I plan on sticking around for at least 10 more years.
> 
> ...


Note that in some circumstances entire amount of DDB commuted value cannot be rolled over into a LIRA. Only a portion. My situation was that only about 65-70 percent could have been rolled. The balance would have been taxable. In my situation taxed at the highest tax bracket.

I was quite surprised when I saw the detail. It caused me to do some research. I was also dealing with taking in one third of supplementary pension into income at the same rate. Not complaining. It was a nice problem to have. 

The other reason I took it, apart from all the financial detail (it was not indexed)was the desire to have our bases covered with the DB, CPP, OAS. From my perspective there is value in knowing that ones financial situation.

It may seem odd but that monthly DB pension puts a smile on my face when it hits.

I really have no ideal if, looking in the rear view mirror, I made the right decision. I am not a second guesser. Made the best decision I could at the time and moved forward with my retirement. No regrets whatsoever.

Whatever you decide....good luck to you. Count yourself very fortunate to have a DB pension. I certainly do.

Don't look back...keep moving forward.


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## Eclectic21 (Jun 25, 2021)

GGuy said:


> ... My indexing decision is simply yes at a fixed 2% or no but with higher payments in early years until indexing catches up at 85 ...


Interesting that you can decide. It goes to show that like a lot of other financial stuff, there is a lot of variation.

For all three of my DB pensions, it was what it was for indexing - no choice about taking the indexing or not.


Cheers


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## GGuy (Mar 21, 2018)

Freedom2022 said:


> Congratulations on getting a good pension.
> It is good you will get 2% adjusted for inflation.
> However, inflation is high and will be high for a while.
> Fixed income investment using bonds and GIC yield more than 2% for now.
> ...


Thank you. Although it is a DB pension, it is small. But still a nice addition to my fixed income.

Following your gut is good advice as long as my analytical side agrees with my gut. And I think it does.


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## GGuy (Mar 21, 2018)

AltaRed said:


> I think central bankers are more inclined to keep inflation in the 2-3% range long term rather than letting it run higher for longer. The current surge of inflation is just that... a short term surge of 2-3 years before the rate subsides. It is nothing to be overly threatened about.
> 
> When I took my non-COLA'd pension in 2006, I used the rule of 72 to consider:
> 
> ...


This is interesting. Was going to look at how much inflation would impact me down the road but didn't get there yet and almost afraid to look. Not much can be done about it anyway. And I do love Kraft Dinner.


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## GGuy (Mar 21, 2018)

ian said:


> Note that in some circumstances entire amount of DDB commuted value cannot be rolled over into a LIRA. Only a portion. My situation was that only about 65-70 percent could have been rolled. The balance would have been taxable. In my situation taxed at the highest tax bracket.
> 
> I was quite surprised when I saw the detail. It caused me to do some research. I was also dealing with taking in one third of supplementary pension into income at the same rate. Not complaining. It was a nice problem to have.
> 
> ...


Thank You. As I said, it's not huge but really looking forward to it hitting my account too. And I'm actually now waiting for my first CPP payment to hit my account any day now. So will be smiling smiling large real soon.

Don't look back.... one of my favourite songs. Play it all the time.


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## GGuy (Mar 21, 2018)

Eclectic21 said:


> Interesting that you can decide. It goes to show that like a lot of other financial stuff, there is a lot of variation.
> 
> For all three of my DB pensions, it was what it was for indexing - no choice about taking the indexing or not.
> 
> ...


Yes, would almost be better if I couldn't choose so I would stop the analysis already.

The company I worked for went under and the firm administering the pension has had to provide options to meet local pension guidelines for people all across North America so many options depending on which Province/State you worked in.


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## ian (Jun 18, 2016)

My former employers DB pension plan was outsourced to a pension administration firm. It pays to audit your benefits. I had a six month discussion with them. I resorted to reading the pension plan and more importantly the pension plan amendments.

The administrator insisted on basing my pension on earned income defined as salary. In fact, the pension plan defined it as salary plus bonus/pay for performance. That alone increased my pension entitlement by 34 percent. I also discovered that DB matching add on was short by $26K.

There was no attempt to cheat me. I stopped discussing with the pension admin firm and went back to my former employers VP legal who was the pension plan sponsor. It was resolved within two weeks..in may favour. The net of it was I ended up with an additional supplementary pension worth just over 350K. Several other colleagues who had returned went back and made the same claim.

The firm subsequently closed the loophole. It was a leftover from 2 past mergers.


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## Retiredguy (Jul 24, 2013)

With mine, nearly 20 yrs ago, I was inclined to take the pension all along for many of the reasons already stated above. Nevertheless when I did get the CV amount I did some thinking and calcs. With the CV option the immediate tax payable was going to be 20% of the total CV amount and my first year of pension would be 8.2% of the net after tax CV amount. That sealed my decision to take the pension. The pension also has indexing but indexing is not guaranteed. Indexing comes from a separate account, and is a separate mandatory contribution by members. Although the account has done very well as has the pension account and both have made very good returns, the % of contributors versus pensioners has changed over the years putting the inflation account under pressure. The pension account is fully funded. Benefits (Medical, Extended health and Dental) that also came out of the inflation account have been cut and reduced substantially. (For medical premiums the BC govt cut them but initiated a 2% payroll tax). As inflation has been low pensioners have received the full inflation amount every year except the last couple and won't again this year. The inflation adjustment now is subject to actuarial review every 3 years and is presently capped at 2.1% (the lessor of or max 2.1%).

No regrets taking the pension, grateful to have it and for it to have it been a mandatory part of my employment. Like others it's the fixed income part of my overall portfolio, along with CPP.


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## GGuy (Mar 21, 2018)

ian said:


> My former employers DB pension plan was outsourced to a pension administration firm. It pays to audit your benefits. I had a six month discussion with them. I resorted to reading the pension plan and more importantly the pension plan amendments.
> 
> The administrator insisted on basing my pension on earned income defined as salary. In fact, the pension plan defined it as salary plus bonus/pay for performance. That alone increased my pension entitlement by 34 percent. I also discovered that DB matching add on was short by $26K.
> 
> ...


Definitely no benefits with this DB pension for me. Considering the path my former employer took and their demise, I consider myself lucky that I am now actually getting the pension.

I had a similar issue with the pension firm administering my pension. I disagreed with the final earnings they were basing my pension on. But in my case I had no former employer to support me. Felt a bit like David and Goliath.

But I had the time, the information and the ability to challenge them and I was relentless. They finally agreed with my numbers. Didn't make a huge difference in my pension but every percent helps especially over 30 years or more. 

I'm also currently challenging them on capping the indexation at 2%. That one is a losing battle I think but trying.


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## ian (Jun 18, 2016)

GGuy said:


> Definitely no benefits with this DB pension for me. Considering the path my former employer took and their demise, I consider myself lucky that I am now actually getting the pension.
> 
> I had a similar issue with the pension firm administering my pension. I disagreed with the final earnings they were basing my pension on. But in my case I had no former employer to support me. Felt a bit like David and Goliath.
> 
> ...


I got a copy of the pension plan. Just as important were the pension plan amendments. It did not really take long to go through them since I was only looking for the plan included in the calculation for of pensionable earnings.

In my case the pension administrator was applying the rule that applied to the the company that bought us after we merged with another company. Essentially three pensions back.

Moreover, there were very few members in that DB plan and my situation was only common to a very small group of them. Probably 10 people at the most. So, I can understand why a third party pension admin firm did not possess the expertise. But...they failed to do any work or review the document. It was easier, and fast to say no, then move on to the next person.

The employer was very good. There were significant extra contributions made to bring the plan up to fully funded. The last report shows it slightly overfunded on both wind up and going concern. Once I took the DB, the liability was offloaded to RBC in the form of an annuity.

I was astounded to read recently the rather low percentage of people who actually check their pay stubs to ensure they are paid properly and the deductions are accurate.


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## HappilyRetired (Nov 14, 2021)

I'm surprised that so many people answered without knowing your age or projected life expectancy.


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## AltaRed (Jun 8, 2009)

HappilyRetired said:


> I'm surprised that so many people answered without knowing your age or projected life expectancy.


It really does not matter if the OP is 55 or 65. The OP is either retiring early with a discounted pension (or full pension if lucky enough to have an 85* factor pension), or a full pension presumably in the 60-65 age range. Any discount, e.g. 5% per year that pension plans generally factor in for an early retirement levels the playing field.

An annuity is longevity insurance for going longer than one's actuarial age and the OP also mentioned 25 years as the basis for analysis. I think we have it pegged close enough for annuity vs lump sum decision.

* 85 factor being combination of age and service, e.g. 55 years of age and 30 years of service = full pension. Such pensions did exist at one time but other than maybe the civil service, they are long gone.


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## HappilyRetired (Nov 14, 2021)

Of course age and health matters. Is the OP 65 with a family history of living to 75 or are they 55 with a family history of living to 90? The difference is 10 years vs 35 years.


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## OptsyEagle (Nov 29, 2009)

HappilyRetired said:


> Of course age and health matters. Is the OP 65 with a family history of living to 75 or are they 55 with a family history of living to 90? The difference is 10 years vs 35 years.


The difference is MAYBE 10 years vs 35 years.


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## HappilyRetired (Nov 14, 2021)

OptsyEagle said:


> The difference is MAYBE 10 years vs 35 years.


Yes, that's what I said. Which is why it should be a considering factor.


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## Covariance (Oct 20, 2020)

In my experience, people's expectation of their longevity and critically their acceptance of the risk of running out of savings in retirement are key. It's not a simple math optimization for many people. The human side has a lot of weight.


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## Eclectic21 (Jun 25, 2021)

Depends on how much analysis one wants to do to make a decision that one won't know the perfect answer for until later in the future.

There's a guy in the local nursing home who based on family history, decided to live it up and spend everything as he was going to die anyway. His dad, three brothers and IIRC grandpa all died in their late forties or early fifties. He is now pushing eighty.


Cheers


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## sags (May 15, 2010)

The topic of longevity inevitably enters into the equation, and I recently heard something that made me think about it a little more.

As most people pass away in their late 70s or 80s........our concept that "middle age" or the "halfway mark" of 50 years old doesn't match with the reality.

Unless the average person lives to be 100 years old, which is actually rare, the halfway point of our lives is actually around 40 years of age.

If a person works until age 65, their remaining years are often limited to 15 or so years.

If a person defers their CPP and OAS until they are 70......their remaining years to collect benefits are even more limited.

I wouldn't be surprised if delaying the CPP and OAS was conceived to reduce future costs to the provider of the funds.

We can pretend we will all live to a ripe old age of 100......but the statistics would say otherwise.

After all, didn't former PM Harper raise the eligibility age of receiving the OAS to age 70 to save the government money ?

The Liberal government changed the eligibility date back to age 65, but sweetened the pot a little to lure people into delaying until age 70 voluntarily.

It appears that both PC and Liberal governments sought to delay paying benefits to age 70, either by mandate or voluntarily.

The Liberals just had a smarter approach to it.


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## OptsyEagle (Nov 29, 2009)

HappilyRetired said:


> Yes, that's what I said. Which is why it should be a considering factor.


I won't disagree that it should not be considered but it is far from the most important factor since even if one probably has only 10 years they still need to plan for 35. That problem reduces the significance of age considerably.


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## AltaRed (Jun 8, 2009)

OptsyEagle said:


> I won't disagree that it should not be considered but it is far from the most important factor since even if one probably has only 10 years they still need to plan for 35. That problem reduces the significance of age considerably.


Spreadsheet analysis of the option is precise but is wholly inaccurate due to the variability of all the assumptions. It is close to useless actually. The OP made no mention of concerns about shortened longevity. Just the opposite based on the 25 year analysis comment in post #1. On the front end, the difference between retiring at 55 and 65 is already part of the pension calculation due to the ~5%/yr discount factor applied (the annuity payment and lump sum are both lower). Whether the calculation starts at 55 or 65 is not material as projected performance of both the annuity and the lump sum. That can be set aside. As already noted, longevity assumption still has to be out to 90 or so (or the actuarial number of circa 87 or so) regardless of one's view of one's health.

These kinds of calculations we see over and over again in financial forums and media articles are mind exercises mostly to help one feel like they are making an educated decision. I went through the same mental exercise in 2006 with a range of 'what if' assumptions and as one would expect, the answers were as variable as a shotgun birdshot pattern at 100m. It really comes down to whether one is motivated to physically steer that ship via lump sum investing approach vs an annuity that is certain. 

The annuity will almost always win in real life with 2 after-the-fact exceptions: 1) insolvency of the plan, and 2) failure to live to approximately actuarial age. It wins because most pension plan investment portfolios will be managed with better returns than an individual will actually do on their own with their lump sums, but mostly because the pension plan also benefits from all those annuitants who die before their crossover (actuarial) date.


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## OptsyEagle (Nov 29, 2009)

The big benefit that the annuity has, that lump sum proponents spend huge amounts of time and effort trying to deal with but without any guarantee of success, is the fact that you cannot outlive OR underinvest an annuity, but you can certainly outlive or underinvest a lump sum. With that in mind, a tremendous amount of the lump sum is "forced" to be "held in reserve" so to speak, in order to deal with the risk of outliving it or underinvesting it over some period of one's life. Simply stated, the lump sum investor is "forced" to not be allowed to spend all their money during their lifetime...unless they don't mind living broke, and dependent on others, for some period of it.


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## GGuy (Mar 21, 2018)

HappilyRetired said:


> Of course age and health matters. Is the OP 65 with a family history of living to 75 or are they 55 with a family history of living to 90? The difference is 10 years vs 35 years.


I said in my original post I was doing my analysis over a 25 year period. I plan on living for at least 25 more years and based on family history that is a reasonable expectation. So in my mind it was pretty simple, do I take an annuity or do I take a lump sum based on a 25 year analysis. 

Maybe I should’ve been more clear in my original post. Again I was trying to make it simple. 

Really appreciate all the responses. Has made me think about a lot of things I didn’t consider before. And also hearing feedback from the folks who took the annuity. Validates my analysis.


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## Freedom2022 (Oct 14, 2021)

Covariance said:


> In my experience, people's expectation of their longevity and critically their acceptance of the risk of running out of savings in retirement are key. It's not a simple math optimization for many people. The human side has a lot of weight.





Eclectic21 said:


> Depends on how much analysis one wants to do to make a decision that one won't know the perfect answer for until later in the future.
> 
> There's a guy in the local nursing home who based on family history, decided to live it up and spend everything as he was going to die anyway. His dad, three brothers and IIRC grandpa all died in their late forties or early fifties. He is now pushing eighty.


I don't want to side track the discussion, but I think longevity is a big factor.
If I will live for 10 more years, then I want to have cash right now.
If I will live 30 - 40 years more, then annuity is better choice.
But, how do I know?


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## Eclectic21 (Jun 25, 2021)

Problem is one's survivors will know and one won't. 
Family history will give an idea of what might be reasonable but as happened to the guy in the nursing home - YMMV.

The best one can do is pick an assumption and go with that, IMO.

Cheers


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## AltaRed (Jun 8, 2009)

Freedom2022 said:


> I don't want to side track the discussion, but I think longevity is a big factor.
> If I will live for 10 more years, then I want to have cash right now.
> If I will live 30 - 40 years more, then annuity is better choice.
> But, how do I know?


You don't regardless of your family history. That is why one must plan to 90, or 95, or 100 depending on your degree of risk taking. Annuities are longevity insurance.


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## ian (Jun 18, 2016)

My father retired early at 59 in 1978. He had enough. His health was poor.

What really did it for him was a conversation he had with some of the senior HR and DB pension folks at his railway employer. He was astounded by the average (at that time) the short lifespan of DB plan members. As I recall it was in the high sixties/early seventies years of age.

He retired, moved to Vancouver, played golf every day. His health turned around within a year. No stress, exercise, etc. He collected that DB pension until his passing at age 87. Lived in his own home, never spent a day in a nursing home. Then my mother collected a reduced amount for another 3 years. 

That DB pension paid out for 31 years-28 full and 3 reduced spousal.

His pension was not indexed although it was infrequently increased by 1 or 2 percent a year towards the end. I was surprised at how much smaller the amount looked in 1987. Fortunately he had a generous DVA indexed wartime pension that was not subject to income tax.


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## sags (May 15, 2010)

Our union also held meetings to discuss pension issues, and their research on auto workers collecting pensions was pretty sobering.

Most retirees collect pension for only a few years after retirement. Many of the people I worked with have passed away already.


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## Freedom2022 (Oct 14, 2021)

Thank you, Ian and Sags.
I have been considering early retirement next year.
So, I can enjoy life fully when I am still healthy.
To me, it is a better choice than to retire at 65, just to ensure I have enough until 90.


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