# Retire at 55 with $1.8M, no DB plan and partial OAS,CPP



## bgbs (9 mo ago)

Folks

I am new around here and looking for feedback on the feasibility of my plan to potentially retire in a year or so.

I am 54 and my spouse is 47. We currently have around $900K in non registered, RRSP and TFSAs. I am in the process of liquidating an asset in my country of origin for around $900K by August.


*Portfolio A (Current)**Me (in K)**Spouse (in K)**Investment Type*TFSA$100$95VUN/XAWRRSP$90$50VYM/VYMI/VTIDC Plan$60$80Global Equity FundsNon Registered$155$150Can Dividend Stocks/ETFs, XAWDB$100Plan to take commuted value to LIRA/RRSP- VYMCash$10$10Sub- Total$515$385Total$900


The above generates around $18K in dividend income excluding my spouse's RRSP, our DCPs and TFSAs.
The house is around $1M, fully paid for and excluded from any income projections
I plan to take the commuted value of my DB Plan later this year and invest in VYM in LIRA/RRSP. I plan to do the same with my DC Plan once I turn 55.
Current Geographical distribution:
*Can: 30% US: 50%, ROW: 20%*
Yield: $18K, including from my RRSP.

*Portfolio B:*

I plan to invest the proceeds from the sale of my property in my non registered Canadian Dividend Stocks (top 20 dividend/dividend growth in TSX) to yield around $40K-$45 pa.

This will significantly tilt my combined geographical distribution to something like:
Geographic distribution:
*Can: 60% US: 25%, ROW: 15%*

It will also tilt the plan heavily towards Canadian dividend stocks

Other information: Since we have lived in Canada only a part of our lives, I expect CPP benefits to be around 30% and OAS around 50%.

Though my spouse and I are quite comfortable in our current jobs, if I do retire (hypothetically) at age 55 with a $100K cash wedge, is this a high risk plan wrt geographic and dividend/equity diversification? Does anyone have a similar plan? Appreciate your attention to this post.


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## cainvest (May 1, 2013)

On a quick glace it looks reasonable. Geographic weights are a big guess, it bothers some while others have no issue with heavy home field amounts. 

I'm more CDN asset bound as well but have been growing my global in the past few years for some balance before entering into retirement. I use a spreadsheet to gauge my retirement readiness, expenses vs investments year over year, injecting incomes (CPP,OAS,etc) as the years go by with adjustable rates of return on current assets.


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## damian13ster (Apr 19, 2021)

Of course that depends on your expenses, but honestly don't see how you would have any problems with retiring.
My 'number' for comfortable retirement is 1.2mln of net worth (not investments + cash), and I believe that is much more than one needs. Then again, I have zero intent of retiring in Canada. Much higher quality of life at much lower cost in places like Costa Rica, Mexico, Spain, Italy, or Portugal


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## bgbs (9 mo ago)

Thanks for your comments.
I should have mentioned in my post that I am looking to generate a Basic Living income ($40K, pre- tax) from Portfolio B (all dividends) and Discretionary Spend ($20K, pre tax) from the more balanced Portfolio A (mostly dividends).


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## Letran (Apr 7, 2014)

Congratulations bgbs!!!

You are definitely on your way to a healthy retirement.


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## robfordlives (Sep 18, 2014)

I think it looks good, I am abit above this amount but younger than you and seriously thinking of calling it quits. Hoping this runaway inflation subsides soon


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## ian (Jun 18, 2016)

No one can answer this question for you. Not enough data. No idea of the retirement lifestyle you desire or your retirement plans/goals. These can change post retirement.
Timing matters. 

Retiring when markets are low and more likely to appreciate is clearly more advantageous to retiring when markets are at their highs. We have benefited greatly from this over the past 10-12 years. Low inflation has served to sweeten those returns.

Never confuse cost of living with quality of life. These are two very different animals.

The former is quantifiable. The latter is very much dependent on your personal preferences.


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## pwm (Jan 19, 2012)

I retired 17 years ago at age 55 and have never regretted it. As others have said, your expectations for spending in retirement are personal for you, and no one else can guess what they might be. Your numbers look pretty good to me. My net worth has continued to grow in retirement, but we always lived a frugal lifestyle and continued to do the same after I quit work.

I personally think that the financial services industry are crisis mongers. They project the huge amounts one will need to save to retire comfortably because it's in their interest to convince you to give them more of your money.


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## ian (Jun 18, 2016)

pwm said:


> I retired 17 years ago at age 55 and have never regretted it. As others have said, your expectations for spending in retirement are personal for you, and no one else can guess what they might be. Your numbers look pretty good to me. My net worth has continued to grow in retirement, but we always lived a frugal lifestyle and continued to do the same after I quit work.
> 
> I personally think that the financial services industry are crisis mongers. They project the huge amounts one will need to save to retire comfortably because it's in their interest to convince you to give them more of your money.


Agree about the financial services industry to a certain extent. Has to be termpered by the reality that they are dealing with everyone. Once size does not fit everyone. At one point I had a colleague who was set to retire in a year or two.. The numbers were right. He took advantage of a company offer to move his DB to a DC. Eighteen months later he was down by 50 percent. Pulled his money from equities and placed in in low interest fixed. The rest of the story is obvious.

Retirement dollars required for those with the own homes will be different. As will it be for those with low incomes who are plan to remain on similar budgets. We had higher incomes...our requirement as a percentage of income was less than half what some recommended by some.

IMHO it comes down to having a plan specific to you. Your assets, your living costs, etc. I believe that people who do some basic retirement income planning come to this conclusion very quickly.

Remember...there are some fairly financially clueless people out there. Some assume that the tooth fairly will take care of them. The current retirement savings number balances for those over 50 are frightening.

In the case of my colleague, he accepted the company offer to covert his DB to a DC simply on the basis of what the uniformed by vocal know it all wags in the office were recommending. He did zero independent research. And after he moved it he paid absolutely no attention to it. Go figure. Sequence of returns and/or allocations can kill a retirement nest egg if the investor is not on the ball.


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## Numbersman61 (Jan 26, 2015)

I stopped getting any employment Income just before I turned 70. In reality, I made most of my wealth after I turned 60. We did a lot of traveling until COVID. Now that I’m almost 81, travel is not as interesting due to age related issues. To those who wish to retire early - go for it. In my case, I really enjoyed my career.


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## ian (Jun 18, 2016)

Numbersman61 said:


> I stopped getting any employment Income just before I turned 70. In reality, I made most of my wealth after I turned 60. We did a lot of traveling until COVID. Now that I’m almost 81, travel is not as interesting due to age related issues. To those who wish to retire early - go for it. In my case, I really enjoyed my career.


Same here. Most of my/our wealth was made after I turned 50. It doubled in the ten years after I retired at 58/59 despite frequent international travel. The stars were aligned for us.


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## BC Eddie (Feb 2, 2014)

I took the commuted value of my DB plan when I left an employer back in 1995 and wish I hadn't. The plan was indexed to inflation. Since then I have tracked the performance of the stocks I bought with the money and I have yet to match what the plan would have been paying me now.


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## bgbs (9 mo ago)

cainvest said:


> On a quick glace it looks reasonable. Geographic weights are a big guess, it bothers some while others have no issue with heavy home field amounts.
> 
> I'm more CDN asset bound as well but have been growing my global in the past few years for some balance before entering into retirement. I use a spreadsheet to gauge my retirement readiness, expenses vs investments year over year, injecting incomes (CPP,OAS,etc) as the years go by with adjustable rates of return on current assets.


Thanks, it is reassuring to know that my Canadian allocation, though high, is not unusual.


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## bgbs (9 mo ago)

damian13ster said:


> Of course that depends on your expenses, but honestly don't see how you would have any problems with retiring.
> My 'number' for comfortable retirement is 1.2mln of net worth (not investments + cash), and I believe that is much more than one needs. Then again, I have zero intent of retiring in Canada. Much higher quality of life at much lower cost in places like Costa Rica, Mexico, Spain, Italy, or Portugal


Yes, I have considered retiring to a low cost country but am not so sure after the pandemic that exposed the lack of health infrastructure in many of these countries.


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## bgbs (9 mo ago)

pwm said:


> I retired 17 years ago at age 55 and have never regretted it. As others have said, your expectations for spending in retirement are personal for you, and no one else can guess what they might be. Your numbers look pretty good to me. My net worth has continued to grow in retirement, but we always lived a frugal lifestyle and continued to do the same after I quit work.
> 
> I personally think that the financial services industry are crisis mongers. They project the huge amounts one will need to save to retire comfortably because it's in their interest to convince you to give them more of your money.


Thanks for your reassurance on the numbers- I tend to agree with being frugal - we grew up in a relatively poor country so it's not that hard for both me and my spouse.

I tend to agree with you on the financial services being crisis mongers. I became a DIY investor only during the pandemic by reverse engineering my robo advisor portfolio and realized how much I am losing out not only by way of fees, but also because of the cookie cutter portfolio that they built for me e.g. I felt I could go more aggressive but they wouldn't change my allocation to more than 60% equities. Changing the allocation mix to 100% equities during the pandemic helped greatly.


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## bgbs (9 mo ago)

ian said:


> No one can answer this question for you. Not enough data. No idea of the retirement lifestyle you desire or your retirement plans/goals. These can change post retirement.
> Timing matters.
> 
> Retiring when markets are low and more likely to appreciate is clearly more advantageous to retiring when markets are at their highs. We have benefited greatly from this over the past 10-12 years. Low inflation has served to sweeten those returns.
> ...


Thanks for your guidance- will keep in my your point about retiring when the markets are low.


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## bgbs (9 mo ago)

Numbersman61 said:


> I stopped getting any employment Income just before I turned 70. In reality, I made most of my wealth after I turned 60. We did a lot of travelling until COVID. Now that I’m almost 81, travel is not as interesting due to age related issues. To those who wish to retire early - go for it. In my case, I really enjoyed my career.


Great to know about your experience, very reassuring to know how your finances did after 60.


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## bgbs (9 mo ago)

BC Eddie said:


> I took the commuted value of my DB plan when I left an employer back in 1995 and wish I hadn't. The plan was indexed to inflation. Since then I have tracked the performance of the stocks I bought with the money and I have yet to match what the plan would have been paying me now.


Thanks for sharing your experience.
I am conflicted about commuting my DB Pension. On the flip side:

My DB Pension is just around 8K a year starting age 65
It is not linked to inflation and depends on my employer's discretion
It is guaranteed for 10 years and though it is likely to continue for the rest of my life, my surviving spouse won't get any amount beyond 10 years (i.e. If I doe at age 75, she doesn't get anything)

Commuting the pension gives me more control and ability to generate dividend income much before 65 as I am likely to retire in my 50s. It also enables the amount to remain with my surviving spouse- considering she is 7 years younger than me and likely to live longer than me.

What I am conflicted about is that I can't find any annuity that is better than my DB plan.and since it is not more than 5% of my portfolio, perhaps there is a good case for keeping it by way of diversification.


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## londoncalling (Sep 17, 2011)

It is very difficult to find an individual annuity that will pay better than a well funded DB plan. The 10 yr guaranteed survivor option is a common choice for one trying to hedge their bets. It pays better on a monthly basis than a joint survivor plan option while providing some level of assurance that payments continue should you pass away early. The one drawback of a DB plan is that a lot of money is lost if one passes away young. Any chance for leaving a large inheritance are often lost when this happens. I converted a small DB plan to a LIRA and so far it has turned out to be a wash. I expected to create more capital by self directing my LIRA but that was not the case. I am however am on pace to create an equivalent cashflow as I would have by locking in the DB. In that sense I guess I am slightly ahead. I ended up later rejoining the same plan with a different employer and in essence started my vesting period over. Had I known where life would take me I would have done so. But alas, I have yet to meet someone that has are given the advantage of predicting the future. 

Best of luck with your decision.

edit: fixed typos


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## bgbs (9 mo ago)

londoncalling said:


> It is very difficult to find an individual annuity that will pay better than a well funded DB plan. The 10 yr garanteed survivor option is a common choice for one trying to hedge their bets. It pays better on a monthly basis than a joint survivor plan option while providing some level of assurance that payments continue should you pass away early. The one drawback of a DB plan is that a lot of money is lost if one passes away young. Any chance for leaving a large inheritance are often lost when this happens. I converted a samll DB plan to a LIRA and and so far it has turned out to be a wash. I expected to create more capital by self directing my LIRA but that was not the case. I am however am on pace to create an equivalent cashflow as I would have by locking in the DB. In that sense I guess I am slightly ahead. I ended up later rejoining the same plan with a different employer and in essence started my vesting period over. Had I known where life would take me I would have done so. But alas, I have yet to meet someone that has are given the advantage of predicting the future.
> 
> Best of luck with your decision.


Thanks for sharing your experience, it helps to get a better perspective.


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## ian (Jun 18, 2016)

There are many good reasons to take the DB or to take the commuted value. Certainly not the same for everyone. In my case part of the commuted value could not be rolled into a LIRA and would have been taxed in my hands at 51 percent.

The commuted value can be attractive, especially when interest rates are low, but you need to be prepared to actively manage those funds. Not just stick them somewhere and hope for the best.

There is a tendency for some to move funds away from equities when the market tanks in favour of fixed allocations. That is absolute danger. It is the time, IMHO that you should consider increasing your exposure in order to realize the bump when the market does the inevitable and moves up again. That is understandably a difficult decision for some
.
The DB takes that management, decision making and perceived risk away from the participant. It provides a high degree of certainty. That certainty in and of itself has value for many people. My former employer had to make very significant contributions to top up our DB plan in the early 2000's. Over the last few years the plan has been overachieving so I assume that they are getting a bit of a break from their normal contribution rate.

Not certain if the benefits come with taking the commuted value or not. These are worth something to us. We use the 60 day out of country medical coverage several times per year. We get $1500 in an HSA each year. After $3K of self paid medical the catastrophic kicks in an covers 95 percent. Fortunately we have not had to use this.


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## Covariance (Oct 20, 2020)

With respect to the DB specifically. You may wish to consider the company specific and industry risk of the sponsor in conjunction with the asset allocation of your investment portfolio should you wish to retain it. The DB details you expressed sounds as thou it's present value is measurable, with potentially some correlation with the divi strategy your portfolio is following.

As to retention versus self insurance; it's mostly a function of how long you live. Outliving their mortality expectations helps you. On the other hand after ten years your estate would lose out on the value of the asset had you taken it. Importantly it is not inflation adjusted. Your investment should earn a real return, presumably exceeding inflation or at least keeping up with it.


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## londoncalling (Sep 17, 2011)

ian said:


> The commuted value can be attractive, especially when interest rates are low, but you need to be prepared to actively manage those funds.


I agree that most people would be inclined to take the CV when rates are lower. My understanding of CV is that it is an actuarial calculation based on number of years to retirement, life expectancy and projected interest rates to achieve an equivalent return. I am not an actuary but would that not mean that the cv would trend lower during long periods of low interest rate environments as we have experienced compared to a high interest period? If so it may be counterintuitive resulting in additional challenge to outperform.


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## londoncalling (Sep 17, 2011)

Covariance said:


> With respect to the DB specifically. You may wish to consider the company specific and industry risk of the sponsor in conjunction with the asset allocation of your investment portfolio should you wish to retain it. The DB details you expressed sounds as thou it's present value is measurable, with potentially some correlation with the divi strategy your portfolio is following.
> 
> As to retention versus self insurance; it's mostly a function of how long you live. Outliving their mortality expectations helps you. On the other hand after ten years your estate would lose out on the value of the asset had you taken it. Importantly it is not inflation adjusted. Your investment should earn a real return, presumably exceeding inflation or at least keeping up with it.


@Covariance raises some great points.

Since my plan did not have any inflation adjustments beyond the discretion of the trustees of the pension fund it was another reason for me to convert my DB to LIRA. At the time I looked at the life expectancy for my industry (construction) and it was considerably lower than the national average. It is probably better to look at your personal longevity risk based on family history if known. Just for context I was in my 30s at the time with less than 10 years of contribution. I am not advocating for or against conversion just trying to clarify that each person has a unique set of factors.


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## Covariance (Oct 20, 2020)

londoncalling said:


> I agree that most people would be inclined to take the CV when rates are lower. My understanding of CV is that it is an actuarial calculation based on number of years to retirement, life expectancy and projected interest rates to achieve an equivalent return. I am not an actuary but would that not mean that the cv would trend lower during long periods of low interest rate environments as we have experienced compared to a high interest period? If so it may be counterintuitive resulting in additional challenge to outperform.


I would have expected it to be higher as they are discounting the future payment stream with a lower discount rate. Also to clarify the discount rate they use is derived from bond yields (assuming we are talking about a true regulated pension plan).


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## londoncalling (Sep 17, 2011)

You are correct.

It's long term bond yields not projected interest rates. Although they have some correlation the two are not the same thing. Thanks for pointing that out.


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## OneSeat (Apr 15, 2020)

Once my DB pension was annuitized (no more cost of living increases) I realised that inflation would significantly affect our way of life. So I decided to invest my annuity payments and live off our investment proceeds. Could not do it 100% the first few years but it was really a way of thinking - and, boy, has it paid off. Investment and pension planning is not just numbers.

_This was posted after reading Ian's post #21._


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## Thal81 (Sep 5, 2017)

The DB pension just doesn't look good to me. 8K/year of non-inflation adjusted money guaranteed for 10 years only, that's only 80K of future money when the present commuted value is 100K. And, how much will that 8K be worth when you turn 65, in the current inflation environment? It seems skewed way too much in favor of the pension fund and not the beneficiary.

If you're comfortable managing this money, and the whole 100K is tax sheltered in LIRA and RRSP, then I'd go for that. All in VBAL or something similar.


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## bgbs (9 mo ago)

Thal81 said:


> The DB pension just doesn't look good to me. 8K/year of non-inflation adjusted money guaranteed for 10 years only, that's only 80K of future money when the present commuted value is 100K. And, how much will that 8K be worth when you turn 65, in the current inflation environment? It seems skewed way too much in favor of the pension fund and not the beneficiary.
> 
> If you're comfortable managing this money, and the whole 100K is tax sheltered in LIRA and RRSP, then I'd go for that. All in VBAL or something similar.


I am quite comfortable managing the commuted value in a LIRA/RRSP, possibly in a US REIT or a US dividend ETF to generate income and fill in gaps in my diversification. The only reason to keep the DB in place would be to consider it as an annuity diversification.
As you noted, it is a pretty basic DB Plan and since it is not linked to inflation it isn't very attractive. Investing in one of the above dividend ETFs would generate around $2.5 to $3K plus growth + diversification and retaining the capital.


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## bgbs (9 mo ago)

ian said:


> There are many good reasons to take the DB or to take the commuted value. Certainly not the same for everyone. In my case part of the commuted value could not be rolled into a LIRA and would have been taxed in my hands at 51 percent.
> 
> The commuted value can be attractive, especially when interest rates are low, but you need to be prepared to actively manage those funds. Not just stick them somewhere and hope for the best.
> 
> ...


My DB Plan is pretty basic with no benefits and is not linked to inflation. Investing the 100K in Canadian dividend stocks would generate at least $4K annually right now + some growth + retain the capital. Alternately, in my case, I plan to invest it in a US REIT or US Dividend ETF like VYM to generate dividend income and fill in gaps in my diversification.


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## ian (Jun 18, 2016)

My decision was complicated. My pension plan consisted of a DB plan and a supplementary pension plan. 

Only approx 2/3 of the DB commuted value could be rolled over into a LIRA. The remaining 1/3 would have had taken into income.

The supplementary pension component had to be paid out as a commuted value and could not be rolled over into a LIRA. The only break was that it could be done as three payments over 14 months- three tax years.


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## londoncalling (Sep 17, 2011)

Rather complicated indeed. Do you have any insight into the rationale in a pension having such a structure? One thought that comes to mind is it would be a disincentive for those wanting to commute.


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## bgbs (9 mo ago)

ian said:


> My decision was complicated. My pension plan consisted of a DB plan and a supplementary pension plan.
> 
> Only approx 2/3 of the DB commuted value could be rolled over into a LIRA. The remaining 1/3 would have had taken into income.
> 
> The supplementary pension component had to be paid out as a commuted value and could not be rolled over into a LIRA. The only break was that it could be done as three payments over 14 months- three tax years.


It's not so much complicated in my case but still I need to pay significant taxes, around 43% in my case at this time.
The exact commuted value is $113K of which I can transfer $80K to a LIRA, the rest $33K is taxable, which means taxable amount is around $15K (assuming no RRSP room). So I get $80K+$18K ~ $98K. 

I could wait till I retire so my marginal tax rate is lower- that's an option too.


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## londoncalling (Sep 17, 2011)

bgbs said:


> It's not so much complicated in my case but still I need to pay significant taxes, around 43% in my case at this time.
> The exact commuted value is $113K of which I can transfer $80K to a LIRA, the rest $33K is taxable, which means taxable amount is around $15K (assuming no RRSP room). So I get $80K+$18K ~ $98K.
> 
> I could wait till I retire so my marginal tax rate is lower- that's an option too.


Depending on how long that is and how that fits with your planning I would advise minimizing taxes paid if you are certain you will be in a lower bracket.


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## bgbs (9 mo ago)

londoncalling said:


> Depending on how long that is and how that fits with your planning I would advise minimizing taxes paid if you are certain you will be in a lower bracket.


Thanks for your guidance, it helped to make things clearer. I think I will hold off commuting my DB Plan till I retire (in around 3 years) as I am certain to be in a lower bracket.


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## ian (Jun 18, 2016)

I delayed taking my DB pension for approx 2 years after early retirement. Delaying can be a bit tricky if you plan to take the commuted values. These can change either way depending on future interest and long term bond rates.

One my colleagues delayed retirement by a year. One year later when he was given a revised commuted value he discovered that it was less than the prior year. Essentially he had worked for nothing. The delta approximated his salary for that extra year of work!

I would anticipate that DB pension commuted values will be decreasing over the next year as interest rates rise.


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## londoncalling (Sep 17, 2011)

Ian is correct in that legislative changes can change the funding formulas for the pension funds as well as the calculation formula options. The most recent changes of this nature that I am aware of took place in 2020.

The pdf below from willistowerswatson.com can be found with a simple google search.


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## bgbs (9 mo ago)

ian said:


> I delayed taking my DB pension for approx 2 years after early retirement. Delaying can be a bit tricky if you plan to take the commuted values. These can change either way depending on future interest and long term bond rates.
> 
> One my colleagues delayed retirement by a year. One year later when he was given a revised commuted value he discovered that it was less than the prior year. Essentially he had worked for nothing. The delta approximated his salary for that extra year of work!
> 
> I would anticipate that DB pension commuted values will be decreasing over the next year as interest rates rise.


I guess its a call between a known devil (high current marginal tax rate) and an unknown devil (legislative changes). My thought is to wait till I am in a lower marginal tax rate and then decide. Worst case, I can take the DB pension and consider it as an annuity diversification.


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## bgbs (9 mo ago)

londoncalling said:


> Ian is correct in that legislative changes can change the funding formulas for the pension funds as well as the calculation formula options. The most recent changes of this nature that I am aware of took place in 2020.
> 
> The pdf below from willistowerswatson.com can be found with a simple google search.


Thank you so much for the insights and the document. My thought at this time is to wait till I get into a lower marginal tax rate and then convert the CV to a LIRA, if it makes sense at that time. It's a small part (around 5%) of my portfolio so probably not that big a deal either way.


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## ian (Jun 18, 2016)

I went with the DB annuity and considered it to be part of our portfolio's fixed income component.


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