# Buyback and potential CV



## Workaholic (Sep 26, 2015)

Recently opted into my companies DB pension and exploring my best options.

Have roughly 5 years of potential buyback years which roughly equates 20k.

Have scoured the internet to better understand the potential CV. It seems like a straightforward calculation just with many not so obvious readily available variables. 

The simplest way I could think about it would be:

If I were to purchase my 20k buyback wouldn't my absolute minimum CV be my 20k + my employers 20k match = 40k?

Long term I will probably not be with the company but trying to better understand the value of buying back my pension. If I leave it in the fund or take a CV at a later date will have to be considered at that time.


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## Eclectic12 (Oct 20, 2010)

My understanding is the CV is the lump sum $$ required to invest today that would payout the earned benefit, depending on a bunch of variables.

http://www.milliondollarjourney.com/pension-basics-the-commuted-value.htm


So where one is not in the DB pension long and has a long time before normal retirement date - it is not clear to me that the CV is necessarily as high as $40K. The longer the time to retirement, the less $$ invested today will be needed. Other factors that I suspect would lower the CV needed would be a shorter lifespan or low pension payout formula (ex. making $50K, which is under CPP YMPE where one's pension accrues at 1.6% under YMPE but 2% for over YMPE).


Cheers


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## Workaholic (Sep 26, 2015)

Eclectic12 said:


> My understanding is the CV is the lump sum $$ required to invest today that would payout the earned benefit, depending on a bunch of variables.
> 
> http://www.milliondollarjourney.com/pension-basics-the-commuted-value.htm
> 
> ...



I've read/seen that link before and it does help understand the CV.

My reasoning as to why it would be 40k minimum is that from all the sources I've read regarding calculating a CV its just a more complicated Present Value formula. 

The present value of 40k invested today is.... 40k. The only thing that could reduce that in a CV formula is if there are fees related to managing the money but one could assume any of the other benefits in the plan (any insurance related benefits) would easily outstrip that. 

http://www.getsmarteraboutmoney.ca/en/managing-your-money/investing/workplace-pensions-and-savings-plans/Pages/changing-your-job-changing-your-pension-joshs-story.aspx#.VgsAZflVhBc

I found this link helpful.


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