# Pension Question



## Karlou (Aug 6, 2013)

Hi

I’m new on this forum and I’ll start with a tough question  I know there’s no easy answer but I’d like to get your opinion on the subject please.

I’m writing you to get some advice regarding my pension. I am 55 years old and semi-retired. I’ll start receiving my pension, September 17, 2013, but I’ll have to make a choice between a few options before. Since I took an early pension (with reduction) my rent will be set at 20,200$ annually. I know it’s not much, that’s why I want to optimize what I’ll be getting financially and tax wise.

For your information, my house is almost fully paid and I have around 125 000 $ in non-registered accounts and 90 000 $ in my RRSP.


Option A: Collect 20,200$ starting September 17, 2013. Keep my RRSP where it is and transfer it in a RRIF when I get 65 or 71 years old.
Option B: Delay the start of my pension until March 22, 2018 and get 24,635$ per year instead. I’ll live on my RRSP until then (four withdrawals of 22,500$ in 2014, 15, 16 and 17).
Option C: Use my RRSP to buy back my reduction of 4,435$ annually, which will cost me around 19 to 20 times the amount t of the reduction or 86,485$ and get a “full” pension of 24,635 starting September 17, 2013.
Option D: Collect my reduced pension of 20,200$ and withdraw 11% of my RRSP each year until I’m 65 years old. I will then have entirely cashed out my RRSP before I get the old age security pension which should reduce my income tax burden in the future.
Thank you in advance

Karl

P.S. Please excuse my English as it’s not my first language.


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## kcowan (Jul 1, 2010)

Since you obviously believe that you can live on $20k a year (plus whatever your non-reg earns), you should take the $20k/yr and defer your RRIF until age 71. You will receive maximum OAS and CPP anyway.

What is longevity like in your family? If you are long-lived, then maybe defer the pension until 65 (Option B).


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## MoneyGal (Apr 24, 2009)

If you are worried about running out of money and want to maximize how much you get while you are alive, no matter how long that is, go for option C. 

If you want to leave a financial legacy (beyond your paid-off house), and are willing to decrease how much you can spend in retirement if you live a very long time, go for option A.

Option B is a "middle ground" which you might choose if you have a small financial legacy wish (you don't want to ensure you leave the largest possible financial legacy), and you also have some worry about outliving your savings, and you don't want to live on $20K per year. 

Does that help?


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## Karlou (Aug 6, 2013)

kcowan said:


> Since you obviously believe that you can live on $20k a year (plus whatever your non-reg earns), you should take the $20k/yr and defer your RRIF until age 71. You will receive maximum OAS and CPP anyway.
> 
> What is longevity like in your family? If you are long-lived, then maybe defer the pension until 65 (Option B).


Hi and thanks for your response

My father died at 71 and his father at 69
Longevity is better on my mom's side though.

I should have said that I live in Quebec where the cost of life is lower than the rest of Canada 

Karl


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## Karlou (Aug 6, 2013)

Thank you for your help MoneyGal

The only thing about option C is that it looks awfully expensive to buy peace of mind.
Of course, I won't have to worry about where to invest my money...
But is 19 to 20 times the amount of the reduction a fair price to pay for that?

Option A seems better so far, if I get decent returns from my RRSP

Karl


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## MoneyGal (Apr 24, 2009)

Well, it is important to understand what you are buying (if you go for Option C) or what you are turning down. 

What you get with Option C is guaranteed income for as long as you live, even if that is a very long time, with no investment risk to you. (I suspect there is also an inflation factor in your pension - is there?)

If you wanted to buy a guaranteed investment (like a GIC) that produced the same yearly income, it would cost you more than the cost of the pension top-up. Guarantees are not cheap. 

I can tell you that 19-20x yearly income is an actuarially fair price to pay - that's what those guarantees cost today; you aren't being "overcharged" relative to other pensioners faced with the same decision. 

Only you can decide if that option is sufficiently valuable to you, though.


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## Karlou (Aug 6, 2013)

Thanks again MoneyGal
I didn't know it was so expensive to buy an annuity.
And yes, my rent is adjusted for inflation, though not at 100%
I've asked them to calculate the exact amount to buy back the reduction
It will be easier to decide once I know how it will cost me.

Karl


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## Retiredguy (Jul 24, 2013)

kcowan said:


> Since you obviously believe that you can live on $20k a year (plus whatever your non-reg earns), you should take the $20k/yr and defer your RRIF until age 71. You will receive maximum OAS and CPP anyway.
> 
> What is longevity like in your family? If you are long-lived, then maybe defer the pension until 65 (Option B).



KCowan , I'm not intending to be rude or difficult, but I don't see enough information in his post to conclude that he will receive ... maximum ... OAS & CPP (QPP). - OAS is based on years in Canada and CPP/QPP on how much and for how many years he contributed.

Also I'm sceptical about his statement that Quebec's cost of living is lowest in Canada. I believe Quebec has one of the highest income taxes in Canada. But there's more to the equation for sure.


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## Karlou (Aug 6, 2013)

Retiredguy said:


> Also I'm sceptical about his statement that Quebec's cost of living is lowest in Canada. I believe Quebec has one of the highest income taxes in Canada. But there's more to the equation for sure.


Hi Retiredguy,

You are right about OAS and CPP. About cost of living though, I'm pretty sure my rent will be much cheaper in Quebec then in Vancouver 
And since my total taxable income will be under 40 000$, income tax won't be too much of a problem I hope.


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## Retiredguy (Jul 24, 2013)

Rent cheaper in the Province of Quebec than the City of Vancouver. That's a statement I could probably agree with! 

Anyway, all the best with your retirement plans.


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