Pension Question in Canada

[Le0]

Hi

I'm 26. Recently didn't renew a contract at a government position in Ontario. Have started my own business that is still in the make or break stage. Lots of potential job opportunities in the government in my town. I personal would rather my business work out.

Received a letter regarding my approximately 1 year and 4 months worth of pension. The letter gave me until the June 15, 2015 to decide one of three options. I potentially could get hired back to a government position in the OPS but the offer would have to be very good. So I need to make a decision.

option 1 - Take the pension at age 65 totalling $77.87 per month

option 2 -Take the commuted value now $13,687.34

option 3 - Transfer to another pension (not really an option)

Option 2 breaks down a few different ways.

1. The total amount (less tax) in cash

2. 8409.96 in to a non-locked-in RRSP & 5268.38 in cash

3. The total amount in RRSP

I have approx. 30,000 student debt that this could assist with. I am wondering what I should do? Advice please.

[c-kat]

Hi

I'm 26. Recently didn't renew a contract at a government position in Ontario. Have started my own business that is still in the make or break stage. Lots of potential job opportunities in the government in my town. I personal would rather my business work out.

Received a letter regarding my approximately 1 year and 4 months worth of pension. The letter gave me until the June 15, 2015 to decide one of three options. I potentially could get hired back to a government position in the OPS but the offer would have to be very good. So I need to make a decision.

option 1 - Take the pension at age 65 totalling $77.87 per month

option 2 -Take the commuted value now $13,687.34

option 3 - Transfer to another pension (not really an option)

Option 2 breaks down a few different ways.

1. The total amount (less tax) in cash

2. 8409.96 in to a non-locked-in RRSP & 5268.38 in cash

3. The total amount in RRSP

I have approx. 30,000 student debt that this could assist with. I am wondering what I should do? Advice please.

I think option 2 is the way to go. Put it in an index fund in your RRSP and let it grow to give you far more than 77 dollars per month.

[daverobev]

Probably best to take the pension $77 in 40 years, assuming it's inflation adjuated (must be?)

Treat it as bonds.

[lime]

A couple of things you might want to think about:
- For option 2, transferring all the money to an RRSP will use up RRSP contribution room equal to the cash amount (5,268.38). The locked in piece will not use up any RRSP room. (you should confirm with your plan administrator)
- Canadian commuted value rates  are extremely low right now which means your commuted value is relatively high. So if you were ever thinking about taking the lump sum option, now is probably a good time.
- Is your pension indexed? Your commuted value looks very high compared to your pension, so I am guessing yes. You should find out how much (e.g., 50% CPI, 100% CPI) and if it is applied pre and post retirement, or post-retirement only?
- What kind of risk tolerance do you have? A pension provides longevity protection and is not correlated with the market, but the yield is likely lower than what you could get in the stock market.
- What is the interest rate on those student loans?

Personally, I would give heavy consideration to whether it is indexed or not. If it is indexed pre and post retirement, I would probably go for the pension. If it is not indexed, I might consider the lump sum.

[Le0]

Thanks for the advice everyone... I will consider it.

I have to make a decision in the next couple weeks.

[The Fake Cheap]

Does option 1 come with any other benefits such as a health care plan or dental plan?  That could be quite valuable to you at age 65.