Reader Case Study- To Pension or not to Pension

[Ryvax]

Reader Case Study- To Pension or not to Pension

Hello fellow Mustachians!  I’m a Canadian Soldier who’s wondering if I should go for the pension or cash out and move my family closer to home.  Here’s the deets on my situation.  Let me know if you have any questions.  Thanks in advance for the help!

Income:  My salary after taxes, 4000 +/- 50$ a month. 

Wife just got a new part time line (only a temp line for a year) that should bring in approximately 2000 a month after taxes, will have a more precise number in January when she starts.   

I occasionally sell some of my photography fine art that brings in some cash but have not had time in the past year.  But could be possible future income.

Current Expenses: 

Rent                            960
Internet/Netflix              70
Cell Phones                  170
Insurance                    150
Heating(gas)/Electric    300
Vehicle Gas                  150
Groceries                   1000
(including diapers/
wipes/ kid stuff)

Investments   
Wife RRSP                    200
My RRSP                      200
Savings(xmas/vaca)     100
Child RESP(2kids)         250
       
Fun Money (200 each)  400
This we do whatever
with. Movies, coffee,
whatever.  When it’s
gone it’s gone.

                   TOTAL:  $3880

Assets:

2.4 Acres of land valued at 20k in our home town.  Possible retirement location.  Paid off.  Selling not an option until we know for sure we don't want to retire there as it connects to family land.

2008 Toyota Tacoma with only 100 000 Kilometers and in excellent condition with winter and summer tires in great shape.  Paid off and valued at about 18k if we where to sell it.  Looking to get at least another 10 years out of it.

Total: 38K

Kids RESP              2K
My RRSP              25K
Wife’s RRSP          20K
TFSA                      6K
Wife’s LIRA          100K

Total: 153K

Grand Total with assets: 191K


Liabilities: 

My Line of Credit:        20K  @7.5%
Wife’s Line of Credit:    15K  @6.5%

Specific Questions: 

Ok, so here we go.  I’ve just recently found out about all this mustachtique goodness online.  Currently working my way through all the posts.  Just can’t read it fast enough.

Just last week, I managed to turn 5k into 30K with a lucky stock pick( I know I know, dumb, but it worked in my favor) and pay off my wife’s student loans!  That’s a 700 payment a month gone forever.  I also turned her 30k LIRA into 100k,,,,  Now moving all funds into safer ventures.  I got the kick start I wanted.  The numbers up top are whats in the accounts now, after having paid off the debt.

Here’s my dilemma.  I’m currently in the military and have 7 years left until I can get a 40% pension.  This should net me about 2k a month after taxes for the rest of my life.  Great right?

Problem is, it’s extremely hard on the family.  First off, we are located away from our family.  I work a crazy amount of hours and am away from home a lot.  I’ve been considering releasing and getting a lower paying job closer to home.  If I get out I will get my pension money split in two categories.  I’d get about 100k paid out and taxed and the other 100k would be locked in a LIRA until I’m 55.  The plan would be to fill both my and wife’s RRSP  and use the rest as a down payment for a house.

If I stay in, we will put over 2k a month into the LOC until they are gone and then start maxing out our RRSP and TFSA’s. 

We live on base so I can walk or bike to work, no need for a second vehicle.  Sold our car last year and have been living car payment free since!

Or should I just suck it up and stick it out another 7 years and have my pension forever.  Thing is my kids are 1 and 3 right now… they would be 8 and 10 by the time they would be close to their grand parents…..

What do you guys think?

[Ryvax]

Anyone?

[RetiredAt63]

Hi Ryvax

First, thank you for your service to Canada.

For the financial side, I am not much help.  My only comment -  why would you put money into a LIRA that does not have to be?  Locked in is locked in - usually it is from a pension that you have money in but don't want to leave with the company.  RRSPs and TFSAs have a lot more flexibility.  A LIRA is no safer than anything else, it is just a place to hold investments, and they can be safe or risky.

For the rest - I am not going to be much help, this is such a personal choice. But this is probably where your decision really lies.

Random thoughts - Canada is a rather large country - so how far away is your posting from your home town? - i.e. is it easy to visit every so often, or just about impossible? And are you likely to move around, or is that a long-term posting?

Are you reasonably happy with what you are doing?  Are you learning skills that will transfer to civilian life?  For example, I had a student summer job once at CFB Kingston in the hospital lab, and I know any of the lab techs could have gotten a civilian job in an instant.

Your wife just got a one year job.  Could she take it with her if you moved? Or is it location specific? And is she gaining valuable experience/skills with it?

Work hours - be realistic - if you had a civilian job that was similar (i.e. using your present skills) would it also be hours-intensive?  Lots of people post here about their insane working hours, that is one reason they want to FIRE.  And how easy would it be to find that job?  And how likely is it that it would be closer to family?

Grandparents - and little children - they don't really remember people when they are little, so you have breathing room.  Plus these days there is SKYPE (it keeps families on different continents in touch, so should work for you) and cheap long-distance phone and relatively cheap flights.  Given the mobility of Canadians (my Dad said we were typical, relatives in 7 provinces, but only one family member where we were) lots of people do not live that close to family, and manage just fine.  Is there more reason to be close to family? Would there be child care involved?  There is no budget for child care right now.

And you know? You don't have to decide it rightthisinstant.  This big a change in your lives should be considered very carefully.  You have a window of 7 years - so you could leave now, in one year, 3 years, 5, whatever.  And challenge your assumptions.  Do you WANT to be that close to family? For one thing, if you are from a small town, the two of you have seen more of the world and you may find it hard to fit back in with people who have not been exposed to the new things that you have seen. Given your wife's new job, maybe hold off a year? 

If you do decide to move, moving before the oldest starts school might be nice so he/she has a chance to make friends that will be in the same class.

Just a side note, that may or may not apply - lots of people get really gung-ho when they first discover MMM and the forums - if this is you, don't let it get to your head.

And we are a very opinionated bunch, but we have not had all the answers handed down to us from on high  ;-)

[Ryvax]

Thanks for the reply! For ease of replying without missing anything, I've replied to everything in RED in your text bellow.  I'll also update some info in my original post.

Hi Ryvax

First, thank you for your service to Canada.

No need to thank me.  But thank you for noticing.

For the financial side, I am not much help.  My only comment -  why would you put money into a LIRA that does not have to be?  Locked in is locked in - usually it is from a pension that you have money in but don't want to leave with the company.  RRSPs and TFSAs have a lot more flexibility.  A LIRA is no safer than anything else, it is just a place to hold investments, and they can be safe or risky.

My wife's LIRA was from a non transferable pension from Province to province when we moved.  She had no choice but to lock it in.

And if I release from the military before my 20 years is up, I don't have a choice but to transfer half of my pension to a LIRA and the other half gets paid out to me.

For the rest - I am not going to be much help, this is such a personal choice. But this is probably where your decision really lies.

Random thoughts - Canada is a rather large country - so how far away is your posting from your home town? - i.e. is it easy to visit every so often, or just about impossible? And are you likely to move around, or is that a long-term posting?

It's a 17 hour drive...... Did it once with a 1 year old, 3 year old and dog.... not the funnest trip, but still doable.  We plan on going home for 2 weeks in summer and 1 week at xmas every year.

Our posting will probably be for another 3 years but no idea where we'll end up next.


Are you reasonably happy with what you are doing?  Are you learning skills that will transfer to civilian life?  For example, I had a student summer job once at CFB Kingston in the hospital lab, and I know any of the lab techs could have gotten a civilian job in an instant.

I'm pretty happy at work.  The only issue is the extremely long work hours right now....  But that's this particular position I'm in.  Won't last forever. 

Once I get out, I'll have some options but would prefer to just do my photography part time.


Your wife just got a one year job.  Could she take it with her if you moved? Or is it location specific? And is she gaining valuable experience/skills with it?

She's a nurse, so she can get a job pretty much anywhere.  Although work situation is bad in Ontario right now, all she can find is work at old age homes.

Work hours - be realistic - if you had a civilian job that was similar (i.e. using your present skills) would it also be hours-intensive?  Lots of people post here about their insane working hours, that is one reason they want to FIRE.  And how easy would it be to find that job?  And how likely is it that it would be closer to family?


I won't get in to what job I currently do, because I want to remain anonymous, and anyone in the Canadian military would be able to easily identify me if I talked about it.  All I'll say is that I can easily get a job as a Sherif in my home town or within an hour.  The pay is about 30% less than what I make, but the hours are normal, living costs are lower and I'd actually get paid for overtime.


Grandparents - and little children - they don't really remember people when they are little, so you have breathing room.  Plus these days there is SKYPE (it keeps families on different continents in touch, so should work for you) and cheap long-distance phone and relatively cheap flights.  Given the mobility of Canadians (my Dad said we were typical, relatives in 7 provinces, but only one family member where we were) lots of people do not live that close to family, and manage just fine.  Is there more reason to be close to family? Would there be child care involved?  There is no budget for child care right now.

I just miss being close to family I guess.  Our entertainment when we are home is going to our camp and doing outdoor activities there.... 0$ cost.  That's the biggest draw.  I want my kids growing up doing the things I did as a kid and having their grandparents around.

And you know? You don't have to decide it rightthisinstant.  This big a change in your lives should be considered very carefully.  You have a window of 7 years - so you could leave now, in one year, 3 years, 5, whatever.  And challenge your assumptions.  Do you WANT to be that close to family? For one thing, if you are from a small town, the two of you have seen more of the world and you may find it hard to fit back in with people who have not been exposed to the new things that you have seen. Given your wife's new job, maybe hold off a year? 

Haha, you hit the nail on the head with that one.  That's one of our biggest concerns.  Small town mentality can be very frustrating sometimes.  My wife is worried that we wouldn't like it...  And as for deciding, it's been in our minds for the past 4 years, we've just never pulled the trigger yet.  It does help that we got transferred to within driving distance last year.  Before that, we had to fly home.

If you do decide to move, moving before the oldest starts school might be nice so he/she has a chance to make friends that will be in the same class.

Just a side note, that may or may not apply - lots of people get really gung-ho when they first discover MMM and the forums - if this is you, don't let it get to your head.

Very true advice.  Thing is, I was already considering it.  Mr. Money Mustache will just make it easier to do if that's the way we go. 


And we are a very opinionated bunch, but we have not had all the answers handed down to us from on high  ;-)

As of right now, we are leaning towards staying in till I can get that pension.  That monthly income will be nice to have.  And I'll only be 39 when I retire.

[RichMoose]

I think a lot of this depends on where home is, your true job prospects, and the life you want. Based on your pay I'm assuming you would be at an WO or Officer rank; you may have some opportunity to bump up one or two ranks and get your pension based at a higher pay level. Don't forget, the pension is COLA'd so in today's dollars you will be bringing in close to $3000 a month gross for the rest of your life. Not bad at all!

I don't know if you would be able to find housing for under $1000 per month and easily continue a 1 vehicle lifestyle if you move to your hometown. The more I think about it, the more I would seriously consider staying in and doing that last 7 years. They will fly by. Instead, I would focus on trimming your expenses, making sure your RRSP and TFSA accounts are full, and have a goal of being financially independent in 7 years. I think it would be very achievable.

With smart planning, vegetarian meals once or twice a week, and cloth diapers I bet you could trim your groceries down to $600 / month. Fun money can be knocked down to $100 each. Your cell phone bills are retardedly high. Switch to Koodo or Virgin if you need Canada-wide and you can easily do with $60 - $80 a month for both of you, especially if you use cheaper cell phones and cut the data. Sell your land and pay your debt!

If your wife continues her gig, you should be able to stash $3000 - $4000 a month. Those loans will be paid off in no time. After that, over 7 years at 6% you will have between $300k & $400k put away.

On a side note, I know several CF members that left early and went into the law enforcement field thinking the grass (and the paycheque) would be much greener. After the euphoria of the initial move, most of them are not much happier. Law enforcement is a very difficult field: you're under a lot of scrutiny all the time from your bosses and the public, micromanagement and manager paranoia are a big problem, the overtime doesn't come as easy as you might think, work is stressful and high paced with very high expectations from the public, and the "clientele" are a special breed who carry a phenomenal amount of entitlement considering the damage they do to their families and society as a whole. A lot of friends I worked with in policing suffer from PTSD, anxiety disorders, anger issues, and depression. The real unfortunate thing about it is they all started as good, hard-working, gung-ho people who came with every intent on making their community a better place; it doesn't take long for the system to bog many of them down.

Feel free to PM me if you want some more detailed inside perspective.

[GregO]

Problem is, it’s extremely hard on the family.  First off, we are located away from our family.  I work a crazy amount of hours and am away from home a lot.  I’ve been considering releasing and getting a lower paying job closer to home. 

Thing is my kids are 1 and 3 right now… they would be 8 and 10 by the time they would be close to their grand parents…..

And as for deciding, it's been in our minds for the past 4 years, we've just never pulled the trigger yet.

I'm going to go away from the other opinions and say you should go for it.  In my opinion, the whole goal of FIRE to enjoy life and not let finances drive your quality of life.  It seems pretty clear to me that your current job is far from that.  And your kids are in the prime years when being around for them is the most important.  I would suggest taking that leap and go do something that allows your family to grow closer together (immediate family and extended).  You can learn to minimize your expenses from this forum (and by moving to a lower COL area) so that the financial hit is a non-issue.  Seven prime years is a long time to wait for a pension.

Also, any decision that has been weighing on you for 4 years is obviously something that's important to you guys.  I think you should break out of your current status quo and go for it!  Maybe finding this forum is the exact thing that will give you the motivation to analyze your situation and make the move.  Isn't that the whole goal of MMM?  To evaluate your current life with fresh eyes and get on a path that you really want instead of letting a job or outside influences drive your life?

[Ryvax]

@Tuxedo- Thanks for the reply.  You said what I've been thinking in my head.  If I stick it out, I'd be able to set myself up really nice in 7 years.  The thing that's had me stay in for the past 4 years and not pull the trigger on getting out is that I do love my job.  It's just hard on family and far away from extended family.

As for the land, I should of mentioned that it connects to my family's 100 acres, so selling it is not an option until I am 100% sure we won't retire there. 

As for the cell phones... I know.  I have less than a year left on my contract and then I will unlock my phone, keep it and go to Virgin.  As for my wife, her contract is up now but her phone is pretty much done.  And she wants an iPhone 5s..... can't convince her to buy a used one....  maybe I'll start another thread on just this, lol. 

And I get what your saying about law enforcement.  I think I'd rather try it out once I have my pension, that way I can walk away if I need too.

Thanks again for the pep talk.

@GregO-  And you pretty much nailed the other voice in my head, lol.  This is why we've come so close to doing it so many times.  It's just so hard to pull that trigger.  One of the main issues with that is the job market sucks in my wife's field back east.  She's got job alerts set for all our possible locations but there's just nothing right now.  If something pops up, that could make the decision for us.  Thanks for the reply.