Author Topic: To commute or not to commute (your pension value)?  (Read 35775 times)

Al1961

  • Stubble
  • **
  • Posts: 225
  • Age: 58
  • Location: Alberta - B.C.
  • Dad of a husky Husky
Re: To commute or not to commute (your pension value)?
« Reply #100 on: February 18, 2016, 08:35:11 PM »
Feels good, eh?

congrats

Joan-eh?

  • Bristles
  • ***
  • Posts: 302
  • Location: Toronto
Re: To commute or not to commute (your pension value)?
« Reply #101 on: February 19, 2016, 05:34:58 PM »
But still nervous about investing a big chunk all at one time....😁

thriftyc

  • Bristles
  • ***
  • Posts: 411
  • Age: 46
  • Location: Somewhere just west of Toronto
  • Used to be thrifty canadian/thriftycanuck
Re: To commute or not to commute (your pension value)?
« Reply #102 on: February 19, 2016, 06:14:42 PM »
But still nervous about investing a big chunk all at one time....😁

If you put your money in one investment category - I would be nervous too.  You could try a well diversified strategy of:

 40% Bonds 20% US, 20% Int, 20% Can. 

Then rebalance once a year.  Also, if the investments go down in the short term - so what?  You are still collecting dividends.
Since you are from Toronto - check this out:  http://canadiancouchpotato.com
« Last Edit: February 19, 2016, 06:30:25 PM by thriftycanadian »

Al1961

  • Stubble
  • **
  • Posts: 225
  • Age: 58
  • Location: Alberta - B.C.
  • Dad of a husky Husky
Re: To commute or not to commute (your pension value)?
« Reply #103 on: February 19, 2016, 10:53:47 PM »
But still nervous about investing a big chunk all at one time....😁

If you put your money in one investment category - I would be nervous too.  You could try a well diversified strategy of:

 40% Bonds 20% US, 20% Int, 20% Can. 

Then rebalance once a year.  Also, if the investments go down in the short term - so what?  You are still collecting dividends.
Since you are from Toronto - check this out:  http://canadiancouchpotato.com

I understand the nervous feeling.

That was my AA for the funds from my lump sum.

Goldielocks

  • Walrus Stache
  • *******
  • Posts: 6643
  • Location: BC
Re: To commute or not to commute (your pension value)?
« Reply #104 on: February 20, 2016, 09:09:42 AM »
Amazing thread!

I have to add another example of pension plans not being secured -- Crown Corporations...
These formerly Government-run organizations originally did not need to put the pension plans into trust when they privatized.   (Pensions continued to be financed from current revenues, like the governments that BPA links to).

But, a crown corporation can go bankrupt, and pretty easily.

This is what (almost) happened at Air Canada in 2003 when they filed for bankruptcy.

Canada's national airline originated from the Canadian federal government's 1936 creation of Trans-Canada Airlines (TCA), and was privatized in 1988


My relative, in 2003, who had been retired for all of 2 years, receiving a company pension, received a warning letter that his pension monthly amount would drop to only 30% its current value. as a result of the bankruptcy filing.  Thank goodness that never realized when they emerged from restructuring, but it could have.  It really could have.  And the company would have done it just to improve finances if allowed.   

He worked for the airline for 37 years, since the 1960's, and even with the privatization, always assumed it would continue to be backed by the government at the end if needed  (because 75% of his working years was actually for the government before privatization!).   Yes, his pension was a generous one, but a sudden massive loss of your income, forever, is crushing news.   I would not be surprised to see more government pension announcements like the Detroit one BPA posted, or  for "top hat" pension benefits cut.   

The key is to check if the pension money is fully funded and put into a "trust" account, rather than general revenue.  Today, more pensions (government too) are putting new pension $'s into trust, but some still have not funded the decades of prior commitments.


BPA

  • Handlebar Stache
  • *****
  • Posts: 1192
Re: To commute or not to commute (your pension value)?
« Reply #105 on: February 20, 2016, 11:49:57 AM »
Just got my $$$$!

I'd say perfect time to get it, now to invest while markets are down. Since the cv was so high, only have to make 4% to beat the pension. Can do that just with dividends on RBC stock :-)

Okay, I know it's not so simple... But I'm feeling good so far about it.

Congrats!  Mine is still two weeks away thanks to a colossal fuck up at the BMO branch I dealt with.  OTPP was great and when dude tried to turn around and blame them for his incompetence, I was pretty annoyed. Luckily, the people at BMO Investorline knew what they were doing even if this dude and his manager were clued out and unprofessional. 


Joan-eh?

  • Bristles
  • ***
  • Posts: 302
  • Location: Toronto
Re: To commute or not to commute (your pension value)?
« Reply #106 on: February 20, 2016, 01:01:45 PM »
But still nervous about investing a big chunk all at one time....😁

If you put your money in one investment category - I would be nervous too.  You could try a well diversified strategy of:

 40% Bonds 20% US, 20% Int, 20% Can. 

Then rebalance once a year.  Also, if the investments go down in the short term - so what?  You are still collecting dividends.
Since you are from Toronto - check this out:  http://canadiancouchpotato.com

I've never owned bonds. I know I'm "supposed" to... What would the potential earnings be now?
Made 10% the past three years on the nest egg. . I'd be happy to stick with that strategy, but it includes no bonds.

I need to learn more about bonds I suppose..

Joan-eh?

  • Bristles
  • ***
  • Posts: 302
  • Location: Toronto
Re: To commute or not to commute (your pension value)?
« Reply #107 on: February 20, 2016, 01:04:04 PM »
Amazing thread!

I have to add another example of pension plans not being secured -- Crown Corporations...
These formerly Government-run organizations originally did not need to put the pension plans into trust when they privatized.   (Pensions continued to be financed from current revenues, like the governments that BPA links to).

But, a crown corporation can go bankrupt, and pretty easily.

This is what (almost) happened at Air Canada in 2003 when they filed for bankruptcy.

Canada's national airline originated from the Canadian federal government's 1936 creation of Trans-Canada Airlines (TCA), and was privatized in 1988


My relative, in 2003, who had been retired for all of 2 years, receiving a company pension, received a warning letter that his pension monthly amount would drop to only 30% its current value. as a result of the bankruptcy filing.  Thank goodness that never realized when they emerged from restructuring, but it could have.  It really could have.  And the company would have done it just to improve finances if allowed.   

He worked for the airline for 37 years, since the 1960's, and even with the privatization, always assumed it would continue to be backed by the government at the end if needed  (because 75% of his working years was actually for the government before privatization!).   Yes, his pension was a generous one, but a sudden massive loss of your income, forever, is crushing news.   I would not be surprised to see more government pension announcements like the Detroit one BPA posted, or  for "top hat" pension benefits cut.   

The key is to check if the pension money is fully funded and put into a "trust" account, rather than general revenue.  Today, more pensions (government too) are putting new pension $'s into trust, but some still have not funded the decades of prior commitments.
. Ohhhh! Thanks for sharing this!

Joan-eh?

  • Bristles
  • ***
  • Posts: 302
  • Location: Toronto
Re: To commute or not to commute (your pension value)?
« Reply #108 on: February 20, 2016, 01:07:36 PM »
Just got my $$$$!

I'd say perfect time to get it, now to invest while markets are down. Since the cv was so high, only have to make 4% to beat the pension. Can do that just with dividends on RBC stock :-)

Okay, I know it's not so simple... But I'm feeling good so far about it.

Congrats!  Mine is still two weeks away thanks to a colossal fuck up at the BMO branch I dealt with.  OTPP was great and when dude tried to turn around and blame them for his incompetence, I was pretty annoyed. Luckily, the people at BMO Investorline knew what they were doing even if this dude and his manager were clued out and unprofessional.


grrrr!!!! But once you receive, good time to invest.

Today: Used the after tax money to top up RRSPS, TFSAS, Repay OHOSP. Feels good to be  maxed out!


BPA

  • Handlebar Stache
  • *****
  • Posts: 1192
Re: To commute or not to commute (your pension value)?
« Reply #109 on: February 20, 2016, 01:12:59 PM »
Amazing thread!

I have to add another example of pension plans not being secured -- Crown Corporations...
These formerly Government-run organizations originally did not need to put the pension plans into trust when they privatized.   (Pensions continued to be financed from current revenues, like the governments that BPA links to).

But, a crown corporation can go bankrupt, and pretty easily.

This is what (almost) happened at Air Canada in 2003 when they filed for bankruptcy.

Canada's national airline originated from the Canadian federal government's 1936 creation of Trans-Canada Airlines (TCA), and was privatized in 1988


My relative, in 2003, who had been retired for all of 2 years, receiving a company pension, received a warning letter that his pension monthly amount would drop to only 30% its current value. as a result of the bankruptcy filing.  Thank goodness that never realized when they emerged from restructuring, but it could have.  It really could have.  And the company would have done it just to improve finances if allowed.   

He worked for the airline for 37 years, since the 1960's, and even with the privatization, always assumed it would continue to be backed by the government at the end if needed  (because 75% of his working years was actually for the government before privatization!).   Yes, his pension was a generous one, but a sudden massive loss of your income, forever, is crushing news.   I would not be surprised to see more government pension announcements like the Detroit one BPA posted, or  for "top hat" pension benefits cut.   

The key is to check if the pension money is fully funded and put into a "trust" account, rather than general revenue.  Today, more pensions (government too) are putting new pension $'s into trust, but some still have not funded the decades of prior commitments.
. Ohhhh! Thanks for sharing this!

Yes!  Thanks!  I feel sure I've made the right decision even if a lot of other teachers think I'm insane.  :)


grrrr!!!! But once you receive, good time to invest.

Today: Used the after tax money to top up RRSPS, TFSAS, Repay OHOSP. Feels good to be  maxed out!


Agreed.  Our timing seems perfect, Joan.  :)

I'll be paying a ton off the mortgage with the non-locked in amount and then putting most of the rest in TFSAs.  I wish I had more RRSP room.

powersuitrecall

  • Pencil Stache
  • ****
  • Posts: 514
  • Location: Ontario, Canada
Re: To commute or not to commute (your pension value)?
« Reply #110 on: February 20, 2016, 02:42:33 PM »
I'll be paying a ton off the mortgage with the non-locked in amount and then putting most of the rest in TFSAs.  I wish I had more RRSP room.

It's been great reading this thread - I will have to make a similar decision about 4 years from now. 

To start preparing for the potentially large taxable amount, I've been letting my RRSP room grow (about $4-5K per year).  I also plan on retiring near the end of one calendar year and receiving my lump sum in the next, which should help on taxes as well.  This is allowed, correct?

thriftyc

  • Bristles
  • ***
  • Posts: 411
  • Age: 46
  • Location: Somewhere just west of Toronto
  • Used to be thrifty canadian/thriftycanuck
Re: To commute or not to commute (your pension value)?
« Reply #111 on: February 21, 2016, 02:16:12 AM »
But still nervous about investing a big chunk all at one time....😁

If you put your money in one investment category - I would be nervous too.  You could try a well diversified strategy of:

 40% Bonds 20% US, 20% Int, 20% Can. 

Then rebalance once a year.  Also, if the investments go down in the short term - so what?  You are still collecting dividends.
Since you are from Toronto - check this out:  http://canadiancouchpotato.com

I've never owned bonds. I know I'm "supposed" to... What would the potential earnings be now?
Made 10% the past three years on the nest egg. . I'd be happy to stick with that strategy, but it includes no bonds.

I need to learn more about bonds I suppose..


Bonds (Bond Indexes) help reduce portfolio volatility.  Also provide money to rebalance with when stocks are down, allowing you to buy stocks on sale.  A bond index ETF like VAB will get you about 2.5% return and will hold firm while stocks slip.  Congrats on the 10% return the last three years, however, past returns does not mean that will continue on - especially in the midst of a correction.


Joan-eh?

  • Bristles
  • ***
  • Posts: 302
  • Location: Toronto
Re: To commute or not to commute (your pension value)?
« Reply #112 on: February 21, 2016, 03:47:17 PM »
I'll be paying a ton off the mortgage with the non-locked in amount and then putting most of the rest in TFSAs.  I wish I had more RRSP room.

It's been great reading this thread - I will have to make a similar decision about 4 years from now. 

To start preparing for the potentially large taxable amount, I've been letting my RRSP room grow (about $4-5K per year).  I also plan on retiring near the end of one calendar year and receiving my lump sum in the next, which should help on taxes as well.  This is allowed, correct?

I applied last day possible in December - and it has arrived in February. It will count for 2016.  I wish I had more rrsp room, but I've paid the tax and now all non-LIRA amount is in TFSA's - where I (and hubby) had full room. So at least it grows tax free there. My "problem" is that I'm still working, so hit tax hit!

Joan-eh?

  • Bristles
  • ***
  • Posts: 302
  • Location: Toronto
Re: To commute or not to commute (your pension value)?
« Reply #113 on: February 21, 2016, 03:53:04 PM »
But still nervous about investing a big chunk all at one time....😁

If you put your money in one investment category - I would be nervous too.  You could try a well diversified strategy of:

 40% Bonds 20% US, 20% Int, 20% Can. 

Then rebalance once a year.  Also, if the investments go down in the short term - so what?  You are still collecting dividends.
Since you are from Toronto - check this out:  http://canadiancouchpotato.com

I've never owned bonds. I know I'm "supposed" to... What would the potential earnings be now?
Made 10% the past three years on the nest egg. . I'd be happy to stick with that strategy, but it includes no bonds.

I need to learn more about bonds I suppose..


Bonds (Bond Indexes) help reduce portfolio volatility.  Also provide money to rebalance with when stocks are down, allowing you to buy stocks on sale.  A bond index ETF like VAB will get you about 2.5% return and will hold firm while stocks slip.  Congrats on the 10% return the last three years, however, past returns does not mean that will continue on - especially in the midst of a correction.

Thank you for your thoughtful reply. Would you mind explaining why would I buy bonds at 2.5% which hardly keeps pace with inflation, when I can get 4 - 4.5% dividends. I must be missing something?

thriftyc

  • Bristles
  • ***
  • Posts: 411
  • Age: 46
  • Location: Somewhere just west of Toronto
  • Used to be thrifty canadian/thriftycanuck
Re: To commute or not to commute (your pension value)?
« Reply #114 on: February 21, 2016, 07:10:52 PM »
But still nervous about investing a big chunk all at one time....😁

If you put your money in one investment category - I would be nervous too.  You could try a well diversified strategy of:

 40% Bonds 20% US, 20% Int, 20% Can. 

Then rebalance once a year.  Also, if the investments go down in the short term - so what?  You are still collecting dividends.
Since you are from Toronto - check this out:  http://canadiancouchpotato.com

I've never owned bonds. I know I'm "supposed" to... What would the potential earnings be now?
Made 10% the past three years on the nest egg. . I'd be happy to stick with that strategy, but it includes no bonds.

I need to learn more about bonds I suppose..


Bonds (Bond Indexes) help reduce portfolio volatility.  Also provide money to rebalance with when stocks are down, allowing you to buy stocks on sale.  A bond index ETF like VAB will get you about 2.5% return and will hold firm while stocks slip.  Congrats on the 10% return the last three years, however, past returns does not mean that will continue on - especially in the midst of a correction.

Thank you for your thoughtful reply. Would you mind explaining why would I buy bonds at 2.5% which hardly keeps pace with inflation, when I can get 4 - 4.5% dividends. I must be missing something?

Risk and rebalancing ability.  Dividend paying stocks have significantly more downside risk than an aggregate bond index.  Everyones tolerance for risk is different.  If you can stomach an all stock portfolio and potentially seeing your assets cut in half during a correction - more power to you.
I have 40% bonds to (1) sleep well at night  (2) Use them to rebalance when stocks are on sale.


« Last Edit: February 21, 2016, 07:13:50 PM by thriftycanadian »

Joan-eh?

  • Bristles
  • ***
  • Posts: 302
  • Location: Toronto
Re: To commute or not to commute (your pension value)?
« Reply #115 on: February 21, 2016, 07:30:29 PM »
I see! My logic (?) is that CPP, OAS, my second more lucrative pension, real estate is my more stable part of the portfolio and the RRSP, TFSA to be the more aggressive part. Well, it's all unknown...only time will tell :-)

thriftyc

  • Bristles
  • ***
  • Posts: 411
  • Age: 46
  • Location: Somewhere just west of Toronto
  • Used to be thrifty canadian/thriftycanuck
Re: To commute or not to commute (your pension value)?
« Reply #116 on: February 21, 2016, 07:37:49 PM »
I see! My logic (?) is that CPP, OAS, my second more lucrative pension, real estate is my more stable part of the portfolio and the RRSP, TFSA to be the more aggressive part. Well, it's all unknown...only time will tell :-)

I see why you would go more stock since you have other income sources/assets to draw from and/or balance risk - makes perfect sense.

Your earlier comment about being a bit concerned about jumping into the market all at once is what prompted my reply with the AA idea - which helps overcome that. 

Cheers,

TC
« Last Edit: February 21, 2016, 07:42:19 PM by thriftycanadian »

Joan-eh?

  • Bristles
  • ***
  • Posts: 302
  • Location: Toronto
Re: To commute or not to commute (your pension value)?
« Reply #117 on: February 22, 2016, 01:10:54 PM »
I see! My logic (?) is that CPP, OAS, my second more lucrative pension, real estate is my more stable part of the portfolio and the RRSP, TFSA to be the more aggressive part. Well, it's all unknown...only time will tell :-)

I see why you would go more stock since you have other income sources/assets to draw from and/or balance risk - makes perfect sense.

Your earlier comment about being a bit concerned about jumping into the market all at once is what prompted my reply with the AA idea - which helps overcome that. 

Cheers,

TC
yes! And your advice on Aa might still be the best route to slowly buy in, thought this dip isn't a bad time. Thank you so much for jumping in and sharing. Your comments are still helping to advance my thinking!!!

Joan-eh?

  • Bristles
  • ***
  • Posts: 302
  • Location: Toronto
Re: To commute or not to commute (your pension value)?
« Reply #118 on: February 24, 2016, 08:36:02 PM »
Thrifty Canadian, i've been poring over websites tonight looking at all the ETFs for bonds, Canadian equities, US equities, global equities, and outside North America. There's TOO much to choosefrom. (i'm really not sure how to make the decision of which bond ETF I would choose) The VAB came out at 2.78% for the last 12 months. Which is probably a good thing for me to look at. Because I think I only need to reach 3 1/2% or so to beat what the pension would have paid me, and I'm not so interested in beating the pension as being able to have access to the capital if I need it, and mostly to have the flexibility of withdrawing when I want. I think you have convinced me! The only time before this that I have bonds was a claymore 5 yr laddered bond, which wasn't the best.

Did you see the article on the daily reckoning site which discussed ETFs as a time bomb in plain sight? David stockman. I started another thread but if anyone here has insight into this, that might be good.

This is such a hard game.

Joan-eh?

  • Bristles
  • ***
  • Posts: 302
  • Location: Toronto
Re: To commute or not to commute (your pension value)?
« Reply #119 on: February 25, 2016, 07:59:10 AM »

http://www.thestar.com/business/personal_finance/2010/10/08/six_reasons_why_i_wont_buy_bonds.html

Ahh...the seesaw begins....a man with a pension sees as i was thinking.

thriftyc

  • Bristles
  • ***
  • Posts: 411
  • Age: 46
  • Location: Somewhere just west of Toronto
  • Used to be thrifty canadian/thriftycanuck
Re: To commute or not to commute (your pension value)?
« Reply #120 on: February 25, 2016, 05:45:04 PM »
Thrifty Canadian, i've been poring over websites tonight looking at all the ETFs for bonds, Canadian equities, US equities, global equities, and outside North America. There's TOO much to choosefrom. (i'm really not sure how to make the decision of which bond ETF I would choose) The VAB came out at 2.78% for the last 12 months. Which is probably a good thing for me to look at. Because I think I only need to reach 3 1/2% or so to beat what the pension would have paid me, and I'm not so interested in beating the pension as being able to have access to the capital if I need it, and mostly to have the flexibility of withdrawing when I want. I think you have convinced me! The only time before this that I have bonds was a claymore 5 yr laddered bond, which wasn't the best.

Did you see the article on the daily reckoning site which discussed ETFs as a time bomb in plain sight? David stockman. I started another thread but if anyone here has insight into this, that might be good.

This is such a hard game.

VAB is a good all round choice.  I hold that in my portfolio. 

Re: David Stockman, Take him with a grain of salt. He is a doomsday guy, thinks the worst correction of all time is going to happen any day now.   Mainstream ETF's like Vanguards, BMO's and ISHARES are safe.  If you are concerned, I suggest you could invest in TD E Series Index Bond/Stock funds instead.  Unless you are a professional institutional investor, I would forget about holding individual stocks and invest in indexes instead.

If you think guys like David Stockman hold some truth, then hold something along the lines of 30% VAB, 20% GOLD and 50% stock indexes (US,CAN, INT) and you can sleep better at night.  He thinks GOLD will go up, as with most doomdayers.  I have ZERO Gold in my portfolio.

In my opinion, there are better sources of information than Stockman and they are:

Jack Bogle (founder of Vanguard)  - His videos are all over youtube.
Andrew Hallam - Canadian Author and an excellent resource   http://andrewhallam.com
Canadian Couch Potato: canadiancouchpotato.com/

Thrifty

« Last Edit: February 25, 2016, 06:00:12 PM by thriftycanadian »

thriftyc

  • Bristles
  • ***
  • Posts: 411
  • Age: 46
  • Location: Somewhere just west of Toronto
  • Used to be thrifty canadian/thriftycanuck
Re: To commute or not to commute (your pension value)?
« Reply #121 on: February 25, 2016, 05:50:25 PM »

http://www.thestar.com/business/personal_finance/2010/10/08/six_reasons_why_i_wont_buy_bonds.html

Ahh...the seesaw begins....a man with a pension sees as i was thinking.

He mentions Individual Canada Savings Bond in a taxed environment - a little different than what we are talking about here in terms of context.

VAB is different in the sense that is has an aggregate holding of various types of long, mid, short government and corporate bonds and can be traded at ANY time within a tax shelter environment.

Again, VAB or VSB is for: 
(1) Risk mitigation while keeping with inflation (at least)
(2) Allows you to rebalance when stock indexes have dropped




« Last Edit: February 25, 2016, 05:54:51 PM by thriftycanadian »

Joan-eh?

  • Bristles
  • ***
  • Posts: 302
  • Location: Toronto
Re: To commute or not to commute (your pension value)?
« Reply #122 on: February 25, 2016, 07:03:27 PM »
Thx for the insights! I don't know Andrew Hallam. Will check out!

Cookie78

  • Handlebar Stache
  • *****
  • Posts: 1893
  • Location: Canada
Re: To commute or not to commute (your pension value)?
« Reply #123 on: February 25, 2016, 09:15:25 PM »
Thx for the insights! I don't know Andrew Hallam. Will check out!

I really enjoyed his book also.


I did mine last January. That is, submitted the paperwork on Jan 5. Tool about three weeks to receive the cash - less 30% withholding tax on the amount in excess of what I could roll into a LIRA. No RRSP room. Had the joy of making a $20,000 installment payment on Dec 15 since the withholding tax was insufficient.

Don't forget to do a dry run on your 2016 taxes so you can determine how much your installment payment, if any, should be. Penalties and interest on un-remitted installments can get expensive.

Al

In general, how do you know if you need to make an installment payment?!

Joan-eh?

  • Bristles
  • ***
  • Posts: 302
  • Location: Toronto
Re: To commute or not to commute (your pension value)?
« Reply #124 on: February 26, 2016, 08:02:41 AM »
Al
Ack! You are right! I owe 50% tax on the taxable amount. They only took off 30%. I'm going to owe another 30,000 or so. The planning begins...

Al1961

  • Stubble
  • **
  • Posts: 225
  • Age: 58
  • Location: Alberta - B.C.
  • Dad of a husky Husky
Re: To commute or not to commute (your pension value)?
« Reply #125 on: February 26, 2016, 12:03:36 PM »
Al
Ack! You are right! I owe 50% tax on the taxable amount. They only took off 30%. I'm going to owe another 30,000 or so. The planning begins...

Surely that's your marginal rate, not your average rate! In Alberta, my dry run on 2015 taxes showed an average tax rate of 33%, whereas the top marginal rate was effectively 40.25% (44% for 2016).

For info about installment payments, see: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/pymnts/nstlmnts/wh-eng.html (lots of links to follow to get the full story!)

Essentially, if you will owe >$3k for 2016 (this is a given) AND you owed >$3k in either 2014 OR 2015, you will be required to make an installment payment, no later than December 15, 2016, of the amount required to reduce your liability ON FILING to <$3k. Failure to do so results in interest, backdated to the date you SHOULD have paid, calculated at 5%, compounded daily.

Penalties may also accrue. The penalty is the higher of:
    $1,000
    or
    25% of the installment interest that you would have had to pay if you had not made installment payments for 2016. (There is an ugly calculation there that I won't reproduce here (see http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/pymnts/nstlmnts/ntrst-eng.html )

So you need to look at your situation. In addition to your employment income, did you have self employment income and/or investment income over ~$10k in 2015? that will probably cause a 2015 liability of >$3k that will require you to make an installment in 2016.

If you did not have a >$3k amount owing in either of the past two years, you do not have to make an installment payment in 2016, and can just pay the total amount owing when you file in 2017. That may trigger the need to make installment payments in 2017 or 2018.

Clear as mud, isn't it?

Al

edited to clean up quotes and remove some personal info.
« Last Edit: February 26, 2016, 12:06:29 PM by Al1961 »

Cookie78

  • Handlebar Stache
  • *****
  • Posts: 1893
  • Location: Canada
Re: To commute or not to commute (your pension value)?
« Reply #126 on: February 26, 2016, 01:16:13 PM »
Al
Ack! You are right! I owe 50% tax on the taxable amount. They only took off 30%. I'm going to owe another 30,000 or so. The planning begins...

Surely that's your marginal rate, not your average rate! In Alberta, my dry run on 2015 taxes showed an average tax rate of 33%, whereas the top marginal rate was effectively 40.25% (44% for 2016).

For info about installment payments, see: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/pymnts/nstlmnts/wh-eng.html (lots of links to follow to get the full story!)

Essentially, if you will owe >$3k for 2016 (this is a given) AND you owed >$3k in either 2014 OR 2015, you will be required to make an installment payment, no later than December 15, 2016, of the amount required to reduce your liability ON FILING to <$3k. Failure to do so results in interest, backdated to the date you SHOULD have paid, calculated at 5%, compounded daily.

Penalties may also accrue. The penalty is the higher of:
    $1,000
    or
    25% of the installment interest that you would have had to pay if you had not made installment payments for 2016. (There is an ugly calculation there that I won't reproduce here (see http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/pymnts/nstlmnts/ntrst-eng.html )

So you need to look at your situation. In addition to your employment income, did you have self employment income and/or investment income over ~$10k in 2015? that will probably cause a 2015 liability of >$3k that will require you to make an installment in 2016.

If you did not have a >$3k amount owing in either of the past two years, you do not have to make an installment payment in 2016, and can just pay the total amount owing when you file in 2017. That may trigger the need to make installment payments in 2017 or 2018.

Clear as mud, isn't it?

Al

edited to clean up quotes and remove some personal info.

Awesome! Thanks for the info. I'll remember to keep that in mind after the first year I ever owe >$3k.

BPA

  • Handlebar Stache
  • *****
  • Posts: 1192
Re: To commute or not to commute (your pension value)?
« Reply #127 on: March 05, 2016, 08:43:31 AM »
Great information, Al!  Thanks!  And thanks to TC too and all of the other contributors.

Joan:  I am very grateful to you for starting this thread.  It has been informative and has also been something I've read for those moments when I was feeling uncertain about my ability to manage my own money.  Certainly most teachers I know thought I was insane and couldn't do it on my own.  There are risks, but I'm feeling more confident and we chose a really good time to take commuted value.  Also, as Al pointed out a while ago, plan amendment risk is real and people tend not to take it into account.

Finally got my money, and have couch potatoed it.  :D

Joan-eh?

  • Bristles
  • ***
  • Posts: 302
  • Location: Toronto
Re: To commute or not to commute (your pension value)?
« Reply #128 on: March 05, 2016, 10:42:05 AM »
BPA - like you, I felt alone, and didn't understand why I couldn't find another person thinking of this option. There is a bit of unthinking when it comes to teachers pension... People just assume that it would be stupid to leave.  Glad you and others jumped in!  Hooray for us!

At this moment, I do have a great sense of security having access to the principal.  I would have had to wait until 65 to start collecting a decent amount from the pension. I'm 50, so now if any sort of need arose, I could take as little or as much as I need, and don't have to continue to take from it. This is the greatest benefit for me,in my mind.

I have the forms filled out to unlock 50%. This I will also do. The only reason I see not to unlock, is that once it is out of the lira, the money  is accessible to creditors. As I am completely out of debt! I don't need this protection.

You couch potatoed? Would you be comfortable sharing details?

Joan-eh?

  • Bristles
  • ***
  • Posts: 302
  • Location: Toronto
Re: To commute or not to commute (your pension value)?
« Reply #129 on: March 05, 2016, 10:44:38 AM »
Al
Ack! You are right! I owe 50% tax on the taxable amount. They only took off 30%. I'm going to owe another 30,000 or so. The planning begins...

Surely that's your marginal rate, not your average rate! In Alberta, my dry run on 2015 taxes showed an average tax rate of 33%, whereas the top marginal rate was effectively 40.25% (44% for 2016).

For info about installment payments, see: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/pymnts/nstlmnts/wh-eng.html (lots of links to follow to get the full story!)

Essentially, if you will owe >$3k for 2016 (this is a given) AND you owed >$3k in either 2014 OR 2015, you will be required to make an installment payment, no later than December 15, 2016, of the amount required to reduce your liability ON FILING to <$3k. Failure to do so results in interest, backdated to the date you SHOULD have paid, calculated at 5%, compounded daily.

Penalties may also accrue. The penalty is the higher of:
    $1,000
    or
    25% of the installment interest that you would have had to pay if you had not made installment payments for 2016. (There is an ugly calculation there that I won't reproduce here (see http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/pymnts/nstlmnts/ntrst-eng.html )

So you need to look at your situation. In addition to your employment income, did you have self employment income and/or investment income over ~$10k in 2015? that will probably cause a 2015 liability of >$3k that will require you to make an installment in 2016.

If you did not have a >$3k amount owing in either of the past two years, you do not have to make an installment payment in 2016, and can just pay the total amount owing when you file in 2017. That may trigger the need to make installment payments in 2017 or 2018.

Clear as mud, isn't it?

Al

edited to clean up quotes and remove some personal info.

Al, I am afraid that this includes me. how would I be supposed to know this,  if you hadn't been so kind to point this out? Is the rule that you can't go over $3000 years in a row?
« Last Edit: March 05, 2016, 09:15:59 PM by Joan-eh? »

BPA

  • Handlebar Stache
  • *****
  • Posts: 1192
Re: To commute or not to commute (your pension value)?
« Reply #130 on: March 05, 2016, 11:41:16 AM »
Hey Joan!

This is what I've followed.  I subscribed to Money Sense online for $20/year and plan to consider what else I hear from the Couch Potato people there.

http://canadiancouchpotato.com/wp-content/uploads/2016/01/CCP-Model-Portfolios-Vanguard-2015.pdf


thriftyc

  • Bristles
  • ***
  • Posts: 411
  • Age: 46
  • Location: Somewhere just west of Toronto
  • Used to be thrifty canadian/thriftycanuck
Re: To commute or not to commute (your pension value)?
« Reply #131 on: March 05, 2016, 05:56:06 PM »
Great information, Al!  Thanks!  And thanks to TC too and all of the other contributors.


Finally got my money, and have couch potatoed it.  :D

Congrats!


Al1961

  • Stubble
  • **
  • Posts: 225
  • Age: 58
  • Location: Alberta - B.C.
  • Dad of a husky Husky
Re: To commute or not to commute (your pension value)?
« Reply #132 on: March 13, 2016, 11:04:17 PM »

Al, I am afraid that this includes me. how would I be supposed to know this,  if you hadn't been so kind to point this out? Is the rule that you can't go over $3000 years in a row?

Just saw this. Yeah, the government wants its pound of flesh earlier if you have income sources for which tax is not withheld at source. Hence the rules about installments.

If you owe more than $3k upon filing for 2015, CRA will most likely send you an "installment reminder" sometime during 2016 to make an installment payment. The info on the reminder will be based on your 2015 tax situation.

This "reminder" will not show the appropriate amount to pay for your 2016 lump sum. You get to calculate that yourself. Don't forget to include the new 33% federal bracket. Fortunately, there are a number of on-line calculators that you can use.

Al

Joan-eh?

  • Bristles
  • ***
  • Posts: 302
  • Location: Toronto
Re: To commute or not to commute (your pension value)?
« Reply #133 on: March 19, 2016, 04:01:57 PM »
I haven't received anything yet!

Saga update:

I took the forms to the bank to do the 50% unlocking within 60 days.

The advisor said: now is not the time for this, the time for unlocking is 60 days from moving the money from a lira to a lif. So if I have this straight:

I will not need to draw upon this money soon, so I keep it as a LIRA. When I need to start withdrawing,  I convert the LIRA to a LIF (much like converting a RRSP to a RIFF, maybe). and it is then, I apply for the 50% unlocking.

But then after this clarification, the banker said, but you'd better check that out. So I called directly to CRA and the Ontario Financial commission and the people that I spoke to DIDNT know what I was talking about, this 50% unlocking! Arg!!!  Really?

How to find out?

thriftyc

  • Bristles
  • ***
  • Posts: 411
  • Age: 46
  • Location: Somewhere just west of Toronto
  • Used to be thrifty canadian/thriftycanuck
Re: To commute or not to commute (your pension value)?
« Reply #134 on: March 19, 2016, 08:01:17 PM »
I haven't received anything yet!

Saga update:

I took the forms to the bank to do the 50% unlocking within 60 days.

The advisor said: now is not the time for this, the time for unlocking is 60 days from moving the money from a lira to a lif. So if I have this straight:

I will not need to draw upon this money soon, so I keep it as a LIRA. When I need to start withdrawing,  I convert the LIRA to a LIF (much like converting a RRSP to a RIFF, maybe). and it is then, I apply for the 50% unlocking.

But then after this clarification, the banker said, but you'd better check that out. So I called directly to CRA and the Ontario Financial commission and the people that I spoke to DIDNT know what I was talking about, this 50% unlocking! Arg!!!  Really?

How to find out?

Here is a straight forward explanation on various ways to unlock LIRA's in Ontario:
http://www.moneysmartsblog.com/how-to-unlock-an-ontario-locked-in-retirement-account-lira-lrif/