Author Topic: Any former Gov't worker Mustacians? (pension vs lump sum)  (Read 16441 times)

powersuitrecall

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Any former Gov't worker Mustacians? (pension vs lump sum)
« on: October 27, 2014, 01:15:02 PM »
I'm currently a gov't worker in Canada, but due to starting my civil servant career late I will not have a full pension at a reasonable time (~42% at age 60).  If I retire earlier, I will be severely penalized (5% per year early).

There is another option however: I can opt to receive a lump sum payment based on a complicated formula of years of service, best 5 years of pay, etc.  That lump sum is divided into 2:
- amount that is tax-free and must be placed in a locked-in RRSP (sweet!)
- amount that is taxed immediately based on current income (ack!)

Has anyone achieved FIRE under such a plan that would like to share their experience?  I would love to start planning for such an eventuality.

Cheers!
Graham

sol

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #1 on: October 27, 2014, 01:27:33 PM »
I don't know how Canadia works, but US federal employees have the option of deferring their pension to avoid the penalty.  I can retire at age 40 with 10 years of service and then collect all of the pension I have earned, starting at age 62 and without any silly 5%/yr "early retirement" penalty.  I just don't get anything between ages 40 and 62.

Is your system different?

VirginiaBob

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #2 on: October 27, 2014, 01:36:09 PM »
I don't know how Canadia works, but US federal employees have the option of deferring their pension to avoid the penalty.  I can retire at age 40 with 10 years of service and then collect all of the pension I have earned, starting at age 62 and without any silly 5%/yr "early retirement" penalty.  I just don't get anything between ages 40 and 62.

Is your system different?

Also no COLA between 40 and 62 on future pension.  I hate that part.

sol

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #3 on: October 27, 2014, 01:40:09 PM »
Also no COLA between 40 and 62 on future pension.  I hate that part.

Yea, I'm well aware of the suckage involved.  I'm holding out hope for a 20 year period of super low inflation.  Otherwise the federal pension is almost worthless.

On the bright side, your social security payments ARE indexed to inflation.

RichMoose

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #4 on: October 27, 2014, 02:33:35 PM »
I'm kind of in the same boat, so I'm locking onto this thread for further comments. I plan on retiring early (at around 40 hopefully), and if I opt to take the pension it will come with huge penalties for early retirement, even though I'll have more than 15 years of pensionable service.

I did a job change almost 2 years ago and received a lump-sum payout at that time. Fortunately I was able to put all of it in tax deferred accounts (a Locked-in RRSP for the "in limit" portion, and I had sufficient room in my regular RRSP for the "excess" portion. My understanding from the pension agent I worked with was the time from 40 till 60 (when I can start taking the pension) does not accumulate COLA. The payment offered is a projection, it can be substantially higher or lower.

I don't have sufficient room in my RRSP anymore to do the same as I did before, so here's my plan based on my current knowledge.

1. Generally take a wait and see approach, once I've hit FIRE (I don't count my pension in this calculation) I will get a full estimate done of my LRRSP payout and excess portion.
2. Retire in December. This way I can take my excess portion payment as income in the new year, I will have some additional RRSP room and it would be my only regular taxable income for the year.
3. Top up the RRSP & TFSA accounts first (and RESP if I have kids).
4. Live off the rest until it's gone. If the amount lasts more than 1 year I will be a great opportunity to take money out of my RRSP and dump it in the TFSA (the Canadian hack of a Roth conversion).

RetiredAt63

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #5 on: October 27, 2014, 02:40:29 PM »
My only contribution is, if you take a locked in RRSP (a LIRA) that you watch it like a hawk.  I know someone who had one while he was in his 20's (short term job), and just let it sit - it is worth very little 40 years later.  If he had left it locked in to the university he was working for, it would be worth a lot more now that he is in his 60's.

powersuitrecall

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #6 on: October 27, 2014, 02:44:14 PM »
I don't know how Canadia works, but US federal employees have the option of deferring their pension to avoid the penalty.  I can retire at age 40 with 10 years of service and then collect all of the pension I have earned, starting at age 62 and without any silly 5%/yr "early retirement" penalty.  I just don't get anything between ages 40 and 62.

Is your system different?

It's the same in this regard - I should be able to defer payment of a pension till 60 with the appropriately non-penalized pension. I have to be honest, however, in the fact that I'm only now looking into the details and only now starting to get answers.  I will be taking a pension course shortly that should answer some questions - and of course I will be updating this thread as I get them.

powersuitrecall

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #7 on: October 27, 2014, 02:46:15 PM »
Also no COLA between 40 and 62 on future pension.  I hate that part.

Hmm ... going to have to look into this for our pension.  I believe it's indexed to a consumer price index, but there may be limitations. This will be a huge factor in my plan.

powersuitrecall

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #8 on: October 27, 2014, 02:51:17 PM »
My only contribution is, if you take a locked in RRSP (a LIRA) that you watch it like a hawk.  I know someone who had one while he was in his 20's (short term job), and just let it sit - it is worth very little 40 years later.  If he had left it locked in to the university he was working for, it would be worth a lot more now that he is in his 60's.

Wow - Thank you for the great reminder to call my bank to see what investment options are available for my LIRA from my time with an unnamed Canadian tech giant that went super-nova in 2009.  It's not much, but in 15 years it could be!

powersuitrecall

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #9 on: October 27, 2014, 02:56:18 PM »
I'm kind of in the same boat, so I'm locking onto this thread for further comments. I plan on retiring early (at around 40 hopefully), and if I opt to take the pension it will come with huge penalties for early retirement, even though I'll have more than 15 years of pensionable service.

I did a job change almost 2 years ago and received a lump-sum payout at that time. Fortunately I was able to put all of it in tax deferred accounts (a Locked-in RRSP for the "in limit" portion, and I had sufficient room in my regular RRSP for the "excess" portion. My understanding from the pension agent I worked with was the time from 40 till 60 (when I can start taking the pension) does not accumulate COLA. The payment offered is a projection, it can be substantially higher or lower.

I don't have sufficient room in my RRSP anymore to do the same as I did before, so here's my plan based on my current knowledge.

1. Generally take a wait and see approach, once I've hit FIRE (I don't count my pension in this calculation) I will get a full estimate done of my LRRSP payout and excess portion.
2. Retire in December. This way I can take my excess portion payment as income in the new year, I will have some additional RRSP room and it would be my only regular taxable income for the year.
3. Top up the RRSP & TFSA accounts first (and RESP if I have kids).
4. Live off the rest until it's gone. If the amount lasts more than 1 year I will be a great opportunity to take money out of my RRSP and dump it in the TFSA (the Canadian hack of a Roth conversion).

I'll be doing something similar, but I plan on working for another 10 years (or less?).  I'll just have to determine which is the best route to go ... take the bulk payment or live off the other stash till 60 (which shouldn't be tough to do).

As I mentioned above, I'll be taking a pension course shortly and I'll post some more details about my situation.

Thanks everyone for your responses so far!

Cheers!
Graham

Al1961

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #10 on: October 27, 2014, 03:06:09 PM »
I retired at the end of July, but have deferred taking the lump sum from the Alberta MEPP until January - because I have to take about $380k into income after maxing out the LIRA and don't want it all at the top marginal rate (39% here). The deferral leaves me exposed to interest rate risk - the payout varies ~$20k with every 0.1% change in the prescribed discount rate.

I joined the plan at age 38, and had 14.5 years of service. Our contribution rate was 12.9% of gross income. The pension adjustment didn't leave any RRSP contribution room for the entire period.

*************
for you:

Federal, provincial or municipal pension?

It makes a difference, as the LIRA rules vary depending on whether the pension plan is under federal or provincial regulation.

The lump sum/transfer to a LIRA is only available prior to the earliest age at which you could collect a reduced pension. I believe that's 50 for federal government pensions. Usually 55 for provincial pensions.


Al

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #11 on: October 27, 2014, 03:32:37 PM »
What pension class are you taking?  I am also a PS

powersuitrecall

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #12 on: October 27, 2014, 05:57:34 PM »
Federal, provincial or municipal pension?

Hi Al and thanks for posting.

I joined 5 years ago (I was 37), so are situations are quite similar. 

I am Federal, which means the lump sum will only be available until age 50.  This is a shame, since it would be best to have many options available to me at that time.


powersuitrecall

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #13 on: October 27, 2014, 05:59:02 PM »
What pension class are you taking?  I am also a PS

It's actually through my wife's place of work - she is federal as well.  It's early November.  I'll PM you when I know the details and we'll see if it's the same one.

fallstoclimb

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #14 on: October 28, 2014, 08:33:05 AM »
I don't know how Canadia works, but US federal employees have the option of deferring their pension to avoid the penalty.  I can retire at age 40 with 10 years of service and then collect all of the pension I have earned, starting at age 62 and without any silly 5%/yr "early retirement" penalty.  I just don't get anything between ages 40 and 62.

Is your system different?

Also no COLA between 40 and 62 on future pension.  I hate that part.

Wait.  I'm a fed and I didn't know that part.  So like at age 62 I start getting my pension as it was defined at age 40 (or whenever I retire)?  But then starting at 62 moving forward it is COLAd, right?

sol

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #15 on: October 28, 2014, 08:39:03 AM »
Wait.  I'm a fed and I didn't know that part.  So like at age 62 I start getting my pension as it was defined at age 40 (or whenever I retire)?  But then starting at 62 moving forward it is COLAd, right?

Correct on both counts. 

When you retire at age 40 your pension amount will be defined in a number of dollars.  At age 62 you will collect that number of dollars, which 22 years later will be worth significantly less due to inflation.

Unless you're military.  The military pension IS indexed for inflation because it is based off of current military pay for the grade you retired from, regardless of when you retired.

And as mentioned above, your social security payments are also indexed.  So if you figure your benefits out at age 40 you might be surprised when you collect a slightly larger check at age 62. 

In any case, once you start collecting a pension it will get a COLA every year that Congress decides to give you one.  Which has not been every year, recently.

VirginiaBob

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #16 on: October 28, 2014, 09:09:30 AM »
For the US Federal employees:  For the 40 year old example, assuming historical rates of inflation.  Take your expected pension and divide by 1.75 to get your pensoin in today's dollars.  So let's say at age 40, you averaged $100K per year for your high 3 and retired and you started working at age 24, right out of grad school.  You pension will be 16,000/1.75 = about $9,000 per year or $750/mo, starting at age 62, in today's dollars.  If you were to work until age 57, and your salary kept up with inflation, in today's dollars, you would get $33,000 per year or $2,750 per month.  The kicker though is that by retiring early, you lose 5 years of pension payments (instead of collecting at age 57, it starts at 62, and in addition, you lose the Social Security supplement for federal employees from age 57 to 62 (say $1,800/month in today's dollars- if you leave early, probably about $1300 a month in today's dollars).   

Adding up these costs, assuming you live to about 85 years old (not taking all factors into account admittedly, this is back of the napkin):
$2750-750 = 2,000 * (85-62) * 12 = 552,000
2750*12*5 = 165000
1800*12*5 = 108,000
1800-1300 *(82-65) * 12 = 138,000

Total loss = $963,000

sucks

Ideally, from a financial standpoint, the FIRE federal employee retires at age 50 with an early out and keeps all these benefits.  Obviously, FIRE involves more than just the financial benefits.
 

fallstoclimb

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #17 on: October 28, 2014, 09:24:05 AM »
Oh that is a HUGE bummer!  Did not realize that.  What if you start drawing a reduced amount at 57?  Does the math not work out?  Or what if you continue part-time work past your 'retirement' date?

I wasn't exactly relying on the pension, but missing out on 17 years of inflation adjustments (was planning to leave at age 45) is a pretty big loss. 

VirginiaBob

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #18 on: October 28, 2014, 09:31:53 AM »
and note that I didn't even mention losing your health insurance as well.  The government heavily frowns upon those that do anything differently.

fallstoclimb

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #19 on: October 28, 2014, 10:34:24 AM »
Guys, you are really bumming me out here.

So does that mean that if we retire like good children at age 62 we have health coverage through retirement, but early retirees don't?

(OP:  sorry for hijacking with our American problems!)

powersuitrecall

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #20 on: October 28, 2014, 10:46:27 AM »
(OP:  sorry for hijacking with our American problems!)

Oh hey ... not a problem!  I'm taking notes here and checking with my provider.  These are all good points that I hope everyone can benefit from.

Al1961

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #21 on: October 28, 2014, 11:09:04 AM »
In Canada, the payout does take into account the extent of inflation protection.

Commuted value calculations are based on the Institute of Actuaries Standard 3800. As Canadian federal pensions are fully indexed to CPI, this benefit is included in the commuted value calculations by reducing the discount rate by a prescribed formula.

For early retirement without a commuted value payout, you need to check the plan's rules to determine how inflation protection is applied to the years between retirement and pension eligibility.

For example, the RCMP pension (available after 20 years service) has no COLA adjustment for any pension payments until age 55, at which time a cumulative catch-up is applied prospectively (i.e. no back pay).

Not sure what the deal is with the Federal Superannuation plan.

Ottawa

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #22 on: October 28, 2014, 11:22:10 AM »
For the Federal Public Service in Canada - deferred pension is a pretty good gig. 

From Treasury Board:
"Protection from inflation: A deferred annuity is fully indexed as of the most recent date you leave the public service. Your total pension amount is indexed according to the Consumer Price Index (CPI) as described in the Protection from Inflation section."

We will definitely do this - we are a dual PS family and each currently have approx 9 years service. (i.e. 18 combined years which effectively translates for our family to 36% of highest 5 years salary payable from age 60).

VirginiaBob

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #23 on: October 28, 2014, 12:00:48 PM »
Guys, you are really bumming me out here.

So does that mean that if we retire like good children at age 62 we have health coverage through retirement, but early retirees don't?

(OP:  sorry for hijacking with our American problems!)

57, not 62 will get you the health coverage through retirement.

kendallf

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #24 on: October 29, 2014, 11:52:49 AM »
For the US Federal employees:  For the 40 year old example, assuming historical rates of inflation.  Take your expected pension and divide by 1.75 to get your pensoin in today's dollars.  So let's say at age 40, you averaged $100K per year for your high 3 and retired and you started working at age 24, right out of grad school.  You pension will be 16,000/1.75 = about $9,000 per year or $750/mo, starting at age 62, in today's dollars.  If you were to work until age 57, and your salary kept up with inflation, in today's dollars, you would get $33,000 per year or $2,750 per month.  The kicker though is that by retiring early, you lose 5 years of pension payments (instead of collecting at age 57, it starts at 62, and in addition, you lose the Social Security supplement for federal employees from age 57 to 62 (say $1,800/month in today's dollars- if you leave early, probably about $1300 a month in today's dollars).   

Adding up these costs, assuming you live to about 85 years old (not taking all factors into account admittedly, this is back of the napkin):
$2750-750 = 2,000 * (85-62) * 12 = 552,000
2750*12*5 = 165000
1800*12*5 = 108,000
1800-1300 *(82-65) * 12 = 138,000

Total loss = $963,000

sucks

Ideally, from a financial standpoint, the FIRE federal employee retires at age 50 with an early out and keeps all these benefits.  Obviously, FIRE involves more than just the financial benefits.

The even bigger suckage is the loss of health care coverage.  If you retire at MRA you can keep your FEHB and the gov't will keep paying their share of the premium..  That's the carrot that may keep me around until 56.  Maybe.

Some more napkin math: the current premium share for an Aetna family HDHP is $119 biweekly.  That makes my yearly cost $3094, and the gov't share at 75% is $9282.  Call it $9k for easy math.  They also provide a premium pass-through into my HSA of $1500/yr.  Call it $10.5k total.  Assuming that I can find an equivalently priced plan on the ACA marketplace, I'm still giving up that $10.5k of premium contribution per year between now and 62ish.  If you choose a more conventional plan like BCBS, it's more like $20k/yr of premium contribution loss.

GoldenStache

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #25 on: November 24, 2014, 10:59:59 AM »
The medical benefit to me is huge because you don't pay taxes on it, is sucks missing out on possibly 1.5% compounded for 17 years

So retire at 40, get back in the work force as very over qualified gs-1 (trash picker upper) when you reach your MRA, work for 2 weeks and submit your retirement package.  You will lose out on inflation but you will be able to get your medical.

   

DoubleDown

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #26 on: November 24, 2014, 02:56:41 PM »
So retire at 40, get back in the work force as very over qualified gs-1 (trash picker upper) when you reach your MRA, work for 2 weeks and submit your retirement package.  You will lose out on inflation but you will be able to get your medical.

I'm pretty certain you have to work and carry FEGLI insurance the last 5 years of your employment prior to retirement so, unfortunately, this plan wouldn't work. Believe me, there would be plenty of us all over it if there was such a loophole.

Dee

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #27 on: November 24, 2014, 07:07:16 PM »
I, too, am a federal public servant (in Canada).

Have you had the retirement course yet, Gashford? A friend of mine took it this year and reported back from it very positively. Which reminds me, I need to ask her again if I can borrow her course materials...

My general plan is to retire when I have enough stash to live on from my retirement date and the time my pension starts. And a monthly pension amount that is greater than my projected expenses.

But I definitely keep an eye on my lump sum amount and am open to a different approach if I get information indicating that the lump sum amount would be more valuable.

sol

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #28 on: November 24, 2014, 07:21:58 PM »
I'm pretty certain you have to work and carry FEGLI insurance the last 5 years of your employment prior to retirement

Yes, you need to have five years of continuous coverage prior to retirement in order to continue coverage.  Getting rehired later isn't going to help.

Fortunately, the ACA has largely solved the health care problem for early retiree feds.  It's not as cheap as employer-subsidized insurance, for sure, but it's a hell of a lot better than it was a few years back when you basically couldn't get insurance as an early retiree if you had any sort of medical condition.  That system sucked, it basically made ER available only to the very healthy.

powersuitrecall

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #29 on: November 24, 2014, 07:27:51 PM »
I, too, am a federal public servant (in Canada).

Have you had the retirement course yet, Gashford? A friend of mine took it this year and reported back from it very positively. Which reminds me, I need to ask her again if I can borrow her course materials...

My general plan is to retire when I have enough stash to live on from my retirement date and the time my pension starts. And a monthly pension amount that is greater than my projected expenses.

But I definitely keep an eye on my lump sum amount and am open to a different approach if I get information indicating that the lump sum amount would be more valuable.

I was scheduled to take it earlier this month, but we had a scheduling conflict (taking the course with my SO).  I'll be taking it in the new year.

That's a good plan Dee.  That's our general strategy.  Since I won't have a full pension I'll need to rely on savings regardless.  I still will do it early.  The cubicles are starting to close in on me :)

Al1961

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #30 on: November 24, 2014, 10:32:37 PM »
My DW is scheduled to take this three-day retirement course next week. There are a limited number of spaces available for spouses, so she may be able to sign me up.

Wife has spent 28 years in IT with a federal government department, and has finally started to look at retiring on less than the maximum pension. I think it's a combination of seeing how much happier I've become since retiring this summer, and a desire to get away from the 5-6 months of snow on the ground that we seen to have here in Edmonton.

BPA

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #31 on: November 25, 2014, 05:54:05 AM »
I retired at the end of July, but have deferred taking the lump sum from the Alberta MEPP until January - because I have to take about $380k into income after maxing out the LIRA and don't want it all at the top marginal rate (39% here). The deferral leaves me exposed to interest rate risk - the payout varies ~$20k with every 0.1% change in the prescribed discount rate.

I joined the plan at age 38, and had 14.5 years of service. Our contribution rate was 12.9% of gross income. The pension adjustment didn't leave any RRSP contribution room for the entire period.

*************
for you:

Federal, provincial or municipal pension?

It makes a difference, as the LIRA rules vary depending on whether the pension plan is under federal or provincial regulation.

The lump sum/transfer to a LIRA is only available prior to the earliest age at which you could collect a reduced pension. I believe that's 50 for federal government pensions. Usually 55 for provincial pensions.


Al

Interesting.  I am an Ontario teacher and plan to cash out my commuted value in January 2016.  Like you, I'm trying to avoid a huge tax hit. 

When I contacted the OTPP, they told me it could take two to three months to get the money after I quit.  I have considered quitting in late November instead of mid-December as had been my original plan. 

Now...if only the stock market and bond rates and interest rates don't go nuts, my commuted value along with the equity in my house will provide for me.  If they do and don't recover in a timely fashion, I am prepared to wait until June 2018 when I can get a pension.

ETA:  Here's a fun game.  Play chicken with the Bank of Canada.  ;)  Just a table of when they make interest rate announcements. 

http://www.bankofcanada.ca/core-functions/monetary-policy/key-interest-rate/
« Last Edit: November 25, 2014, 06:08:45 AM by BPA »

GoldenStache

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #32 on: November 25, 2014, 07:47:51 AM »
@Doubledown

 I am going to retire soon. What are the requirements to continue health benefits into retirement?
To continue your health benefits enrollment into retirement, you must: (1) have retired on an immediate annuity (that is, an annuity which begins to accrue no later than one month after the date of your final separation); and (2) have been continuously enrolled (or covered as a family member) in any FEHB Program plan (not necessarily the same plan) for the five years of service immediately preceding retirement, or if less than five years, for all service since your first opportunity to enroll.
http://www.opm.gov/FAQS/topic/insure/index.aspx?cid=880bfba8-8f8b-4e64-9a72-fae98408fd0e

I THINK as long as you sign up for it when you are working and when you are eligible under MRA it will carry over.  I am not HR and my HR is not worth asking a question to.

DoubleDown

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #33 on: November 25, 2014, 08:25:36 AM »
Like they say in the movies, that just may be crazy enough to work. It's hard to make out exactly what is meant by "full period(s) of service since your first opportunity to enroll (if less than 5 years)." But I suppose it's possible to get re-hired for a short time, re-enroll, then retire and continue coverage!

It doesn't solve the immediate problem though of getting health insurance in all the intervening years. So, like Sol said, we'd still need to be covered under the ACA or other insurance. But who knows, I suppose it may be possible to carry out your plan and be covered under FEGLI through old age (assuming you can get re-hired or that the rules don't change).

sol

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #34 on: November 25, 2014, 11:16:48 AM »
But who knows, I suppose it may be possible to carry out your plan and be covered under FEGLI through old age (assuming you can get re-hired or that the rules don't change).

Around here, I'm not sure I could get rehired for any federal job.  The veteran's preference in USAJobs is numerically overwhelming these days, and I'm not a veteran so I'm unlikely to even make the interview list.

Bob W

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #35 on: November 25, 2014, 11:17:57 AM »
Lump sum -- my understanding is that pensions stop when you die

randommadness

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #36 on: November 25, 2014, 11:32:01 AM »

Ideally, from a financial standpoint, the FIRE federal employee retires at age 50 with an early out and keeps all these benefits.  Obviously, FIRE involves more than just the financial benefits.

Hate to work that long as I'm 28, but my worst-case scenario is work until 50, where I'll have my 30+ years and can defer until 57 just fine.

easton

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #37 on: November 25, 2014, 04:01:57 PM »
Current Fed here, you can also retire early at 25 yrs of service at any age if they are offering early outs. If you retire under the early out it's my understanding you keep healthcare but don't get the inflation adjustment until MRA at 57. I started at age 20, so I'm crossing my fingers that when I turn 45 they are offering some sort of early out program.

sol

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #38 on: November 25, 2014, 04:09:14 PM »
Current Fed here, you can also retire early at 25 yrs of service at any age if they are offering early outs.

This is true, but the problem is that both the VERA and the VSIP programs are age based.  Which means the oldest workers get preference, and younger workers probably won't even get offers.  You'd be hard pressed to find a situation where a 45 year old federal employee could retire and keep benefits.  It's certainly never happened in my agency.  Sorry.

easton

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #39 on: November 25, 2014, 04:12:08 PM »
A guy can dream right? :p

My mom actually took a VERA at age 51 in the early 2000's. Hopefully Uncle Sam is looking to cut a lot of weight in another 20 yr's or so and they have a bunch of openings
« Last Edit: November 25, 2014, 04:15:57 PM by easton »

Heather in Ottawa

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #40 on: November 25, 2014, 07:47:01 PM »
Yet another Canadian fed employee here (wow, this thread is bringing us all out of the woodwork). I started at age 35, currently age 40, expecting to reach FI around age 44.

Gashford, any worries that taking the retirement course is going to 'out' you at work? ;) Many newer employees do take it (never offered to me, though I think it would be good to take so you understand how it all works). I'm not sure I'd be able to get through it with a straight face, or else I'd probably be pretty bored at this point, since I've done a fair amount of "independent study", and it's too soon for me to plan in earnest. I'm really interested to hear what you get out of it, though!

I have a couple thoughts on the lump sum vs. pension decision:

1) The lump sum, as far as I can tell, is also influenced by bond rates, so it will fluctuate from time to time. If you take the lump sum into an RRSP, you'll still have a bit of a tax hit in the year you retire (maybe less, though, if you retire early in the calendar year). But, you can start gradually transferring it into a TFSA as contribution room allows, while paying very little tax on your RRSP income, if you stay in a low tax bracket. From then on, any earnings are tax free, and don't count as income. Then, once you're of a certain age (65?), you'll qualify for GIS in addition to OAS, since you're "so poor", with virtually no income. It's possible that the GIS could even be worth more than your defined benefit indexed pension, if you've had a relatively short tenure in the PS. Now, there have actually been a series of news articles discussing this very topic in the past couple of days, saying that this TFSA loophole could result in "millionaires on welfare". Honestly, I doubt there are many who could pull it off, and who knows if that option will still be available in 25 years. The ethics of it might be questionable, I suppose, but if our ridiculously complex tax system has shot itself in the foot, I sure wouldn't fault anyone for making the most of it.

2) Taking the pension sure provides a nice safety net; you know you'll just have to make your savings last until age X, when your pension kicks in, and then it's there for you for the rest of your life. Of course, you walk, bicycle, avoid eating out, and generally live a low stress life, so you might be collecting that pension for many more years than the actuaries have predicted, right? :)

3) Don't forget that gains in your RRSP are taxed as income (at 100%) vs. capital gains in unregistered accounts (taxed at 50%), so RRSPs may not be as awesome as they sound, depending on how many years of tax-sheltered growth you anticipate, and what tax bracket you plan to be in upon withdrawal.

However much I like the idea of trying to take advantage of our taxation system as much as it tires to take advantage of me, I'm personally leaning towards the nice safe pension. I plan to live a long time, and that pension will cover my very modest living expenses, so I'd rather rely on that than on a GIS that could get reduced or yanked entirely.         

powersuitrecall

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #41 on: November 26, 2014, 11:08:29 AM »
Gashford, any worries that taking the retirement course is going to 'out' you at work?

Nah - everyone just assumes I'm taking it now for the general info, and I'll take it again when I'm ready to retire.  Little do they know that I'm working on a 7 year plan (mwa ha ha ha!).

I have a couple thoughts on the lump sum vs. pension decision:

1) The lump sum, as far as I can tell, is also influenced by bond rates, so it will fluctuate from time to time. If you take the lump sum into an RRSP, you'll still have a bit of a tax hit in the year you retire (maybe less, though, if you retire early in the calendar year). But, you can start gradually transferring it into a TFSA as contribution room allows, while paying very little tax on your RRSP income, if you stay in a low tax bracket. From then on, any earnings are tax free, and don't count as income. Then, once you're of a certain age (65?), you'll qualify for GIS in addition to OAS, since you're "so poor", with virtually no income. It's possible that the GIS could even be worth more than your defined benefit indexed pension, if you've had a relatively short tenure in the PS. Now, there have actually been a series of news articles discussing this very topic in the past couple of days, saying that this TFSA loophole could result in "millionaires on welfare". Honestly, I doubt there are many who could pull it off, and who knows if that option will still be available in 25 years. The ethics of it might be questionable, I suppose, but if our ridiculously complex tax system has shot itself in the foot, I sure wouldn't fault anyone for making the most of it.

2) Taking the pension sure provides a nice safety net; you know you'll just have to make your savings last until age X, when your pension kicks in, and then it's there for you for the rest of your life. Of course, you walk, bicycle, avoid eating out, and generally live a low stress life, so you might be collecting that pension for many more years than the actuaries have predicted, right? :)

3) Don't forget that gains in your RRSP are taxed as income (at 100%) vs. capital gains in unregistered accounts (taxed at 50%), so RRSPs may not be as awesome as they sound, depending on how many years of tax-sheltered growth you anticipate, and what tax bracket you plan to be in upon withdrawal.

However much I like the idea of trying to take advantage of our taxation system as much as it tires to take advantage of me, I'm personally leaning towards the nice safe pension. I plan to live a long time, and that pension will cover my very modest living expenses, so I'd rather rely on that than on a GIS that could get reduced or yanked entirely.         

I totally agree - unlike you, I haven't done an incredible amount of research so I'm hoping the course answers some questions regarding my specific scenario.  Our pension is actually in transition at the moment.  There is an abundance of information available on how the transition will affect full-retirement cases, but very little for those who opt for early retirement.

My plan is starting to look something like this:

now: continue to save at our current rate (yes, I cycle to work even in the winter :) )
Age 50: Retire with 13 years of service, opting for a deferred annuity starting at age 65
Age 50 -> 65: Draw an amount from RRSPs every year, staying under the tax radar, slowly depleting the balance
Age 65: Shut off the RRSP tap and turn on the Indexed deferred annuity & CPP

BPA

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #42 on: November 26, 2014, 02:01:22 PM »
Gashford, any worries that taking the retirement course is going to 'out' you at work?

Nah - everyone just assumes I'm taking it now for the general info, and I'll take it again when I'm ready to retire.  Little do they know that I'm working on a 7 year plan (mwa ha ha ha!).

I have a couple thoughts on the lump sum vs. pension decision:

1) The lump sum, as far as I can tell, is also influenced by bond rates, so it will fluctuate from time to time. If you take the lump sum into an RRSP, you'll still have a bit of a tax hit in the year you retire (maybe less, though, if you retire early in the calendar year). But, you can start gradually transferring it into a TFSA as contribution room allows, while paying very little tax on your RRSP income, if you stay in a low tax bracket. From then on, any earnings are tax free, and don't count as income. Then, once you're of a certain age (65?), you'll qualify for GIS in addition to OAS, since you're "so poor", with virtually no income. It's possible that the GIS could even be worth more than your defined benefit indexed pension, if you've had a relatively short tenure in the PS. Now, there have actually been a series of news articles discussing this very topic in the past couple of days, saying that this TFSA loophole could result in "millionaires on welfare". Honestly, I doubt there are many who could pull it off, and who knows if that option will still be available in 25 years. The ethics of it might be questionable, I suppose, but if our ridiculously complex tax system has shot itself in the foot, I sure wouldn't fault anyone for making the most of it.

2) Taking the pension sure provides a nice safety net; you know you'll just have to make your savings last until age X, when your pension kicks in, and then it's there for you for the rest of your life. Of course, you walk, bicycle, avoid eating out, and generally live a low stress life, so you might be collecting that pension for many more years than the actuaries have predicted, right? :)

3) Don't forget that gains in your RRSP are taxed as income (at 100%) vs. capital gains in unregistered accounts (taxed at 50%), so RRSPs may not be as awesome as they sound, depending on how many years of tax-sheltered growth you anticipate, and what tax bracket you plan to be in upon withdrawal.

However much I like the idea of trying to take advantage of our taxation system as much as it tires to take advantage of me, I'm personally leaning towards the nice safe pension. I plan to live a long time, and that pension will cover my very modest living expenses, so I'd rather rely on that than on a GIS that could get reduced or yanked entirely.         

I totally agree - unlike you, I haven't done an incredible amount of research so I'm hoping the course answers some questions regarding my specific scenario.  Our pension is actually in transition at the moment.  There is an abundance of information available on how the transition will affect full-retirement cases, but very little for those who opt for early retirement.

My plan is starting to look something like this:

now: continue to save at our current rate (yes, I cycle to work even in the winter :) )
Age 50: Retire with 13 years of service, opting for a deferred annuity starting at age 65
Age 50 -> 65: Draw an amount from RRSPs every year, staying under the tax radar, slowly depleting the balance
Age 65: Shut off the RRSP tap and turn on the Indexed deferred annuity & CPP

Nice plan.  My username stands for Basic Personal Amount aka "Tax Radar."

Don't know where you are, but cycling to and from work on Monday and Tuesday, was making me feel like the Wicked Witch of the West.

Heather in Ottawa

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #43 on: November 26, 2014, 03:55:20 PM »
Yeah, that was some wind... I actually bent over my handlebars at a stoplight because the gusts were really making me fight to stay balanced on my feet. First time I've ever tried to be aerodynamic on my bike while stopped! 

BPA

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #44 on: November 26, 2014, 05:46:30 PM »
Yeah, that was some wind... I actually bent over my handlebars at a stoplight because the gusts were really making me fight to stay balanced on my feet. First time I've ever tried to be aerodynamic on my bike while stopped!

:)  I got t-boned by the wind and nearly went flying into a creek.  Can't wait to tell my future grandkids that story. 

Goldielocks

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #45 on: November 29, 2014, 02:17:39 AM »
I was only 36, but took a LIRA, simply because I could not stand the thought of not having control or a say in it. For 30 years.   It worked very well.  I moved it to a discount broker easily, too.

I put the rest non LI RA,  plus a bit  into RRSP room( I had enough unused), so got the taxes back. Small loan for the extra.   Did it in DEC, taxes back to me by April.maybe not all the top tax bracket, but at least I got it back.  You could change your withholding/ exemptions to to offset prepaying too much taxes.


The age is a key difference, but my experience may help.



powersuitrecall

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #46 on: November 29, 2014, 10:41:39 AM »
(thread hijack)

There were so many Ottawa people in this thread, I wanted to let you know I set up a separate Twitter account just for my MMM side. @ottstash if you want to follow. I made my avatar match the MMM forums so you'll be able to place me.

I though it might be useful to connect over local topics (like sales? projects?). If anyone wants to discuss this idea further, let's take it to the meet-ups section.

(hijack over)

Hijack appreciated ... following :)

Dee

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #47 on: December 10, 2014, 05:36:57 AM »
In an serendipitous twist, another agency in the building where I work has decided to open up its internal training sessions to employees of other federal agencies within the building, and they are offering a retirement training course for those 40 and under in February. The training does not involve any spending for my employer so when I asked whether I could register for it, I was approved immediately. I'm going to be 40 in January. This is the first time I am aware of where I've had the opportunity to take a retirement course without a fee to my employer. I'm pretty excited!

So maybe we can swap information afterwards gashford and others on here who are in similar situations.

BPA

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #48 on: December 10, 2014, 06:07:46 AM »
In an serendipitous twist, another agency in the building where I work has decided to open up its internal training sessions to employees of other federal agencies within the building, and they are offering a retirement training course for those 40 and under in February. The training does not involve any spending for my employer so when I asked whether I could register for it, I was approved immediately. I'm going to be 40 in January. This is the first time I am aware of where I've had the opportunity to take a retirement course without a fee to my employer. I'm pretty excited!

So maybe we can swap information afterwards gashford and others on here who are in similar situations.

It will be interesting to hear if they try to discourage you from taking commuted value.  I think they probably will. 

That's really cool that you could register without a fee.

I'm annoyed with work and really, really angry at my union right now, so getting out is what I want.

Aside:  I've been fighting for workers' rights for years within my union and thought that was the best way to maintain some sort of balance in life.  A few years ago I realized that encouraging people to reach FI is a far better option. 

powersuitrecall

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Re: Any former Gov't worker Mustacians? (pension vs lump sum)
« Reply #49 on: December 10, 2014, 11:16:21 AM »
So maybe we can swap information afterwards gashford and others on here who are in similar situations.

Most definitely. 

I talked with a guy who had recently taken the course.  He said there is a lot of fluff - things you should know about like wills and power power of attorney, etc.  There is some useful information regarding taxation.  The target audience is the "work till you get your years in" kind of folk, but I'm sure us mustacians can get what we need with some direct questions.