Any former Gov't worker Mustacians? (pension vs lump sum)

[CheapskateWife]

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.

That is a very good point...I struggled recently as a 5 point vet (got really lucky and didn't get wounded overseas) with current mil spouse preference getting knocked off the list by 30 point vets (who weren't so lucky).

If you aren't a vet, I wouldn't leave the federal service until you were sure you weren't coming back. 

[Hummer]

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

One thing I will point out. If you opt for the lump sum, quit on January 1st or 2nd. That way, your income for that tax year is essentially zero before your lump sum payment. The income tax you will be required to pay on your lump sum will be much less since you won't have any earned taxable income for that year.... I would also advise taking that year off since any further income you earn will be in a very high tax bracket (depending on how much the lump sum paid you).

[RetiredAt63]

@Hummer - I know we are going OT here, but I would also be interested in a COL comparison between Canada and the U.S.  If any info pops up it would make an interesting thread.

[RichMoose]

@Hummer - I know we are going OT here, but I would also be interested in a COL comparison between Canada and the U.S.  If any info pops up it would make an interesting thread.

It's called Purchasing Power Parity and it's really quite accurate for most things. After converting for exchange rates, extra shipping costs due to smaller more spread out markets, and our lower productivity levels, most products are comparatively priced. I would say the biggest exceptions are housing, energy, dairy products, eggs, chicken, and booze. This is due to either taxes, Canadian stupidity (housing), or protectionism laws. Then, don't forget that our social benefits are much more generous than U.S. benefits are. So if you're healthy, work a good job, and didn't go to university you would be better off in the U.S. However, if you took advantage of our education subsidies, have an illness or disability, or any of that then Canada is better for you.

Most people don't know or realize that Canada's productivity is only about 80% of the U.S., this means higher costs.

We can do the math, but all in all, I would say our cost of living is only around 15-20% higher than the US. This means a frugal lifestyle of $20,000 spending (meaning you have no mortgage) would cost around $24,000 here tops.

[DoubleDown]

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. 

I wanted to follow up on this since I had initially doubted this would work (based on the "5 years of continuous coverage" rule), but it intrigued me. After looking into it further, I'd say you are almost certainly right. So, thanks for pointing it out and sorry for doubting you! Of course as discussed earlier, we may face issues getting re-hired even as a trash picker-upper, but this is a potential game-changer to be able to carry FEHB, FEGLI, and all other coverage into old age!

From the OPM website:

Break in Service

Breaks in service are not counted as interruptions when the 5 years of service requirement is determined, as long as you reenroll within 60 days after your return to Federal service.

Example 1

Joan elected FEHB coverage on February 11, 2007, and had a break in service from January 1, 2011 through January 1, 2013. Upon her return to service, she again elected to enroll. She retires on December 31, 2014. She is eligible to continue her health benefits coverage into retirement, since she has been continuously enrolled for the 5 years of service prior to retirement.

[Heather in Ottawa]

Thinking about ER today, and OMY syndrome. My ideal scenario would be to taper down the work hours in the last couple of years. The good news: you can do that! Retirement transition leave lets you work 60% hours for your last 2 years. You pay into/get matched for 100% of your pension, while getting 60% pay. Ideal for reducing tax in your higher-earning years, getting a couple more pensionable years, and transitioning into retirement. The bad news: you have to be able to take an unreduced immediate annuity when your transition leave is over. So, it looks like this is not an option at all for early retirees. As far as I can tell, it's a case of go full blast until it's time to resign :( I'll be taking the one-time 3 month LWOP the summer before I retire, but I sure wish you could do a little more of that sort of thing as you prepare to exit. I'd be willing to stick around a lot longer if I could work reduced hours (without ruining my best 5).

See Appendix C: http://www.tbs-sct.gc.ca/pol/doc-eng.aspx?id=15774

[Dee]

What about Leave with Income Averaging, Heather? (See appendix D of the link you provided.) Is that something you might be able to do as you wind down? It appears to meet your goal of not messing with your 5-best-years, as "The non-work days (leave without pay) of the leave with income averaging working arrangement count as pensionable service under the public service pension plan. The person's contributions to the pension plan will therefore be deducted based on the unreduced rate of pay."

I dream of it and at some point will likely actually apply for it...

[sol]

Your federal time in service clock continues to run as long as you work at least six months per year.  So if you can talk your boss into it, you can technically take 5 months and 29 days off every year, unpaid, and still receive an entire year of creditable service towards your pension computation.

That's a pretty big "if" though.

[Heather in Ottawa]

(this is just my interpretation of how this works... not based on anything other than what I've read):

I've always thought of LWIA as LWOP for people with no financial self control ;). Maybe a small tax advantage, depending on if the averaging drops your top rate into a lower marginal rate, but the HR PITA factor seems large. Despite that, I probably will hold my nose and go for LWIA when it's time. You're right; it doesn't seem to affect your best 5 (neither would the 3 month LWOP, though), and has the advantage that you can break the 3 months into 2 chunks... I could do August of one year, and July of the next year... some extra summer vacation time while staying within the 12 month window. Then, retire the next spring. Something to start looking forward to almost 3 years away from FIRE... I like that! Makes it seem even closer.

Impact of longer leaves (4-12 months) on pensionable years is a non-issue if you buy-back, but you have to buy both your portion and the employer's. You also don't advance on the increment grid for leaves longer than 4 months, so a small impact on best 5 there, maybe.

For me, I wouldn't so much be looking for a big chunk of time off and then back to 100%; I'd rather be able to spread it out. That's what appealed to me about the idea of working 60%. The three month LWOP would be keep me around for one more year, though; I could have a summer off, and concentrate my vacation over the remaining time (until the next summer), so it would feel a bit more like reduced hours. It's just too bad it's only supposed to be a one-time thing!   

[Heather in Ottawa]

Wow, that would be nice to (try to) have the option to work just 6 months and get credit for a year. Or maybe just frustrating to be turned down, haha.

In Canada, we can get credit for leave without pay (LWOP) and leave with income averaging only if we buy back the credit for the days we're away. You pay into the pension plan, but don't collect any salary. It seems fair. But it would be great to be able to do more, or break it up differently. It's not something many people ever seem try to do, though... just plug along until reaching the age when eligible for 100% pension. In fact, I usually hear people talking about early retirement in terms of taking a "penalty" for leaving early (i.e., not getting 100%).

[sol]

Wow, that would be nice to (try to) have the option to work just 6 months and get credit for a year. Or maybe just frustrating to be turned down, haha.

Everyone I've talked to about this idea thinks I'm crazy, and there is no way in hell they'd ever let me take six months off.

From my perspective, this should be a no-brainer for them.  I wouldn't go "ask" for it, I'd go say "I'm not going to be working for the next few months.  If you would like me to come back in Rocktober to finish some things up, I'd be happy to come back.  If you'd rather I just cleaned out my desk now, that's cool too." 

As long as my boss recognizes the value I bring to our operation, they're forced to choose between having some of my time or having none of my time, instead of all of it or some of it. 

Maybe they'd rather just start training a new person immediately and be rid of me?

I wouldn't consider making this kind of request until I was ready to pull the plug anyway, because there's always a chance that your boss will fire you on the spot in a fit of rage.  I suspect that management types don't like not having the upper hand in negotiations, and might react negatively to an employee offering terms like this.

[Cassie]

I just read some time reading about it & it is applied to private pension plans but not public.  I really feel sorry for the people already retired. I think if they need to make changes make it for the people that have not retired yet. 

[Goldielocks]

This is such a complex issue that I have a massive, multi-paged spreadsheet to try to figure out the answer: to commute or not to commute?

I am writing from Canadian perspective with OTPP. (Ontario Teachers)

My spreadsheet takes into account

1) taking the lump sum. Max amount goes to LIRA , the cash payout is taxed.
2) inflation

I've  attempted to calculate which way I would receive more money /have more flexibility over time. I figure I have to beat around 6% to make it worth it.

Other considerations: the LIRA part, must become a LIF which MUST become an annuity. This I just learned today. I was SHOCKED! I'm just learning about annuities now / but I am seeing the drawback as no matter what I do - I really don't have access to the whole amount to spend, or none if it can be passed to next generation inheritance.
I thought commuting would help to build my estate, but now I think not. True ? Loopholes?

Anything else I should consider?

Woah!  So Sorry to hear that it must become an Annunity.   This seems like a very strange restriction, but governments, eh?   Is this written in from the pension fund, and not just a confused input from HR?   Did you verify with a bank, like TD?

For my LIRA, I was able to set up a second brokerage account, identical to my RRSP (on the same log-in screen and everything). the only difference is that I can't touch it before age 59 (I think that is the age, but I could be confused with the USA here).   

[Al1961]

*snip*

Other considerations: the LIRA part, must become a LIF which MUST become an annuity. This I just learned today. I was SHOCKED! I'm just learning about annuities now / but I am seeing the drawback as no matter what I do - I really don't have access to the whole amount to spend, or none if it can be passed to next generation inheritance.
I thought commuting would help to build my estate, but now I think not. True ? Loopholes?

Anything else I should consider?

I think you should take anther look at the legislation/regulations/policies.

It looks like Ontario LIRA's are much like Alberta's - the LIF is treated like a RRIF, except that there is a maximum amount that can be withdrawn, as well as a minimum amount.

Generally to access your locked-in funds, you can unlock 50% of the LIRA, withdraw like a RRIF (through a LIF) OR by an annuity.

These links provide detail:
http://www.fsco.gov.on.ca/en/pensions/policies/active/Documents/L200-303.pdf
http://www.fsco.gov.on.ca/en/pensions/policies/active/Documents/L200-414.pdf

Al

[NotJustDreaming]

Bump

I've done a lot of research on taking the Commuted Value of an Ontario Municoal pension. From what I've read, Federal pensions (and CF and RCMP) are the same. This is my understanding:

Generally when you submit your resignation you'll receive a retirement package from the pension administrator detailing your retirement options. If it's before ten years of your Normal Retirement Age (NRA) then the Commuted Value (CV) will be one of the options. So that's before age 50 for NRA 60 and before age 55 for NRA 65.  Typically there is a six month deadline (sometimes three months) in the CV offer and if you want to receive that CV amount than you must elect your option before the six months expire. If you don't elect, then the CV must be recalculated and it may not be to your advantage (if long term bond rates rise the CV will likely go down).

Say you elect to receive the CV, once you do it takes about three months for the CV funds to be distributed to the LIRA and taxable accounts that you've set up.

I've been following pension reform for the last few years with specific interest in my own DB pension administrator, OMERS. Over the years there have been changes that are detrimental to the early retiree, most recently anyone who retires outside of ten years of their NRA no longer receive indexing  (COLA) on a go forward basis. Any pension accumulation prior to 2013 still has indexing but if I want indexing on my pensionable service after 2013 I have to stay until age 50.

Recent proposals for change are worse and have been voted down so far but changes are for sure coming. It's just a matter of time. Reduced pension accumulation rate (from 2% to 1.66%), increased early retirement penalties (currently 5% per year) and more indexing reductions have been voted down each year but keep getting tabled.

So I'm on a rough schedule now. I'm giving notice in June to leave 1 July. I'll elect to receive the CV toward the end of the six month deadline. It will take at least a few weeks (most likely around three months) for the CV funds to be dispersed so I would receive it in a new tax year, 2016. No severance for me.

My situation is complicated by a deferred salary I was doing. 20% pay cut over four years and receive the deferred salary in a fifth year off. I applied for this years ago to get time for a year travel sabbatical in 2017. Once I resign, I'll receive 2.5 years of deferred salary, taxable immediately. So I really don't want that and the CV taxable portion in the same year.

I wasn't using the CV as part of my FIRE plans but it's quite the windfall. Over the years I thought since I was leaving early my DB would be fairly negligible because of the penalties and a measly 19 years service so just planned to defer it until age 60.

Now that I've reconciled that we have more than enough (I was an old school need millions to retire plus our DBs kind of gal), I started to look more closely at what I should elect and when is the best time to exit.

Conveniently, a colleague just quit last October and gave me her numbers. Same gender and start date. I had a bit higher salary, am a decade older, with several more months service. So I now have a working number for the CV to pre plan with. I can calculate the future deferred pension and get estimates for a reduced early pension from age 50 onward with today's rules for comparison on a spread sheet. But the CV was always an unknown rough guess until recently. I even know how much to expect in the LIRA and how much would be taxable.

In the past I searched for samples of any DB commuted value calculation without luck. There are a ton  of variables that make up the CV number and vary among DB plans but once I receive my package I'll share my numbers with anyone interested.

[Goldielocks]

NotJustDreaming -- great post!  Thanks for the detail.

I found that distribution time of my CV from my large, private employer was also about 10 weeks, too.   One thing though -- employees there could ask for their CV numbers from the pension  / payroll department in advance of retirement (within 3 years of their expected retirement).   Maybe OP is able to ask as well?  As you note, the values are only held constant for a short period, and can change.

[2527]

I am retired military and now have a civil service job.  I see absolutely no reason to retire early from a civil service job.

In the military, I moved 13 times in 21 years, deployed 3 times, wore chem warfare gear and gas masks (several times for real), got 6 anthrax shots, worked 24 hours straight twice, worked 12 hours often, worked 6 or 7 days a week sometimes, got calls at home at all hours of the day, got my leave and life all jacked up by Slobodan Milosovic and Saddam Hussein, worked all holidays, weekends and hours on the clock, worked shift work, worked and slept in buildings that were later blown up by terrorists, and got mortared daily in Iraq.

In civil service, I get all weekends, evenings, and holidays off, I get every other Friday off, my schedule is set in stone, I never miss lunch, can take leave whenever I want, and I will probably never move.  It is the easiest thing in the world and I really don't know why anybody would want to leave it.  Even on my busiest and most stressful weeks, I still feel like I am semi-retired.