The quandary

ROOF 1 modified

Poor Joanne. Only sixty, always a stay-at-home spouse, and James died in a skiing accident this past winter. Sadness now mingles with confusion, since a major decision’s been thrust upon her.

“Jim’s former employer has offered the choice of either a commuted or defined pension indexed to inflation,” she explains. “Both are generous but I am concerned about returns upon entering the market, and the volatility scares me. The lump sum being offered is $1.4 million and the pension annual payment is $61,000. I have nothing else, and there are four adult children I would like to leave them some money when I pass. You probably think this is a no-brainer. I need to make a decision asap as this indecisiveness is a little ridiculous now :)”

In fact, Joanne’s been slaving over this for a few months. In a week or two she’ll no longer have the option of commuting. “Basically,” she adds, “I’m paralyzed.”

No wonder. It’s scary. She can lock into the security of a pension payment, forget leaving money to her kids and hope the monthly is enough. Or she can take the big cheque, have it invested, and hope the returns are adequate and safe. This is life. Nothing’s perfect.

However, there are six things that I gave Joanne to think about as she ponders a decision that will profoundly affect the rest of her life. Also told her that Jim’s gift to her was extraordinary. Most people don’t have pensions at all, let alone ‘defined benefit’ ones that promise a specific amount in the future. The bulk of current corporate pensions are called ‘defined contribution’ – basically glorified group RRSPs. If you’re lucky, the employer matches your contributions, but they normally end up in a collection of crappy mutual funds with an uncertain outcome down the road.

Now, what does ‘commuted’ mean? With some defined benefit plans (certainly not all) upon retirement you can elect to start taking monthly deposits into your bank account, or get a sum equal to the annual payment times the present value factor, as determined by the Income Tax Act. This amount can be quite inflated in times like these – of modest inflation and crashed interest rates. In fact, today’s conditions almost guarantee a windfall. Like Joanne’s $1.4 million.

The majority of this money comes rolled into a tax shelter (LIRA), while some of it is handed over as taxable income. However that can be mitigated by soaking up all of the available RRSP room one might have. Then you invest the money, live off the proceeds and create your own stream of pension income. Obviously there’s market risk involved, as well as tax and estate advantages. For people who worry a lot, paying more tax, living on less while leaving no real estate to their family might be worth staying in the plan. For others, no way.

Anyway, here are the things I told Joanne to ponder.

First, she can live better by taking the commuted value and investing it. Over time (she has 30 years to live) getting an average annual return of 6% from a balanced and diversified portfolio should be routine (the last three decades gave more). That means an income of about eighty grand a year, or a 30% plump over the DB plan amount. Of course, getting 6% annualized does not mean 0.5% every month. Some years will be fat, some will suck. But over the course of a lifetime it means a better income, while the principal’s preserved.

So, second, commuting a pension means the money becomes your property. Staying in a pension plan means the money remains there. When you pass (it happens), a DB pension will sometimes flow for a period of time (at a reduced level) to a spouse, but not to kids or other family members. With a commuted pension, 100% of the principal becomes your spouse’s property or it can be passed along through your will to anybody you wish. Big benefit.

Third, you might pay less tax if you commute. Taking the monthly cheque means 100% of your payment is taxable. But if you invest, a regular portion of the non-registered amount of the portfolio can be paid as ‘return of capital’ which is not added to taxable income. Nice bonus.

Fourth, remember Stelco. The giant Canadian steel maker has thousands of retirees who all depend on their pension cheques. But when the company was sold, reorganized and generally diddled with as the world economy gyrated, many of them ended up with seriously reduced benefits. This can happen at any time, to any outfit. And the last thing you want at 78 years old is to be stiffed.

So the fifth reason to consider taking the money is you’re in control. Always. Not some unseen pension administrator you’ll never meet, speak to or influence. An insane number of pension plans across North America are underfunded these days, and governments have increasingly allowed this to occur. Why would you not want to be in charge of your own future?

And, six, if you commute and make use of your TFSA to shelter a significant and growing chunk of the pension money, you can draw income without being bumped into a higher tax bracket. That means more of the CPP or OAS payments stays in your own hands, not Justin’s.

Now, commuting ain’t for everyone. You have to understand the pros and cons, find a trusty person to manage things and ignore short-term market volatility (which means never reading this pathetic blog again). Some people want automatic pilot. Others want the stick.

I know what I’d do. Will tell you what J decides.

152 comments ↓

#1 Randy on 05.02.16 at 5:59 pm

Take every pension you can as early as you can.

#2 Jimmy on 05.02.16 at 6:05 pm

First!!

#3 [email protected] on 05.02.16 at 6:05 pm

lagarth-o,
what have you got against lefties anyway?

#4 TRUMP on 05.02.16 at 6:07 pm

When I am elected #1 shot caler Garth will be 2nd in comand.

Garth will you accept?

#5 Tuxedo on 05.02.16 at 6:10 pm

I noticed you are using 6% here for income. What kind of asset allocation would you be using here?

What about the Trinity Study 4% portfolio withdrawal rate? Wouldn’t 6% be quite aggressive given the generally lower returns seen right now from fixed income portions of a balanced portfolio?

#6 ILoveCharts on 05.02.16 at 6:11 pm

Sorry for your loss J. Take the money.

#7 ROCK BEATS PAPER on 05.02.16 at 6:11 pm

…and foremost.

#8 JLaw on 05.02.16 at 6:14 pm

Have faith in yourself Joanne! You can do this! Google “why women make better investors than men” and read one of the many articles out there on this. Take the $ and hire Garth’s team or another reputable team to invest it for you to alleviate your stress about it. With risk comes reward :)

#9 Hot off the press on 05.02.16 at 6:16 pm

Hot off the press. I am surprised that Garth with all his smarts chooses to ignore foreign capital as being one of the main drivers of YVR real estate.

http://www.sfu.ca/content/dam/sfu/mpp/pdfs/Vancouver%27s%20Housing%20Affordability%20Crisis%20Report%202016%20Final%20Version.pdf

#10 Frank on 05.02.16 at 6:16 pm

She has to eat and survive. You can’t skip bills in a recession and tell the grocery store that you’ll pay when the market returns. How does she keep away from the food bank.

#11 West Coast on 05.02.16 at 6:29 pm

The last few months of fretting will have given Joanne a taste of what’s to come re living on her investments. You really have to have a certain disposition to ‘enjoy’ the ride.
Peace of mind is priceless – at her age and stage in life, I would certainly go with the defined pension – with COLA clause.
However, if this is a private pension, not a government pension, she still might have cause for concern.
Make sure you talk face to face with an independent financial advisor – the hourly rate is high, but it’s worth it.
Don’t worry, Joanne, the kids can inherit the house. This is about your happiness and stability as you enter your ‘golden age’. Happy mum: happy kids!

#12 nonplused on 05.02.16 at 6:31 pm

I say commute, here’s why.

Using a quick back of the Excel calculation, and assuming a more modest 4% long term return on the principle, Joanne can pull $80,000 a year and it will be 30 years before her money runs out.

If she lives to 90+ this is bad news 30 years from now, but if she goes earlier then that she leaves something of an inheritance for her heirs (assuming she has one).

If the returns are better than 6% or she can live on less than $80,000 a year (especially once CPP and OAS kick in) then the money will last longer.

Of course if the markets vaporize in a doomsday meltdown she’ll probably loose everything but in that scenario the pension plan probably gets vaporized too. They invest in the same markets. And they are typically under-funded so commuting is a good way to avoid whatever is coming down the road when the retirement crunch hits.

Anyway always remember the most important aspect of free advice: You get what you pay for.

#13 espressobob on 05.02.16 at 6:40 pm

Advise to Joanne, unless you have endless hours to educate yourself on the boring subject of investing, you might consider a fee based advisor.

That could prove to be the smart move.

#14 Smartalox on 05.02.16 at 6:42 pm

Frank:

The total of the holdings is diversified: some cash, some fixed income, some equities. The whole point of having a portion in ‘cash’ or other liquid investments, is that it can be tapped (judiciously) to make up for any earnings shortfall. $55k in a TFSA, would make an excellent rainy day fund, while the rest of the commuted pension keeps working for her.

#15 Damifino on 05.02.16 at 6:46 pm

Take the money Joanne. Just take it.

I have have exactly the amount of capital as you will if you commute. It has been invested for many years. About half since since 2000 and the remainder since 2011. In addition, I get CPP and OAS. I am five years older than you and have been fully retired for nine years. At this point in time I have all the capital I started with (actually, more) and have lived very comfortably off my investments since retirement.

Garth is absolutely correct. Some years have been stellar performers, some tepid, and some have sucked. That will continue, I am sure. On average, my investment have made about 7% annually over that time. That includes the global financial crisis of 2008. I don’t live beyond my means and I long ago walked away from the unnecessary risks of overpriced real estate.

Grab control of your money and find a great advisor. The author of this blog happens to be one but there many others. I have half my capital with one advisor and half with another. Both are fee-based. However, it’s not necessary to have two. You just need the right one. Shop around and ask lots of hard questions. If they don’t have the time they are the wrong people.

Make sure you’re in control and stay that way. And remember, don’t fret over the markets. It’s not for amateurs. That’s what you pay advisors for. Good ones.

#16 Chimingin on 05.02.16 at 6:46 pm

I took the commuted value and cashed out of my OMERS when I was downsized. It felt scary until I saw the amount of money now available to my family, which wouldn’t have been available in the same way had I left it in place. That brought peace of mind as we invested it, and it’s growing well. No regrets. I like that I can access it as I see fit, in the amounts I please, rather than having much of the access dictated to me.

#17 NTH on 05.02.16 at 6:49 pm

So sorry for your loss Joanne.

#18 Blockhead on 05.02.16 at 6:50 pm

https://www.facebook.com/UncleSamsChildren/videos/490914691104535/

#19 LP on 05.02.16 at 6:52 pm

I just linked this post of Garth’s in e-mails to my kids, early forties all of them. I hate to think they may one day need this advice but nowadays you just never know.

F68ON

#20 tkid on 05.02.16 at 6:52 pm

Joanne,

for reason #5, I’d commute. Underfunded pension plans are a real risk. And I’m terribly sorry about your loss.

#21 Mark on 05.02.16 at 6:57 pm

“You can’t skip bills in a recession and tell the grocery store that you’ll pay when the market returns. “

Oh please. If she owns a paid-up principal residence, and has a car, CPP + OAS is plenty enough for most elderly people to survive on. Its even more than most students are surviving on, and they have housing expense, books, etc. to pay.

As long as the withdrawal rate is conservative enough (a 4% withdrawal rate against $1.4M is ~$56k/year), the long-term record of such an investment plan remaining viable perpetually is pretty decent. Garth’s advice here appears to be solid. The real ‘problem’ is finding investment advisors who are trustworthy enough to implement it for relatively low costs and with the appropriate diversification. If she went to Garth, there’s a pretty good chance she’s at least on the right track to finding said individual.

#22 Entrepreneur on 05.02.16 at 7:04 pm

I say take the money and invest, but for you, make columns of the pension funds, pros and cons underneath, what you like, don’t like, etc. Takes about a day or two to write down all the points, a day or two to think about which one, but one will stand out. “On paper it always look different like another person”.

That last sentence in my above paragraph can be applied #9 Hot off the press video. I think it is called “hindsight” or “turning away” or “leave it to someone else” or “not enough balls” or “hush, I am going to make millions” or “developer fever” or name it.

#23 Bob on 05.02.16 at 7:11 pm

@#10 Frank
She has to eat and survive. You can’t skip bills in a recession and tell the grocery store that you’ll pay when the market returns. How does she keep away from the food bank.

That is the dumbest comment I’ve seen yet here.
You have 1.4m in liquid assets. Take out some principal.

But more importantly, if you’ve been reading Garth’s blog, you’ll own things like preferred which will pay you a nice fat dividend stream. It doesn’t get reinvested, it’s money you’ll use.

And not 100% of it is invested. 5% cash, for example, is more than enough for ’emergency day fund’ or whatever else.

#24 Gregor Samsa on 05.02.16 at 7:11 pm

I think you’d have to be nuts to walk away from a government pension with a lump sum. Far more risk on the markets than of governments failing.

If it’s a private company, it all depends on the solvency of the company and its pension fund. If both are sound, there is no way one should walk away either. The only way your pension would be at risk is if a huge financial collapse took down your company, in which case your investments would likely be in even worse trouble.

Don’t be greedy. Take your generous pension and enjoy a stress free life.

And leave none of it to her family? How is that not greedy, or at least selfish? — Garth

#25 Stuart on 05.02.16 at 7:11 pm

I have calculated the tax on a some of those commuted payouts and the result was that it was lower than the pension if annuitized but better if one self invested and had good returns and took more risk. The reason is the government wants to discourage removal of pension plan money as it creates a lose for plan. When rates were higher than the commuted value people would cash out and buy an annuity and make 20% more in income so the government changed the rules and increased the tax penalty! I know people who were convinced by planners to take the money out and five years later they were hit for large back taxes.
What happens if returns are low for the first 5 years, well you lose as you drain the capital to live on.

“Third, you might pay less tax if you commute.”

You mean you did not come up with the numbers?
Try scaring about the company going belly up too.
You can find out the funding level.

Garth you can answer the questions instead of passing the back the decision to the poor lady who is asking for help.

I bet you will delete the comment.

Why? You’re just a risk-averse person who will always be negative. — Garth

#26 Tony on 05.02.16 at 7:11 pm

This is an easy one just invest on the last business day of April every year and only play the stock market indexes in the month of May. Every May is now rigged from this year until eternity. You can’t lose in the month of May if you’re long the market. Everyone has my money back guarantee. NASDAQ 5,000 and beyond this month. Play and May rhyme, play the market only one month of the year and that month is this month May. I bought the inverse VIX yesterday and I bet I’ll double my money this month on it.

#27 boopsie on 05.02.16 at 7:14 pm

Keep the DB, Jo. Agree with WestCoast above. You’ll have 2 CPPs as well, and peace of mind. If this had been a lottery win, imagine the predators sniffing around!
Dreadful blow, accident, reminds us that anything can happen.
PS, GT, it is ‘quandary’.
F71ON

#28 Entrepreneur on 05.02.16 at 7:17 pm

I have been watching Donald Trump, why people are voting for him. Donald Trump said about Hillary, she talks to us now but once in she will be under big corporation, or something like that. I think all politicians are under big corporations.

I was also surprise to hear Putin saying something positive about Trump. Putin criticized Canadian politicians as being corrupt.

Looks to me the middle class had enough and are voting for someone who will not only talk to them now, and once elected.

#29 Tony on 05.02.16 at 7:17 pm

Re: #1 Randy on 05.02.16 at 5:59 pm

That’s the kind of advice you’d want to frame on the wall if you’re poor to middle class.

#30 Why Me on 05.02.16 at 7:20 pm

What? Return of 6% a year should be routine over the next 30 years? I’m not sure of that. Government sponsored scams like the stock market may well fall apart during that time. ZIRP and deficits can’t go on forever without destroying the economy. Of course, DBPPs would also be in danger.

#31 Tony on 05.02.16 at 7:20 pm

Re: #12 nonplused on 05.02.16 at 6:31 pm

Anyone that can consistently get 6 percent with less than 2 percent inflation can solve the world debt problem. In other words in the real world it won’t happen.

#32 Randy on 05.02.16 at 7:24 pm

Nobody gets a defined benefit pension any more unless you are government elite or a senior exec.

Or a teacher, soldier, nurse, file clerk, firefighter, medical technician, coast guard mariner, school janitor or other ‘executive’ employee. Fool. — Garth

#33 Cottingham a bargain on 05.02.16 at 7:41 pm

Yup , best decision is to commute it , stay in control. Own it always in other words .

Much like your home.

#34 Ken on 05.02.16 at 7:45 pm

Joanne if investing and need an advisor I would personally go with Garth’s team, If I had 1.4 million and needed a help I’d fly from B.C to Ont. to pursue some honest help. I see to many shysters out their with their golden broomsticks looking for a free ride.

I did not write this. Honest. — Garth

#35 Mary Thompson on 05.02.16 at 7:49 pm

My aunt is already faced a similar situation back in 2013 but fortunately her spouse my uncle is still alive and is 58 years old. They are both retired.

They stuck all the money in long term government bonds at 4.2% in December-2013.

His transferred in money from the pension was $1.259 million and they did not need all the $26,500 semi-annual interest as they have other adequate investments, RRSP’s, TFSA’s etc.

They have now $120,000 more in other bonds earning at 3.43% earning $4,100 more interest a year in that LIRA.

The pension was for $65,000 a year plus maximum cap of 2.75% indexing for inflation but no money left for the wife and kids.

The $68,000 they would get now as a pension is not much more than the $57,100 they are getting in LIRA interest plus they have another $120,000 more in new money.

If my uncle dies before my aunt she will only get 63% of the current pension at that time. If it were today, this would mean $43,000 a year which is much less than the $57,100 in interest from the LIRA.

As for the Joanne, even at current 3.2% to 3.5% rates today on long term government bonds, around $1.4 million would get about $45,000 to $49,000 a year in annual interest.

I still agree with Garth that longer term interest rates will rise in the next 3 to 9 months so I would not be surprised that a $50,000 to $52,000 a year is a more possibility with $1.4 million.

The $61,000 a year is only a 4.35% payout on $1.4 million which is not that attractive even with annual inflation indexing of 2.0% or more. There is some cap, maximum for sure there. Most are 2.5% to 3.25%.

Even looking at $1.4 million and taking $61,000 a year out with nothing else, no interest, no dividends, investment returns etc, it would take 23 years for her to get back the $1.4 million. This $61,000 a year pension is a terrible deal.

#36 Mike in Edm on 05.02.16 at 7:56 pm

Some Edmonton builders are now offering “free” BMW 3 series cars when you buy a mid $300k townhouse or more expense ($400’s) house. It’s ‘deals’ like this that skew the housing market stats.

And if you look on Norm Fisher’s blog regarding Saskatoon RE this week, you’ll see that the 6 week average house price is now lower than in 2015, 2014, 2013, and 2012, and the 4 week median is lower than all those years too except 2012.

I think the only reason the average house price in Saskatoon is staying somewhat flat is because all that’s built there these days are monster 2500+sq ft walk out basement mcmansions. Houses like that barely existed in Saskatoon up until 10-15 years ago.

#37 Give us this Blog our daily Garth on 05.02.16 at 7:57 pm

#1 Randy on 05.02.16 at 5:59 pm

Take every pension you can as early as you can.
#2 Jimmy on 05.02.16 at 6:05 pm

First!!
———————–

Jimmy you are second. Randy is First, yet again. Rany beat you by a full 6 minutes.. AND HAD SOMETHING TO COMMENT ON! (It’s a comments section Jimmy).

You join the ranks of Josef (unless you are Josef). Try not to be second with nothing to contribute.

Always remember how you were second today, Jimmy. You probably own a pair of truck nutz. Randy beat you. You have no opinions, but Randy does. Randy is better than you.

Randy = First = Fabulous
Jimmy = Second = Sad

#38 steerage steward on 05.02.16 at 7:58 pm

Am also lucky enough to have a DB pension with a commuted value payout option. Will be taking the payout for the reasons Garth mentions. The main concern is I do not trust the money will be there over my retirement years.

A pension is only one part of a sound retirement plan, also counting on CPP, and RRSPs. In my opinion Garth is a little too optimistic on long term return, I base my projections on 5% and am saving more accordingly. Also include in my plan all benefits reduced by 30% from current promised levels.

#39 will on 05.02.16 at 7:59 pm

Omg. Commute. Commute. Commute.

#40 Terrence on 05.02.16 at 8:00 pm

Garth is right on this 1, definetly take the money as quick as possible! Pensions are the next big ships to hit the icebergs & start to take on water & eventually sink, so watch 4 this in the very near future! Next is wait 4 a pull back in the green back then invest in U.S dollar, invest in gold & silver & hold it 4 a few yrs !Also invest a portion of it in the U.S stock mrkt its going for new highs in the nxt few years! Be sure to sell those investmnts by 2020 , definetly trouble ahead! Party on Garth!

#41 Mark on 05.02.16 at 8:03 pm

Some Edmonton builders are now offering “free” BMW 3 series cars when you buy a mid $300k townhouse or more expense ($400’s) house. It’s ‘deals’ like this that skew the housing market stats.

Yup. Basically that’s a tacit sort of fraud that’s being played on the lenders if they’re not fully advised that a BMW was part of the transaction.

I think the only reason the average house price in Saskatoon is staying somewhat flat is because all that’s built there these days are monster 2500+sq ft walk out basement mcmansions. Houses like that barely existed in Saskatoon up until 10-15 years ago.

Yup, same old deal. Alphabet soup stuff is barely transacting (those from Saskatoon, ie: WalMark would understand what I’m talking about — basically older areas on the west side). While the newer/bigger stuff makes up a larger chunk of the sales mix.

Similar deal across Canada.

#42 Watcher on 05.02.16 at 8:05 pm

Very sorry Joanne.

If you take your 1.4 million and put it in any number of high quality MIC’s (Mortgage Investment Corporations) which range from 5% to 11%, you’d get a better payout than what the employer is offering and take it monthly if you wish.

No markets to watch or worry about. Constant stream of money. And the entire amount to disperse amongst the kids when you choose.

You’ll also be set up to take advantage of higher interest rates when they come. Great way to set up an income stream without having to liquidate units when you need money.

Just a thought.

Hey, great idea. Give you money to a company which makes real estate loans to people the banks turn down, at the top of an inflated gasbag of a housing market. What could possibly go wrong? There’s a reason the rates of interest are high. It’s called danger pay. — Garth

#43 Bottoms_Up on 05.02.16 at 8:12 pm

Commute (and then hire Garth as an advisor). Guaranteeing that a huge chunk of money can be passed down takes the cake. Really, she has a 50% chance of living to 90, and ultimately no one knows when the grim reaper will show up.

#44 LP on 05.02.16 at 8:12 pm

I don’t think Joanne will collect two CPPs. The first paragraph of the post says that she was always a stay-at-home spouse. No paid work there, therefore no CPP to look forward to.

As to her husband’s CPP, I think the only way she’d be collecting any at all is if he had pension-split his monthly stipend. I’m on shaky ground there but I think that’s why my 92-year old mother still gets a pittance every month of my deceased dad’s CPP.

F68ON

#45 Freedom First on 05.02.16 at 8:21 pm

Very sorry to hear about your loss Joanne.
……………………………………………………………..

This is only my opinion, Joanne, so be extremely careful with this.

This may sound harsh, but most unfortunately, it is a reality. Even covered by Garth on this Blog.

Here we go…..

My only worry would be the four adult children. Are any of them parasites? Everywhere I look I see the adult children of people I know sucking the Bank of Mom dry. So, whatever you decide, Joanne, I sincerely wish you the best.

As always, my Freedom First.

#46 Mark on 05.02.16 at 8:24 pm

“If you take your 1.4 million and put it in any number of high quality MIC’s (Mortgage Investment Corporations) which range from 5% to 11%, you’d get a better payout than what the employer is offering and take it monthly if you wish.

No markets to watch or worry about

Couldn’t be anything further from the truth. Owners of MICs, especially ones that invest in loans that risky, are exposed to extreme amounts of market risk. Housing market. Financial markets/bond market. Etc. A balanced portfolio and a sustainable withdrawal rate, as advocated by the likes of Garth and others, doesn’t require anyone to ‘watch the markets’ other than perhaps an annual or bi-annual meeting with a financial advisor for updates/compliance and tax/estate planning and advice as required.

Additionally, the last thing people should be fixating on is whether the payment is ‘monthly’ or ‘quarterly’. Take out a small line of credit. Or learn how to manage a cash savings account if being paid monthly instead of quarterly is an issue.

“You’ll also be set up to take advantage of higher interest rates when they come.”

Another whopper. There is no guarantee that ‘higher interest rates’ will translate into higher returns for MICs. Returns may very well even be suppressed, on account of those high risk loans going bad. Remember, the big-5 Canadian banks basically give anyone with a pulse a big mortgage, so those who can’t get mortgages through them are likely to be extreme credit risks. The lack of diversification inherent in the advice to put it all into MICs is also extremely dangerous is the only other thing I’ll add to Garth’s sternly worded rebuke.

#47 slick on 05.02.16 at 8:41 pm

Joanne;
similar situation just different.
My father passed in 2008. Shortly after, dementia put Mom in a home, but not before all her unregistered assets were placed in a trust. About $1.5 M. I look after 1/2, a financial guy the other 1/2. (mutual funds and stuff). There has been about $100K per year withdrawn since then. Current value $1.35 M. I can live with that. You can too.
slick

#48 BG on 05.02.16 at 8:44 pm

The last days 2 have seen the birth of a new and quite revolutionary kind of investment accessible to all. It has already amassed 13 millions USD from investors.

The DAO (Decentralized Autonomous Organisation) is basically a computer program that will trade its internal token for money.
You buy as many tokens as you want, and this amount represents your voting power in the organization.

Pretty much anything can be subject to a vote, from what to do with the funds to the way of rewarding the token holders.
Then some companies (pretty much startups) make work proposals to the DAO, which will then vote to accept or reject it.
The startup is a service provider, and the DAO is the client. Obviously proposal will only be accepted when their potential revenue to the DAO is deemed acceptable.

For those interested in seeing how much money is being invested, here is the link. This round if investment will be the only one (unless another is voted by the token holders in the future) and it will last 28 days:

https://daohub.org/

(Click on Get Tokens to see the total)

In terms of technology, this runs on Ethereum, a crypto currency that I and other posters have already mentioned a couple of times here. It allows the DAO to function “trustless” without needing any arbitrator.

#49 Randy on 05.02.16 at 8:53 pm

Nobody gets a defined benefit pension any more unless you are government elite or a senior exec.

Or a teacher, soldier, nurse, file clerk, firefighter, medical technician, coast guard mariner, school janitor or other ‘executive’ employee. Fool. — Garth

All Gov’t workers…Guess ‘Elite’ Fooled you

Give it up. — Garth

#50 Ken Nash on 05.02.16 at 9:04 pm

7th If it’s a public sector defined benefit pension, consider the certainty and take the pension payments and peace of mind. Knowledge and research required? Being able to open an envelopment and read a calendar for the next payment.

Then again, you’re reading Garth blog and considering going it alone.

Know any mistakes are your consequence to bare. If an employer makes a mistake it’s obligated to top up to cover the pension payment. You just get poorer.

Personally, at 60 is a time to be risk adverse.

The first question should be: Is the plan is administered by an undoubted reliable employer?

Predictable, peace of mind pension payments are nice to have at 60. Worry about the important stuff, like the best Sunday dinner for the family.

If you really have the investment bug consider a small equity line against the house. Invest it and write off the interest. Just a word of advice the guide on how much to borrow is your capacity to pay the loan off. This is your $61,000 income. Not the 75% blow your brains out based on the value of your house the bank would give.

So $15,000 is good. You’re 60 and going to live to 95. How much will you be leaving the brats at a 7% return? I think thanks around $160,000 for your kids.

Which is great if it works. If it doesn’t you have the ability to pay off the $15,000 loan from your income. With some minor changes like baked KD with bread crumbs spread on top for Sunday dinner.

It all depends on the strength of the employer. Public sector take the pension. Private depends on the employer.

Glad you don’t manage anyone’s money. — Garth

#51 WalMark of Sadkatoon on 05.02.16 at 9:04 pm

commuted pension all day every day.

#52 WalMark of Sadkatoon on 05.02.16 at 9:06 pm

If you take your 1.4 million and put it in any number of high quality MIC’s (Mortgage Investment Corporations) which range from 5% to 11%, you’d get a better payout than what the employer is offering and take it monthly if you wish.

No markets to watch or worry about

you are friggin insane

#53 Supernova Star Stuff on 05.02.16 at 9:11 pm

#48 BG on 05.02.16 at 8:44 pm
The last days 2 have seen the birth of a new and quite revolutionary kind of investment accessible to all. It has already amassed 13 millions USD from investors.

The DAO (Decentralized Autonomous Organisation) is basically a computer program that will trade its internal token for money.
You buy as many tokens as you want, and this amount represents your voting power in the organization.

————————-

Joanne, I think what to do with $1.4 million is solved! Sure beats BitGold.

The DAO’s Mission: To blaze a new path in business organization for the betterment of its members, existing simultaneously nowhere and everywhere and operating solely with the steadfast iron will of unstoppable code.

Mother of all DAOs
DAOs will be at the center of many economies going forward and intend to be at the forefront of supporting innovative and promising projects, products and services in order to become ‘The DAO’: A flexible decentralized autonomous organization leveraging the wisdom of the crowds to benefit the DAO Token Holders.

#54 Andrew Woburn on 05.02.16 at 9:13 pm

We hate it when the one percent don’t pay their taxes but sometimes there’s a problem even when they do.

“Our top-heavy economy has come to this: One man can move out of New Jersey and put the entire state budget at risk. Other states are facing similar situations as a greater share of income — and tax revenue — becomes concentrated in the hands of a few.”

What would Bernie say?

http://www.nytimes.com/2016/05/01/business/one-top-taxpayer-moved-and-new-jersey-shuddered.html?mwrsm=Email

#55 cramar on 05.02.16 at 9:24 pm

#28 Entrepreneur on 05.02.16 at 7:17 pm

Putin criticized Canadian politicians as being corrupt.

—————–

Now that is the ultimate burnt pot calling the kettle black!

#56 Ray Skunk on 05.02.16 at 9:26 pm

Reason #4 scares me to death (and this has nothing to do with me) so for that reason alone I’d commute.

Another poster mentioned Public Sector as if they’re somehow immune. Tell that to civil servants in Greece and Detroit.

With $300bn of debt and rising on the books (who knows how much hidden in Crown Corps/pension underfunding that are not publicized), don’t think for one second that the likes of Ontario can fulfill all its obligations.
Mrs Skunk has an Ontario DB pension – I told her I’ll be shocked if there’s anything to collect in 30 years time the way Wynne keeps going.

#57 Craig on 05.02.16 at 9:29 pm

Re : #15 Damifino ” On average, my investment have made about 7% annually”

Congratulations on your financial prosperity Damifino. Would you care to share the name of your advisor with us because my current planner isn’t close to your long term average. Thanks .

#58 Smoking Man on 05.02.16 at 9:38 pm

Joanne

Take the cash, see the world. Your 60, best time to do it. When you run out of cash. Live with one of your kids.

If your kids know they get nice change when you croak. They won’t try as hard to make it on there oun.

Vegas is nice this time of year.

#59 Lorne on 05.02.16 at 9:42 pm

#9 Hot off the press
Hot off the press. I am surprised that Garth with all his smarts chooses to ignore foreign capital as being one of the main drivers of YVR real estate.

http://www.sfu.ca/content/dam/sfu/mpp/pdfs/Vancouver%27s%20Housing%20Affordability%20Crisis%20Report%202016%20Final%20Version.pdf
…………
Great article…worth the read…even if you only hit the conclusions and appendix

Foreign capital is not a main driver. Locals’ obsession with foreign capital might be. — Garth

#60 Julia on 05.02.16 at 9:47 pm

#49 Randy

Try bank employees, and not just executives.

#61 joblo on 05.02.16 at 9:51 pm

Hey SM, off to LV end of month.
“Vegas is nice this time of year.”
Where to stay?

#62 AB Boxster on 05.02.16 at 9:56 pm

If the full payout is 1.4 million, the taxable portion can be a killer.
If only 1/ 3 of it is taxable, unless there is large RRSP room, the tax on this portion can be pretty large, unless you can get your employer to pay it out over 2 tax years.

Still may make sense to take the commuted value but the total could be less than 1.3.

The taxman can be cruel to lump sum payouts.

It’s all taxable over time. Having a substantial non-registered account is an exceptionally smart use of the after-tax portion. — Garth

#63 acdel on 05.02.16 at 9:57 pm

And leave none of it to her family? How is that not greedy, or at least selfish? — Garth

———————————————
Seriously Garth??? She owes nothing to them; she helped raise them to be (hopefully) responsible, independent adults.

Joanne what I will suggest; call Garth and make an arrangement that is best for YOU!! Good-luck!

#64 Tony on 05.02.16 at 9:59 pm

Re: #52 WalMark of Sadkatoon on 05.02.16 at 9:06 pm

She’ll be destitute and penniless if she puts money into mortgages. Canada has probably the largest housing bubble in the world at present. Housing in China has been imploding for some time. The Australia housing bubble is not as bad as Canada’s. Even junk bonds would be a better idea.

#65 Karl hungus on 05.02.16 at 10:06 pm

Surprised you don’t quote the trinity study more often. Years and years of study to come to conclusion that 4% is the perfect safe withdrawl rate. For all 30 year periods from the last 100 years with 96% success rate.

#66 Karl hungus on 05.02.16 at 10:07 pm

And you do realize taking dividends or selling shares is the same right? Not sure why you’re concerned with conserving capital

#67 Cici on 05.02.16 at 10:09 pm

#9 Hot off the press

Oh please, SFU has always been and will always be a right-wing think tank with a big-business agenda. Serving whoever pays the highest bid.

#68 espressobob on 05.02.16 at 10:16 pm

Caveat emptor when dealing with commissioned advisors. Not worth the risk.

http://www.thestar.com/business/2012/04/18/exrbc_investment_advisers_now_at_scotia_mcleod_faked_client_signatures_for_more_than_a_decade.html

This gives the industry a bad name. Do your homework and go fee based.

That link is four years old. — Garth

#69 Millmech on 05.02.16 at 10:32 pm

Take the cash and get a good fee based advisor.My BIL pension got slashed 30% last year.A DB pension plan I belong to has seen my payout reduced 12% and probably more to come.1.5 @4% withdrawal rate,60k a year plus gov benefits she is fine,will never touch the principal,in fact she will most likely have a larger nest egg than that as time passes.

#70 leslie yeung on 05.02.16 at 10:36 pm

Buy life insurance and just spent everything else 50k a year and keep everything in savings account..
This will work for you if you qant to leave something for kids

#71 Doug t on 05.02.16 at 10:38 pm

As you know Joanne life is unpredictable – take the money – live – enjoy – best of luck

#72 The American on 05.02.16 at 10:43 pm

Gotta love millennials… https://www.youtube.com/watch?v=hLpE1Pa8vvI

#73 Condo Minion on 05.02.16 at 10:48 pm

One has to wonder whether Joanne might end up “investing” the money in condos.

Happens all the time, sadly.

#74 Valleyboy on 05.02.16 at 11:08 pm

It’s brutal how many people pay Into pensions and near the end know nothing about them and don’t fight for a better one along the way. Then expect it to pay out 100 percent of what they where promised or jack up the gen y’fees because it’s there fault rates are at 0. Step 1 check your plans solubility. Step 2 you are way to lucky to get 1.4 mill as an option. 3 If you plan indexes, or pays your health benefits while being 100 percent soluble then you may have some choices.

#75 Walter Safety on 05.02.16 at 11:09 pm

Don’t commute.
1) Your advisor won’t be there. Their business grows they have less time for you. They retire, same demographic as you 12 years max. They move , firm management are idiots ask an advisor. Independents ?most are too small to have a back up. Bank owned? Advisors can’t get off the treadmill , they burn out or quit.
2)The risk. You’re taking a massive solid promise of a guaranteed indexed income and giving the responsibility to someone( the advisor) who has taken that responsibility probably less than 10 times previously versus the pension plan who have keep the promise for thousands before you.
3)You’re not a risk taker, you couldn’t possibly understand the many risks.
4) No mention of health but chances are good you will live to 90+ .Dont give up a lifetime income guarantee .
5) The presented risk of pension plan failures is hardly real since a lonely advisor has to overcome the same metrics to keep you solvent .You as pensioner would have the voices of thousands and politicians behind you.
6)You will leave something behind because you won’t spend it all. You will actually feel better giving money away while you live because you have security of income independent of markets.
7) There are lots of commuted pension nightmares out there ask around. One advisor one mistake no ones problem but yours.

#76 saltpony on 05.02.16 at 11:16 pm

I’ve got a DBP. Earliest reduced at 55. Earliest unreduced at 60. I’m turning 51 next week.

So…. When should I take it? At 55? or hang in until 60?

I’ve got one of those cushy government elite hospital jobs complete with concrete flooring, harsh fluorescent lighting, insanely high stress, chronically understaffed, brutally overworked with arthritis thrown in as a bonus. And though I really love my patients (and ironically my job too) I can’t see myself physically lasting much beyond 55.

Thanks in advance for the pearls of wisdom.
SP

PS. I’ll be expanding my small sideline business of currently 7k per year to 30-50k per year; if that influences the above question and answer at all.

#77 WUL on 05.02.16 at 11:24 pm

That flat province a few miles away from Ft. Mac is the “Land of Living Skies”??

Give me a break.

Nothing like a forest fire on the outskirts of town to create great skies.

“The West of which I speak is but another name for the Wild, and what I have been preparing to say is, that in Wildness is the preservation of the World.”

Thoreau.

Signed,

The Fort McMurray Tourism Board

#78 Brazil ex-pat on 05.02.16 at 11:30 pm

#32 Randy on 05.02.16 at 7:24 pm
Nobody gets a defined benefit pension any more unless you are government elite or a senior exec.

Or a teacher, soldier, nurse, file clerk, firefighter, medical technician, coast guard mariner, school janitor or other ‘executive’ employee. Fool. — Garth

+++++++++++++++++++++++++++++++++++++

All of the above Public Service Executives funded by taxpayers with no DB lottery win.

#79 JSS on 05.02.16 at 11:58 pm

Some employers continue to offer full benefits (medical, dental, etc.) if you remain with the pension. This is a benefit that you should not overlook when making the decision to commute your pension.

#80 JSS on 05.03.16 at 12:08 am

# 76.

Quit as early as you can, and start collecting that government pension (best DB pension available, hands down). Next, you get another job or do some consulting work, while collecting the pension. Or work on your sideline business, and make a bit more money.

You never know when you’ll kick the bucket. Get going!

#81 Lorne on 05.03.16 at 12:16 am

#67 Cici
#9 Hot off the press

Oh please, SFU has always been and will always be a right-wing think tank with a big-business agenda. Serving whoever pays the highest bid.
………
What?? Did you even read or even scan the article?

#82 macroman on 05.03.16 at 12:18 am

Nuts, condoms, Doggie…style?

No quandry

#83 Linda on 05.03.16 at 12:25 am

I side with Garth’s advice to Joanne. Take the commuted value. Even if you just park it in a bank account, 1.4 million would give you $46,000 per year to live on to age 90 with at least the chance there might be some left to live on if you live past age 90. Plus there is every reason to be concerned that pension benefits could be reduced or even ended. Companies go bankrupt or into receivership all the time, even (maybe especially) the ones everyone thought were ‘safe’. Like Air Canada or Nortel. No smiles on the faces of the pensioners for either company. Even government pensions can be changed. Saskatchewan ended DB pensions for government employees back in the 1970’s. Yes, those employees who were already in the DB plan could choose to stay in the DB plan, but any new hires had only the option of a DC plan. Lots of plans have reduced or ended retiree benefits or ceased to apply COLA after a certain date. Other plans have increased the number of years one must work or the age upon which one can receive an unreduced pension benefit. Yes, it is scary taking on the responsibility of managing such a sum, but it isn’t that difficult to educate oneself. Who knows, Joanne might end up being a female version of Warren Buffet.

#84 Extra Fine Wild Roasted Gonads on 05.03.16 at 12:26 am

#72 The American on 05.02.16 at 10:43 pm

Gotta love millennials… https://www.youtube.com/watch?v=hLpE1Pa8vvI

Shouldn’t you be more concerned about the orangutan who will your president in 8 short months?

#85 Shawn on 05.03.16 at 12:27 am

Commuted Value Decision

In this case the best course is probably the commuted value considering the wish to leave an inheritance.

But a trusted financial advisor is needed.

She has the advantage of knowing her own health and family history which is surely different than average. If in poor health, then of course, the commuted value is better.

She can’t really count on 6% but it may well be that lower returns will not lead to starvation.

If the pension is not from government or the likes of CN or Royal Bank then commuting is almost a no brainer.

It seems to me that for a single commuting is an easier decision than for a couple where the chances of at least one partner making it 30 years is far higher.

#86 Shawn on 05.03.16 at 12:43 am

Commuted Value is Poor Policy

Pension plans hope to make say 7% using a balanced portfolio. Other than government plans the pensioners have some level of risk if the returns don’t materialise and if the company is not strong enough to make up the difference. A guaranteed defined benefit is only as strong as the party making the guarantee.

A commuted value gives a sum that can provide the same pension even if invested in 100% government bonds. The commuted value allows the pensioner to remove ALL risk.

If I were making the rules I would not allow commuted values on group DB plans. DB plans are barely affordable and what makes them affordable (or used to) is the fact that money saved from early deaths goes to the longer lived people. Having pension money leak off to children just adds to pension costs which are already at best barely affordable.

The requirement to pay commuted values based on low bond rates is part of what has driven pension liability amounts through the roof.

How can a pension plan taking in money intended to be invested in a balanced fund at 7% possibly have enough money to cover a liability calculated on the basis that all the money goes into bonds at 2%? It can’t and the notion that is should seems flawed to me.

A basic flaw of DB plans is the guaranteed pension. Little in life is guaranteed. People with DC plans don’t get guarantees. Even Garth’s balanced clients don’t get guarantees. DB pension liabilities would sink and pension short falls would evaporate if rules were changed such that DB pensioners would get some reduction in benefits if the returns eventually did not pan out. What is really unfair about that? And the alternative has been the death of the DB plan.

I believe New Brunswick solved its pension deficit by having the pensions share in a bit of a haircut.

I draw a pension myself. But if the returns are simply not there is it really fair that others make up the total shortfall and my pension or inflation protection is never touched by even a dollar? Yes, that was the deal, but when circumstances change drastically, sometimes deals need to be broken. Again there are few if any other guarantees in life.

#87 macroman on 05.03.16 at 12:56 am

Yo Jo, take it from Steve Miller.

https://www.youtube.com/watch?v=6MneA9pgLVw

Oh, and Last!

#88 Jules on 05.03.16 at 1:37 am

One huge factor in my case is my young widowed spouse would get health benefits for life if the money stays in the pension and that’s priceless.

#89 Frank on 05.03.16 at 1:40 am

You left out the indexing offered by not taking the commuting.

Inflation over the last 30 years is almost 100% which means you need to earn 2.3% just to go no where. Suddenly your 6% looks different.

Does that change the recommendation? Probably not, I think the freedom and flexibility aspect is important. Still I find while this blog is honest and truthful it’s guilty of omitting or downplaying information that doesn’t support it’s conclusion that investing through a fee-based advisor (a profession shared by the author of the blog) is the only sensible thing to do with your money.

#90 Mark on 05.03.16 at 2:54 am

Ding, Ding, Ding.

CAD$ back over 80 cents.

Where’s Sheane Wallace? I’m getting worried.

Smoking Man, whatever happened to your friend who went all those futures contracts short the CAD$? Did he make it out of the trade with his hide still intact?

#91 TurnerNation on 05.03.16 at 6:17 am

Tonnnny, market’s turned I took other side of your trade this week.

#92 When will they raise rates? on 05.03.16 at 6:57 am

Right now I would take the cheque and convert the bulk of that fiat into physical gold and silver. “Invest” the rest.

#93 Bottoms_Up on 05.03.16 at 6:58 am

#88 Jules on 05.03.16 at 1:37 am
—————————–
Not necessarily priceless….you can probably put a value on having that versus not.

Garth made many salient points that I agree with.
Why risk everything in the event of an untimely death? You have a lottery ticket winning sitting in front of you that you can cash, or get small bits of it every year until your death (then it evaporates). Still seems a simple choice to me.

Besides, you could offer to pay healthcare for your child for peace of mind.

#94 Smoking Man on 05.03.16 at 7:20 am

#90 Mark on 05.03.16 at 2:54 am
Ding, Ding, Ding.

CAD$ back over 80 cents.

Where’s Sheane Wallace? I’m getting worried.

Smoking Man, whatever happened to your friend who went all those futures contracts short the CAD$? Did he make it out of the trade with his hide still intact?
…..

He reversed at 1.38 now he’s gone long again. He’s a natural. Unlike me. I’m just sitting on a pile of loot. Waiting for a sure thing.

#95 Sam the Sham on 05.03.16 at 7:45 am

Advice to Joanna:
You are being offered a defined pension indexed to inflation ($61,000 a year guaranteed). In less you are a hot shot, knowledgeable investor this should be a no-brainer. Remember Joanna, a fool and her money are soon parted!!

Now, why would she self-invest? — Garth

#96 cto on 05.03.16 at 7:56 am

“Vancouver wants your thoughts on empty home solutions”
This is very perplexing…
This city has the highest home costs of any city in North America, however it has so many vacant houses…? Huh? Homes sell for $2M but stay empty, to be held there, like a bar of gold in a vault.
Is this the cause of off-shore investment, (buying property to hold as an asset and stay overseas), because if it is, there better be rules to change this in order to keep Van a livable city FOR ALL CANADIANS!
Canada needs to look after its people, period!

#97 crowdedelevatorfartz on 05.03.16 at 8:22 am

@#78 Brazil Ex Pat
“All of the above Public Service Executives funded by taxpayers ….”
******************************************

And the taxpayer funded govt employees in Brazil are so much better…..

http://www.google.ca/url?url=http://www.ft.com/cms/s/0/32005952-b2ca-11e4-a058-00144feab7de.html&rct=j&frm=1&q=&esrc=s&sa=U&ved=0ahUKEwjUjPq88b3MAhVWwGMKHSrsC2kQFggXMAE&usg=AFQjCNFdvVWdnZGasTNhxzrzXI5ikn24Ww

The same corrupt beaurocracy that “runs” the Brazilian “economy”.
Inflation up, currency down, economy stalled……
All with an embarassingly expensive Olympic sized PR disaster coming to a sporting venue near YOU.

Are the tickets to the events going to be given away at the gate since no one there seems even remotely interested in going…….

http://www.google.ca/url?url=http://www.ibtimes.co.uk/rio-olympics-2016-poor-ticket-sales-add-summer-games-woes-1553170&rct=j&frm=1&q=&esrc=s&sa=U&ved=0ahUKEwi9nJS48r3MAhUB_2MKHZjlBI0QFgg7MAQ&usg=AFQjCNE25FTYAW6vvNzwhWFB5vyNszl4zw

#98 Julia on 05.03.16 at 8:37 am

#61 joblo

Depends what you’re looking for. I love Vegas, just came back in fact, but I am pretty certain I do not travel in the same universe as SM.

#99 Cottingham a bargain on 05.03.16 at 8:57 am

As a long term bull on the Canadian housing market I have to admit that even I am quite surprised at the resiliency of the Calgary housing market.

As for the excuses for it made here in the comments section , draw your own conclusions

#100 BG on 05.03.16 at 9:14 am

#53 Supernova Star Stuff on 05.02.16 at 9:11 pm

Joanne, I think what to do with $1.4 million is solved! Sure beats BitGold.

********************************************

I know anything crypto is not going to be taken seriously by most people here, but it still IS serious stuff, it will be a serious disrupter, and major players already agree:

“Toronto Stock Exchange Moves Toward Blockchain With Ethereum Founder Hire”
http://www.coindesk.com/toronto-stock-exchange-moves-toward-blockchain-with-ethereum-founder-hire/

“R3 (R3CEV LLC) is a blockchain technology company. It leads a consortium of 42 financial [RBC, HSBC, BNP, Morgan Stanley, etc] companies in research and development of blockchain usage in the financial system”
https://en.wikipedia.org/wiki/R3_%28company%29

For those who don’t know the term “blockchain”: it is the underlying technology BitCoin and Ethereum (or any crypto currency for that matter).

#101 lee on 05.03.16 at 9:32 am

Jules,

Health care benefits in Canada are usually of marginal benefit, and usually quite watered down. Ask your carrier whether treatments and medicines for serious illnesses are covered, and for how long, or whether even root canal procedures are covered?

#102 Frank Blood on 05.03.16 at 9:41 am

Is there an industry standard calculation and set of variables that can be used to verify the commuted value being offered by the employer?

#103 Keith in Calgary on 05.03.16 at 10:14 am

TAKE THE GOD DAMN 1.4 MILLION !!!!

Pension plans are legal ponzi schemes that are running out of money.

#104 Grey Dog on 05.03.16 at 10:31 am

Joanne,if you take the lump sum of 1.4, make certain it ALL goes into INVESTMENT ACCOUNTS. Do not get stuck like my Father did holding mortgage for my brother, which on paper gave him a better return than [email protected] offered him. Brother ended up a deadbeat, Father doesn’t have that 200k$ compounding for him today.

WARNING Bottom line, do not get talked into holding mortgages for your adult children!

#105 farsyd on 05.03.16 at 10:55 am

Garth, if she were you (who has started a dozen businesses and puts himself out there every day), she should commute it. Housewife, 60. $60K per year plus CPP and pogey. Its a great life. No way she should commute unless she really wants to leave for kids. As a parent and son, my view is that once you have fed and educated them, its up to them. Leaving them a lot of money takes their hunger for success away. Plus kids today would probably just blow it on bigger houses.

I articulated several other reasons why taking control of this, rather than leaving it to others for a more-taxed and less-robust return, makes sense. — Garth

#106 pBrasseur on 05.03.16 at 11:04 am

@Mark

Ding, Ding, Ding CAD$ back over 80 cents.

And then it’s not… But seriously the regain in the price of oil is the main culprit here, not much else and certainly not economic fundamentals, we’re not there yet.

But we’ll get there eventually, even if it take another 5 or even 10 years (which I doubt), it never fails. Then we’ll see how the CAD fares against the mighty USD…
The moment to watch: When Canadian households are seriously correcting their financial situation, with all that it implies for housing, consumption and all that’s related, then we’ll see that this economy is truly made of.

If the CAD doesn’t reach new lows then, you’ll be entitle to brag.

#107 Bruce Chase on 05.03.16 at 11:19 am

She should take the money and run. I am one of those lucky people with a db pension. BUT even a supposedly solid company (Canada Post), they are now talking about diddling around with the pension because their revenues are falling. Funny thing, they used to be part of the great giant black hole called Superannuation run by the feds. Now, as a Crown Corp., they have their own plan and all of a sudden, it looks like they can’t make ends meet. So even though I have this great DB pension, even Crown Corps are not immune from the possibility that their pension plans will flounder. Maybe if I pray to St. Justin, things will work out!!!

#108 pBrasseur on 05.03.16 at 11:19 am

@#99 Cottingham a bargain

As a long term bull on the Canadian housing market I have to admit that even I am quite surprised at the resiliency of the Calgary housing market.

Looking for an elusive bottom maybe?

http://business.financialpost.com/personal-finance/mortgages-real-estate/calgary-homebuyers-still-looking-for-the-bottom-of-the-housing-market

Why should we be surprised, after almost two decades of steady rise at twice (often more) the rate of inflation and of income growth people are not about to realize quickly that current prices make absolutely no sense and that much of their wealth is but a mirage..

But they will and when they do you’d just better be out of their way!

#109 D on 05.03.16 at 11:48 am

Hot off the press – thanks for the article. Although not a peer reviewed and should be considered as an educated opinion – not fact – it’s certainly a more considerate point of view than ‘house horniness’.

The money for citizenship idea was a scam from the get-go. I’d be interested in Garth’s MP friends’ opinions on how much it brings in, I’ll bet it’s quite hard to kill since Ottawa doesn’t have to experience much of the difficulty.

The fact that Quebec has been allowing it to continue is interesting as well. Lets hope Trudeau can do something about this – Cretien and Harper did nothing but make it worse by enabling everyone to compete with the foreign capital by allowing those ridiculous CHMC rules.

#110 waiting on the westcoast on 05.03.16 at 11:53 am

#90 Mark on 05.03.16 at 2:54 am says… “Ding, Ding, Ding. CAD$ back over 80 cents. Where’s Sheane Wallace? I’m getting worried. Smoking Man, whatever happened to your friend who went all those futures contracts short the CAD$? Did he make it out of the trade with his hide still intact?”

Wow Mark, look at you chirping…. I like it. ;-)

Oh wait, did the dollar just slide a full penny… so sad, maybe next time.

#111 tuericentrum on 05.03.16 at 12:08 pm

Hi Garth,
Just a point of clarification. For a death benefit from a DB plan, payable to a spouse, there is no limit to the amount that can be transferred to a LIRA. The entire death benefit should be transferable, tax-free. If the beneficiary is not a spouse then yes, there would likely be a portion that would be taxable in the current “over-inflated” interest rate environment.

#112 TurnerNation on 05.03.16 at 12:17 pm

Keep selling, boys. We got ’em on the run. This market…

And Home Crapital Corp (HCG.TO): last bad news (liar loans in Nov ’15) perhaps was a warning shot across the bow)

#113 IHCTD9 on 05.03.16 at 12:25 pm

Take the pile. I love the suggestion to take the proceeds off the pile, and stuff it into TFSA’s before taking out your living expenses. Too bad the TFSA isn’t 10G’s anymore like Harper left it, kiddies would have benefitted handsomely.

#114 Damifino on 05.03.16 at 12:25 pm

#75 Walter Safety

“Don’t commute.
1) Your advisor won’t be there. Their business grows they have less time for you. They retire, same demographic as you 12 years max.

———————————-

Very good point Walt…

Many advisors work in teams. Mine do. The wise older advisor makes plans for his/her succession.

I have two senior advisors both with very smart and capable younger partners who will still be in the business long after I’m gone.

It’s something you should consider when shopping around for an investment advisor for your commuted pension (which you really should take).

By the way, an advisor will always have plenty of time for clients with 1M+accounts.

#115 Smoking Man's Old Man on 05.03.16 at 12:41 pm

I think her decision should be based on how disciplined she is with money. I personally knew a a fellow who won $2.5 million in lotto 6/49 and blew it all on vehicles, homes, travel, until he had nothing left (all within a few years)

I also knew a fellow who was awarded an accidental settlement from an insurance company and his first day bought a new truck and boat $150,000.

I’ve read where 80% of pro athletes are broke shortly after retirement as well.

All lack self restraint in my opinion.

#116 Brazil ex-pat on 05.03.16 at 12:45 pm

#97 crowdedelevatorfartz on 05.03.16 at 8:22 am
@#78 Brazil Ex Pat
“All of the above Public Service Executives funded by taxpayers ….”
******************************************

And the taxpayer funded govt employees in Brazil are so much better…..

The same corrupt beaurocracy that “runs” the Brazilian “economy”.
Inflation up, currency down, economy stalled……
All with an embarassingly expensive Olympic sized PR disaster coming to a sporting venue near YOU.

++++++++++++++++++++++++++++++++++

You are correct. Canada and Brazil are twins. As I have been saying all along……

#117 WalMark of Sadkatoon on 05.03.16 at 12:53 pm

waited until the CAD cleared 75 cents and started looking for FL houses again. already a bought 2 and the USD is moving against me. FL is only in the 3rd inning since their crash. YVR and YYZ is in the 9th inning. stay away

#118 Brazil ex-pat on 05.03.16 at 12:57 pm

#110 waiting on the westcoast on 05.03.16 at 11:53 am
#90 Mark on 05.03.16 at 2:54 am says… “Ding, Ding, Ding. CAD$ back over 80 cents. Where’s Sheane Wallace? I’m getting worried. Smoking Man, whatever happened to your friend who went all those futures contracts short the CAD$? Did he make it out of the trade with his hide still intact?”

Wow Mark, look at you chirping…. I like it. ;-)

Oh wait, did the dollar just slide a full penny… so sad, maybe next time.

+++++++++++++++++++++++++++++++++++

Exactly. Canada is too dependent on resources which will continue to fall. It’s public service is way too big as compared to the rest of the G-20. Manufacturing is gone gone gone. Many new teevee and moovees are made in countries other than Canada and the USA now (just look at the credits). And this influx of money from outside of Canada to buy RE can only hold up for so long.

The Loonie is doomed.

#119 WalMark of Sadkatoon on 05.03.16 at 1:00 pm

Oh wait, did the dollar just slide a full penny… so sad, maybe next time.

always bad timing

so sad

#120 CentreWing on 05.03.16 at 1:22 pm

How many non-government employees even have a DB pension anymore?

#121 Pre-retiree on 05.03.16 at 1:27 pm

If the full payout is 1.4 million, the taxable portion can be a killer.
If only 1/ 3 of it is taxable, unless there is large RRSP room, the tax on this portion can be pretty large, unless you can get your employer to pay it out over 2 tax years.

Still may make sense to take the commuted value but the total could be less than 1.3.

The taxman can be cruel to lump sum payouts.

It’s all taxable over time. Having a substantial non-registered account is an exceptionally smart use of the after-tax portion. — Garth
____________________________

But what would be the final after-tax portion? Not 1.4 million. We cannot calculate returns on 1.4 million which has been done above. With real numbers, it will be easier to make an educated decision.

#122 Ogopogo on 05.03.16 at 1:31 pm

#99 Cottingham a bargain on 05.03.16 at 8:57 am
As a long term bull on the Canadian housing market I have to admit that even I am quite surprised at the resiliency of the Calgary housing market.

As for the excuses for it made here in the comments section , draw your own conclusions

There’s nothing “surprising” about it, my dear clueless troll. It’s a well-known fact that prices are sticky on the way down as delusional sellers try desperately to hold on to their overpriced shacks.

But you knew that, didn’t you? Keep at it, clown, entertain us.

#123 Willdaman on 05.03.16 at 1:32 pm

No brainer, commute and put a huge chunk into ZPR. It’s pretty much “inflation indexed” since it holds mostly (if not all) rate reset prefs. Currently yielding 5.6%, set to go up as interest rates rise (assuming they ever do), 0.5% MER, and taxed favourably (mostly eligible dividends and some ROC) = win.

#124 JK on 05.03.16 at 1:35 pm

Take the frickin money! Then its yours in your control. Why allow cubicle dwellers to control your finances? Pension dies with Joanne, nothing for her kids. Isn’t it better to leave them something.
About the “elites” with good pension plans – I want “elite” firefighters to help save my life and my house. I also want “elite” cops to protect me. “Elite” nurses are a big help, too, and “elite” teachers helped me learn to read and write. One group definitely not “elite” is pinheads.

#125 Pre-retiree on 05.03.16 at 1:45 pm

Here is a good paper to help your decision to commute or not

https://www.mackenzieinvestments.com/en/assets/documents/marketingmaterials/wp-tep-leaving-your-employer-en.pdf

#126 LP on 05.03.16 at 1:47 pm

#114 Damifino on 05.03.16 at 12:25 pm

By the way, an advisor will always have plenty of time for clients with 1M+accounts.
************************************

A GOOD advisor will have time for any client s/he takes under wing, otherwise he or she is dishonorable in their commitment to represent the client.

My husband and I have a great deal less than $1M under our advisor’s management yet he finds time to e-mail on the same day as we send him a query. He has even phoned us – on a weekend, while travelling – to answer a question of my husband’s.

Our only worry is that, since he is almost the same age as we are, he may be thinking of retirement in the near future and we are concerned about who will take over.

#127 Polozified on 05.03.16 at 1:57 pm

Usually the commute amount makes it a tough decision. This commute amount doesn’t.

Take the frickin’ money.

#128 Michael James on 05.03.16 at 1:58 pm

There is an important flaw in Garth’s analysis. The pension is indexed to inflation. The 6% return Garth talks about would have to be 6% real (above inflation). This won’t happen. A long as the pension plan is solid, the pension looks like the best option for most people who cannot handle large lump sums well. The only way I’d advise commuting is if I didn’t trust the solidity of the pension plan.

Bad advice. There are major advantages in commuting – less taxation, more income and a legacy for your heirs (to name a few). As for inflation-adjusted returns, financial markets do a great job of that. You should know. — Garth

#129 jess on 05.03.16 at 2:12 pm

watch out for those overvalued illiquid assets in a “side pocket.”

SAC is having trouble winding down the business
http://www.marketwatch.com/story/elizabeth-warren-blasts-sec-over-approval-of-steven

http://www.marketwatch.com/story/illiquid-investments-slow-shutdown-of-sac-capital-2016-01-13

#130 jess on 05.03.16 at 2:23 pm

symmetry?

“The SEC has promised more scrutiny of any use of non-GAAP by companies that is misleading or fraudulent.
non-GAAP earnings numbers disclosed in press releases are still not subject to audit.”

http://www.marketwatch.com/story/which-non-gaap-metrics-will-likely-catch-secs-eye-2016-04-04

#131 steve miller band on 05.03.16 at 2:31 pm

go on, take the money and run

#132 IHCTD9 on 05.03.16 at 2:52 pm

#124 JK on 05.03.16 at 1:35 pm

About the “elites” with good pension plans – I want “elite” firefighters to help save my life and my house. I also want “elite” cops to protect me. “Elite” nurses are a big help, too, and “elite” teachers helped me learn to read and write. One group definitely not “elite” is pinheads.
__________________________________________

Cops, FF’s, and teachers in Canada aren’t so much better than their counterparts from other 1st world countries that they deserve double the pay.

Nor does shelling out big compensation mean that we’ve got something of high quality. Look at the never-ending shit-storm of trouble doggedly infesting the RCMP.

Cops, FF’s and teachers are over compensated in Canada.

Nurses are high paid, but you can’t pay them any less and keep – they’ve got options.

However, you could fire every cop, FF and teacher in Ontario and have a fully qualified roster back on staff the next day for 2/3 the price.

#133 Shawn on 05.03.16 at 3:15 pm

To Commute or Not

Obviously, one should seek advice from completely independent and non-interested parties such as a fee-only advisor, an accountant or an actuary. Get two opinions if possible. The difficulty is that it is not easy to find trusted advisors. But certainly look for one with no possible financial interest in the outcome of the decision.

Never ask the barber if you need a haircut.

#134 sean on 05.03.16 at 3:17 pm

Hi Garth,

Can you go into some detail on Real estate, rental and leasing being the biggest part of our GDP and what exactly that means to us? Is it because of the prices going through the roof or is that consistent amount most countries? It looks like the US has the same percentage of around 13% tied to that industry.

#135 Mark on 05.03.16 at 3:37 pm

“There is an important flaw in Garth’s analysis. The pension is indexed to inflation. The 6% return Garth talks about would have to be 6% real (above inflation). “

There’s a flaw in your analysis as well. Garth has addressed the returns angle of it, but a pension, by definition, is generally a form of annuity. In other words, in exchange for complete depletion of the principal invested (ie: the commuted value), the payor of the pension promises to pay the annuitant for the remainder of their life.

So the calculation undertaken for commuted and invested separately plan should also reflect complete depletion of the up-front principal invested. Not just a return on the principal.

The rules concerning RRIFs basically enforce this, requiring, as one ages, withdrawals that, if one lives long enough, sufficiently large to completely deplete (or at least de-register) the plan.

A 4% rate of withdrawal has been found through extensive backtesting on balanced portfolios, to provide sustainable income for life, with indexing to the portfolio’s long-term rate of growth. (ie: 2-3%/annum for a 6-7% implied long-term rate of return). So in the practical sense, inflation indexing is already provided, and a higher withdrawal rate may be used if depletion of principal (ie: leaving less of an Estate) is tolerable.

About the “elites” with good pension plans – I want “elite” firefighters to help save my life and my house. I also want “elite” cops to protect me. “Elite” nurses are a big help, too, and “elite” teachers helped me learn to read and write.

Sure, but when you have these ordinarily middle class professions earning statistically upper class compensation, that’s a problem. Cops still copped, nurses still nursed, doctors still doctored, and teachers still taught when they were paid compensation at more historically normal ratios of the average compensation for Canadian working people. Many other professions are important as well to the functioning of civil society, but haven’t enjoyed such lavish wage increases because they have to go out and earn money. As opposed to merely collecting it under threat of force from taxpayers.

#136 Mark on 05.03.16 at 3:41 pm

“Can you go into some detail on Real estate, rental and leasing being the biggest part of our GDP and what exactly that means to us? “

It means that as the FIRE sector (Finance, Insurance and Real Estate) decelerates on account of demand exhaustion and rising risk premia, a significant amount of aggregate demand will be lost in the Canadian economy.

The lack of aggregate demand is likely to subdue inflation and even create mild deflation. Push the Canadian dollar up. And force the Bank of Canada to run extraordinarily accommodate monetary policy for many years, if not a decade or two into the future until excesses in the FIRE sector have been fully liquidated and a source of aggregate demand takes its place.

#137 Damifino on 05.03.16 at 3:53 pm

#126 LP

A GOOD advisor will have time for any client s/he takes under wing, otherwise he or she is dishonorable in their commitment to represent the client.
—————————–

Quite right, LP. A GOOD advisor should not scale their diligence to a client based on the size of their portfolio.

Let’s put it this way: If you are in the league of investors with a fee-based advisor you probably have $150K or more in your portfolio. That should get you the same care and consideration as any other client.

#138 Smartalox on 05.03.16 at 4:09 pm

#9 Hot off the Press:

What a load of tripe and poppycock!

“Uhh… I don’t want to blame the Chinese here, but all the articles that I cite in the footnotes, refer to the Chinese….”

From a policy perspective, if foreign capital inflows are the cause of the problem, the origin of those inflows shouldn’t make any difference. Nor should they make any difference in terms of efforts to control those inflows – should such efforts be required.

It’s one thing to say ‘these prices cannot be supported by the activity of local economy alone. Therefore we hypothesize that money is coming from OUTSIDE the local economy’, then look for objective data that support or discount that hypothesis.

It’s quite another to read a bunch of articles in the popular media that refer to ‘Chinese buyers’, and confirm that reflected bias with the air of legitimacy accorded to an ‘assistant professor’ from S(T)FU.

But hey, this is tenure-track work at Trump University!

#139 Shawn on 05.03.16 at 4:16 pm

Non-GAAP or Non-Sense?

#130 jess on 05.03.16 at 2:23 pm
symmetry?

“The SEC has promised more scrutiny of any use of non-GAAP by companies that is misleading or fraudulent.
non-GAAP earnings numbers disclosed in press releases are still not subject to audit.”

http://www.marketwatch.com/story/which-non-gaap-metrics-will-likely-catch-secs-eye-2016-04-04

**************************************
Agreed, Valeant for example was very aggressive is publishing non-GAAP figures that exaggerated earnings. That was a red flag.

MOST companies add back non-cash stock-based compensation as if such compensation were not a true expense. It most certainly is. About a decade ago companies were ordered to stop pretending in GAAP figures that issuing stock options was not an expense. Since then they have tried to squirm around that by using deferred stock units (still not a GAAP expense as regulators have not caught up to that) or by continuing to add back option expense in non-gaap figures.

Sometimes non-gap is very sensible. It is legitimate and makes sense to add back certain true one-time expenses. It is also legitimate to add back certain amortization of goodwill-like assets (value of customer lists in a an acquisition, which are not in fact depleting in value in most cases).

But non-gaap is no excuse for non-sense. I have written to a few companies and told them that. I don’t recall that any of them agreed with me.

In some ways it is useful that some companies abuse this. it provides a signal not to trust them.

#140 ALFRED E. NEUMAN on 05.03.16 at 4:29 pm

Joanne, I’m sure, is feeling a whole lot better for your comments to her Garth. And most appreciative to boot.

“Worry” is usually a consequence of lacking: knowledge, awareness of the choices (options), and trust (or faith).

You provided Joanne all three.

“Good on you” for what you do GT. Its apparent to many of us that YOU are one very special Canadian.

#141 jess on 05.03.16 at 4:34 pm

unicorns

https://www.cbinsights.com/blog/startup-death-data/
“Rapidly growing enterprises present significant risks if the appropriate control structure is not in place. Time and again, we have seen companies go public and grow at a pace that exceeds their control structure.”
SEC Chairwoman Mary Jo White
https://www.sec.gov/news/speech/chair-white-silicon-valley-initiative-3-31-16.html
====
http://graphics.wsj.com/billion-dollar-club/
click on Theranos – $9 billion private valuation?
http://www.bloomberg.com/news/articles/2016-04-01/theranos-inspection-report-details-quality-control-problems

#142 conan on 05.03.16 at 4:37 pm

The economy is in overdrive as far as potential risks are concerned and this person can not afford a big hit on her principle.

She should look at life insurance and segregated funds. Compare all options. I would be avoiding indexes without guarantees for the next 3 years. The powers that be need to prove to me they actually know what they are doing in regards to the economy. Me, I think they are lost at the moment.

#143 stagnation continues on 05.03.16 at 4:45 pm

Vancouver – The Real Estate Board of Greater Vancouver says home sales in the region hit a record level for April with prices sharply higher compared to a year ago.

The board says sales totalled 4,781 for April, up 14.4 per cent from 4,179 in the same month last year.

The increase came as the MLS composite benchmark price for all homes in Metro Vancouver climbed 25.3 per cent from a year ago to $844,800.

The benchmark price for detached homes for the month was $1.4 million, up ***30.1*** per cent compared with a year ago.

The board says home buyer competition remains intense across the region with April sales 41.7 per cent above the 10-year average for the month.

#144 rosie on 05.03.16 at 4:54 pm

Another consideration that I have not seen or read, I may have missed it, is benefits. If the employer offered benefits, such as prescription drugs, dental, glasses, travel etc. into retirement, rare but still out there, this needs to be considered. Benefits for retirees are very expensive and very limited. Believe me, I know.

#145 Rexx Rock on 05.03.16 at 4:57 pm

Vancouver area houses up 30% in one year.I hope wages are keeping up with those house prices.Its amazing,where are all these rich people coming from.I bet there lots of sad and angry people who wished they bought on this bullet speed gravy train that will never stop.

#146 Bottoms_Up on 05.03.16 at 5:07 pm

#120 CentreWing on 05.03.16 at 1:22 pm
————————————
Here’s a start, private companies in Canada that offer significant perks to employees:

http://www.canadastop100.com/fp10/

Bayer
Canadian National Railway Company / CN
CIBC
EllisDon Corporation
Enbridge Inc.
Ford Motor Company of Canada, Limited
Nature’s Path Foods, Inc.
OpenText Corporation
Samsung Electronics Canada Inc.
Siemens Canada Limited

#147 TurnerNation on 05.03.16 at 5:40 pm

Toronto Life mag this month says 24 cents of each Toronto tax dollar goes to Policing. Of that I seem to recall lots (80%?) is salaries?

24 cents : more than fire and paramedics and maybe something else, I forget, combined.

What a shaft job. Union scare tactics.

#148 AsianFirst on 05.03.16 at 5:51 pm

Vancouver is a global city now.

Hopefully it takes a more predominantly asian character going forward as the majority of the world population is Asian.

Please get rid of French here an institute what majority want. Asian languages on equal footing.

#149 Linda on 05.03.16 at 8:43 pm

#132 – regarding firefighters at least you are completely incorrect. Fully qualified to go into raging fires, full of toxic gases & not only come out w/o being fried like a chicken but maybe carrying you out with it. Frankly, no sum of money is enough to do that stuff. Yes, most people will ‘never’ need a firefighter to save them – but when you need them, isn’t it nice they are willing to risk their lives to save yours? I imagine that folks in Fort Mac are damn happy to see firefighters on the ground right now…..Here is hoping everyone gets out safe & sound.

#150 Brazil ex-pat on 05.03.16 at 9:36 pm

It’s official….

TRUMP vs Billary

#151 Old Man Too on 05.04.16 at 12:43 pm

Stop talking about it and do something:

Red Cross has launched a donation site, Alberta Fires Appeal, and donations collected will go directly towards those affected by the wildfires.

https://donate.redcross.ca/ea-action/action?ea.client.id=1951&ea.campaign.id=50610&_ga=1.77973652.1240500692.1437671337

#152 Boom! on 05.04.16 at 3:54 pm

So sorry to hear of you loss, Joannie.

Wonderful that your late hubby left you the good options.

You have been given the facts of your choices. I know which of these options I would choose. Choose wisely, dear lady.