The pension conundrum

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  By Guest Blogger Sinan Terzioglu
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Whether or not to commute a pension is far from an easy decision.  Many prefer the guaranteed income stream for life instead of commuting and taking on the responsibility and risk of hiring an advisor or managing the assets on their own.  While everyone’s goals and circumstances are different it’s definitely worth considering and understanding whether commuting a pension could make sense for you and your family.

Some advantages to commuting:

  • Flexibility. Instead of receiving a fixed amount starting at a certain age, you gain the flexibility to withdraw more or less from a portfolio as well as having access to as much of the funds as required, whenever you want.
  • Control. You’ll never meet the manager of an institutional pension fund whereas you have the ability to choose or change who manages your commuted pension, as well as regularly speak with them to ensure the portfolio’s being managed in the most efficient way to meet your goals.
  • Potentially less tax. Defined pension payments are fully taxed as income, whereas when withdrawing from an investment portfolio one has the ability to take funds in a much more tax-efficient way, plus to defer taxes.
  • More for your loved ones. If you pass away there may be survivor benefits for your spouse for a period of a time but more they’ll be reduced. Likely there will be no benefits to children or an estate when the pensioner passes.
  • The chance to do better. By commuting a pension and investing in a balanced and diversified portfolio that includes government and corporate bonds, preferred shares, alternative assets, REITs and growth assets that are geographically diversified one is essentially investing just like a pension fund manager does but with more upside because of compound growth.

As life expectancies increase and health care costs continually rise it’s more important than ever to ensure one will have enough income to last several decades.  Government pensions do not come close to covering most people’s needs and if you’re one of the lucky few to have a defined benefit pension plan it is critical to understand the health of your employer’s pension plan and whether there are medical benefits and if the benefits are indexed to inflation.

Many Canadian corporate pension plans are underfunded and regulations do not require them to be fully funded.  Unfortunately for retirees of Sears Canada this lack of regulatory enforcement cost them, as they had their pensions slashed by 30% following the bankruptcy and closure of the retailer. So 18,000 retirees who paid into the plan for decades are now living on much less than they expected and some have been forced to return to the work force in their 60s and 70s. Defined benefit pension plans of corporations are far from guaranteed.

When commuting a pension a portion is transferred tax-free into a LIRA (Locked-In Retirement Account) with the balance gets paid out in cash.  If you have available RRSP contribution room you can take advantage of that, otherwise the cash portion comes into your income for the year.  Many struggle with this as it results in a large tax bill, but this money would never have landed in one’s pocket if the pension were not commuted, so it’s important to understand that when considering whether or not to commute your pension.  Also every monthly payment would be taxable, had you stayed in the plan.

Commuted pension, double the retirement income

Here is a hypothetical example. Let’s suppose a 35-year-old switches jobs and has the ability to commute her DB pension.  If she leaves it in place she’d receive $3,000 a month ($36,000 annually) pre-tax, not indexed to inflation starting at the age of 60.  If she commutes, $200,000 would go into a LIRA (no tax) and $150,000 would be paid in cash (taxable as income minus RRSP room).  She has $50,000 in available contribution room so she maximizes that and the balance of $100,000 is brought into income for that year, netting her $50,000 after tax.  She invests the commuted value in a balanced and diversified portfolio of $300,000 ($200,000 LIRA, $50,000 RRSP and $50,000 non-registered).  Assuming she earns a 6% annual rate of return that sum would grow to $1,300,000 in 25 years.

At age 60 she could comfortably withdraw $78,000 a year or $6,500 per month, pre-tax, without depleting the capital.  If she contributes to a TFSA or any other accounts over the balance of her career she may require less income from her commuted pension, allowing it to continue growing and deferring taxes.  The non-registered portion alone could potentially continue growing for the balance of her life and the compounded growth plus any other assets could be left to her family and estate instead of a pension plan.

So commuting a pension is certainly not a one-size-fits-all decision, and not all pensions are the same.  Some have very good benefits and are indexed to inflation so the decision is not always clear. There are many considerations. They are not all financial.  We all have different risk tolerances and circumstances.

A good starting point is to think about your long term goals and what you value most.  For me personally, I don’t like the thought of contributing to a savings plan for most of my career and not being able to have control of it or access to it as well as the ability to leave it behind to my family after I pass.

Sinan Terzioglu, CFA, CIM, is a financial advisor with Turner Investments, Private Client Group, Raymond James Ltd.  He served as vice-president of RBC Capital markets in New York City and VP with Credit Suisse in Toronto.

 

115 comments ↓

#1 UtterlyConfusedCanadian on 10.11.20 at 1:11 pm

And she doesn’t need to take everything at once. When she takes the LIRA, 50% can be transferred to the RRSP. Meaning she only needs to execute on 1/2 the LIRA value, while the other half continues to grow in an RRSP. Further, if she’s married to someone younger, say 5 years, when she needs to RIF @71 the withdrawl can be set rate based on age 66. Every little step can help.

#2 Jason on 10.11.20 at 1:12 pm

Interesting article, thanks. I’m wondering if you could comment on that withdrawal rate. 78k on 1.3M is 6%. From what I’ve read elsewhere 4% seems to be the rule of thumb, and I see 3%-3.5% being mentioned more often lately.

Thanks,
Jason

#3 mark on 10.11.20 at 1:16 pm

I am a member of a CUPE defined benefit plan, apparently the union has closed that loop hole and as far as my union pension concerned I can not commute it. Its the first time I have heard of this, my other plan I took and rolled into a LIRA. This is BC politics. Is there anyway out of this to take it with me?

Thanks in advance.

#4 Gonkman on 10.11.20 at 1:22 pm

No pension conundrum here.

Been planning on cashing out my Pension for 8 years now. 2 Years to go before Freedom 49.

Thanks to Mr “The Budget will balance itself” and his reckless borrowing/spending with the CB Rate of 0.25% it makes my pension Commute Value more.

I am Guessing the rate will remain low for another 2 years since he just keeps spending. Good thing he has 3 more years to spend propped up by the NDP.

I might get an extra $150,000 to $200,000 by the time I commute over what I was expecting.

Thank you Mr. Trudeau for burdening the Govt with more debt and keeping that CB Rate low and making me more money.

It is a great time to commute with the CB Rate so low.

#5 Akhtar on 10.11.20 at 1:58 pm

Great post Sinan. I’ve been curious even with Garths posts how you guys get 6-7% without touching the capital. My balanced fund only churns out about 3-4% yield.

#6 1% Prepper on 10.11.20 at 2:04 pm

I’m with #4 Gonkman. Been looking at this option for the past 5 years. Got 1-2 more to go. Trudeau spending like a drunken sailor will keep the CB rate low for the foreseeable future. My commuted amount has gone up $200k pre tax just because of his reckless sepnding and CB money printing. Before the commuted amount was decent. Now it’s positively decadent. Won’t have to work after 49. But will do so for interest. Thanks Justin and Jagmeet. You have secured my children’s future.

#7 crowdedelevatorfartz on 10.11.20 at 2:08 pm

Yep.
Timely blog subject.
Had dinner with some former co-workers.
5 years to go til retirement.
3 years left on their mortgage.
No pension savings except our crappy ex-company pension plan that they didnt commute.
Live in a Strata.
Insurance & Maintenance fees are over $1000 month.
They make good money and have zero savings but great holiday photo albums.
I suggested they sell now( their property has doubled in 10 years), rent and invest for retirement….
They looked at me like I was nuts.

Commuted my crappy LIRA away from the ex-company after they sold off our division.
Have never looked back.
Its more than doubled in 10 years.
Far better now than the crappy returns the previous, expensive , lazy managers ever accomplished.

#8 crowdedelevatorfartz on 10.11.20 at 2:14 pm

@#3 mark.
“Its the first time I have heard of this, my other plan I took and rolled into a LIRA. This is BC politics.”

++++
crappy but unfortunate.
I think the more billions Trudeau shovels into the “Bonfire of his Vanities” is only going to make public sector pensions even more vulnerable to claw backs….
Several US govt employee pensions put a stop to staff commuting when ALL the staff started jumping on the bandwagon and nearly bankrupted the Cities that started it.
Vancouver is set to get its fiscal butt kicked next year.
BC is in the same boat and
Canada…..welll the Liberal Modern Monetary Machine just keeps printing away……….

#9 Dr V on 10.11.20 at 2:14 pm

I find the example too simplistic with assumptions.

“There are many considerations” is correct.

“potentially less tax……flexibility…”

I like these two. Recently took gains from some smaller holdings I bought recently at/near the bottom, and the TFSA too of course. I have to get used to doing that as I plan to retire soon.

#10 Bytor the Snow Dog on 10.11.20 at 2:16 pm

TOTAL U.S. DEATHS [ALL CAUSES]:
2017 Total Deaths US: 2,813,503 (234,000/month)
https://www.cdc.gov/nchs/products/databriefs/db328.htm

2018 Total Deaths US: 2,839,205 (237,000/month)
https://www.cdc.gov/nchs/products/databriefs/db355.htm

2019 Total Deaths US: 2,855,000 (238,000/month)
https://www.cdc.gov/nchs/nvss/vsrr/provisional-tables.htm

2020 Total Deaths US (jan – week 9/26): 2,130,000 (236,000/month)
https://data.cdc.gov/NCHS/Weekly-Counts-of-Deaths-by-State-and-Select-Causes/muzy-jte6
2,130,000 + (236,000/month x 3) [Oct, Nov, Dec] = 2,838,000 [assumption based on monthly avg]

2020: 2,838,000 [3-month assumption insert]

2019: 2,855,000

2018: 2,839,000

2017: 2,814,000

#11 mike from mtl on 10.11.20 at 2:36 pm

Well that’s all fine and good if this was the 1990s, just buy some Ts and long Bonds done. Today risk free above 3% is basically impossible, the coming decades I can totally see quality bonds paying sub 1%.

Yes sure you can target a payout of say 5% but your total return will not be that, eroding the principal not to mention inflation. A individual investor taking charge can be their own worst enemy. Depending on the pension we’re talking, they can have access to not only huge capital but things not available to public OTC.

I can understand the appeal of a fixed dollar payout, blind to the risks and losses to the capital.

Our ten-year average rate of return on a balanced and globally-diversified account is 7.4%. Current portfolios are doing just fine, since low-yield bonds constitute a relatively small position. Don’t slag what you don’t understand. – Garth

#12 TurnerNation on 10.11.20 at 2:38 pm

What’s really going on in my Prefecture, Ontariowe?
Our UN-backed dictorial regime many months ago extended the fictional State of Emergency, well in 2021.
I read a comment, elsewhere. That in late 2020 someone retiring from that govt already was hearing about the premier’s plan for a power grab. So too were people in the Forces they know they said.

Take everything with a grain of salt but stuff like this can no longer be ignored. The sheer planning. To pull this new global order off.

#13 KNOW IT ALL on 10.11.20 at 2:41 pm

I have just been put on a DTP.

DEFINED TRUDEAU PLAN

No work
Free rent.
Free medical.

Cash for life!

#14 mike from mtl on 10.11.20 at 3:01 pm

Our ten-year average rate of return on a balanced and globally-diversified account is 7.4%. Current portfolios are doing just fine, since low-yield bonds constitute a relatively small position. Don’t slag what you don’t understand. – Garth
/////////////////////////////////////////////////////////////

No disrespect on your own blog, but you’re being a politician and dodging the question.

Total return (long average) as you mention is one thing, that’s fine. Sell off some gains to get $$s back, but that’s not exactly risk free in short to medium term.

Yield =/= return.

Standard 60/40 cannot reliably generate payout of 5% each and every year, unless you’re chipping away at it sometimes. But that’s not a payout last I checked.

Most people are happy with a 6%-or-so return on invested capital while preserving the principal. Apparently you want more. No risk. Good luck with that. – Garth

#15 wiggleroom on 10.11.20 at 3:08 pm

#5 Akhtar on 10.11.20 at 1:58 pm
Great post Sinan. I’ve been curious even with Garths posts how you guys get 6-7% without touching the capital. My balanced fund only churns out about 3-4% yield.

—–
Sinan said the intention is to not “deplete” capital vs not touching capital. Not quite the same thing.

I am however puzzled by the 6% SWR. Most studies recommend 4%, as someone else has mentioned.

Those are US numbers based on a 60/40 portfolio containing 40% government bonds. We don’t do that. As explained here several times. – Garth

#16 Stone on 10.11.20 at 3:08 pm

#2 Jason on 10.11.20 at 1:12 pm
Interesting article, thanks. I’m wondering if you could comment on that withdrawal rate. 78k on 1.3M is 6%. From what I’ve read elsewhere 4% seems to be the rule of thumb, and I see 3%-3.5% being mentioned more often lately.

Thanks,
Jason

———

I’m wondering the same thing. If a B&D portfolio returns 7.4% per Garth’s comment on #11, then, shouldn’t you just withdraw 4% and leave the other 3.4% invested to keep pace or surpass inflation. Is that not the smart way to go?

Retirement money is to spent enjoying retirement. – Garth

#17 Andrewski on 10.11.20 at 3:10 pm

Great info Sinan! How deeply would this dour prediction affect pensions?

https://contrarian.libsyn.com/the-real-melt-up-is-still-ahead-of-us-david-hunter

#18 Stan Brooks on 10.11.20 at 3:18 pm

Dear Sinan,

In 30 years the equivalent of $6,500 monthly will be less than 1000 bucks today in terms of real purchasing power, probably around 500, if the idiotic monetary policies continue.

Portfolio growth of 6 % with cost of living increasing by 10 % is not a solid ground for calculations.

It is highly likely for cost of living to surpass returns consistently in the next decade or two, that happens in an inflationary depression.

If somebody believes that compound returns in the next 3 decades will be consistently 6 % yearly while ‘inflation’ is sub 2 % they need their head checked by a mental health professional.

Cheers,

Naive comment. As inflation/rates change, so does asset allocation and selection. Well-run portfolio returns are relatively inflation-adjusted. Enough of your myopic, negative, fatalistic and nihilist twaddle. – Garth

#19 Stan Brooks on 10.11.20 at 3:19 pm

Daddy is taking all his capital away to a greener pastures.

Good luck in your adventures, folks.

Cheers,

#20 Guelph Guru on 10.11.20 at 3:21 pm

You are the best custodian of your wealth. Take it and manage it on your own. If you dont understand investment, learn. It’s simpler than you think.

#21 wiggleroom on 10.11.20 at 3:23 pm

“Those are US numbers based on a 60/40 portfolio containing 40% government bonds. We don’t do that. As explained here several times. – Garth”

Thanks Garth. I think I’ve seen the 4% rule too many times. My own B&D portfolio contains zero US bonds and the ‘safe stuff’ you recommend here so I suppose I’m also safe with 6% withdrawal. (Currently at 5% SWR and we’re not retired yet.)

#22 Marcia M on 10.11.20 at 3:26 pm

#3 mark

‘I am a member of a CUPE defined benefit plan, apparently the union has closed that loop hole and as far as my union pension concerned I can not commute it. Its the first time I have heard of this, my other plan I took and rolled into a LIRA. This is BC politics. Is there anyway out of this to take it with me?’
________________

Public sector pensions are generally very well monitored and managed compared to private corporate plans. Not so much to worry about, just take your pension and benefits later and save your extra cash now in your TFSA and any AVC accounts your pension allows.

The biggest threat to public DB plans has mostly been the jealousy and envy stoked by dumb neoconservative politicians.

For example, around 2000, governments like that of Mike Harris in Ontario were constantly stoking resentment against public employees and actually angry that well-managed public sector pensions were doing so well! (Compared to the rampant incompetence, neglect and shortsightedness and often criminal mismanagement of so many corporate pension plans. Anyone from Nortel here still living on cat food?)

So rather than taking a balanced approach, preparing with the market increases in good times for the bad times that always come, the neocons cut off employer/employee contributions for several years to appease their jealous right-wing base of Trumpian fools.

Just in time for the dotcom bust. Brilliant. It has taken those plans well over a decade just to get close to even since then. But the will make it, unlike so many private plans. Because they are well-managed.

Most of these plans are half funded by the employer, whose contributions are negotiated in exchange for lower wages. The rest is by the employees’ deductions. It’s a fair deal, not some communist conspiracy, all you idiot Trump worshippers. Government employees receive generally lower wages than private sector counterparts in exchange for DB plans. Fact.

So mark, and others in your situation, recognize where the real financial threat really is. It is politics. It is right wing neocons fomenting tribalist divisions while they conveniently divert more money to the 1%.

Garth has been very upfront pointing out the horrific financial incompetence of neocons like Harper and Flaherty and how they created the real estate bubble that now threatens us. Pay attention to what our host has said for years about Harper. This was pure fiscal incompetence.

Just read Ryan’s column from yesterday again. So much of the good times in the economy has come from liberal/Democratic presidents. Same for Canada.

The greatest threat to pensions remains neocon nitwits getting into power.

Remember that the next time you vote.

#23 Stan Brooks on 10.11.20 at 3:32 pm

DELETED

#24 Do we have all the facts on 10.11.20 at 3:38 pm

#10. Byword

Don’t you get it. Facts have become irrelevant to the fear mongers. Nothing has context anymore. The true mortality rate of Covid 19 will never see the light of day.

Surrender to the propaganda brigade and you will sleep better. It worked for me!!

#25 Stan Brooks on 10.11.20 at 3:39 pm

Naive comment. As inflation/rates change, so does asset allocation and selection. Well-run portfolio returns are relatively inflation-adjusted. Enough of your myopic, negative, fatalistic and nihilist twaddle. – Garth

I wish I could share your optimism and somehow I can’t.

Damaged good, I guess.

And here is the reality:

34% of Canadians plan to retire by winning the lottery:

https://www.canadianbusiness.com/blogs-and-comment/retirement-lottery/

So what? Most people are financial wrecks. The rest come here. – Garth

#26 JSS on 10.11.20 at 3:40 pm

I keep hearing that Alberta public sector pension plans are going to be in trouble because Kenny is encouraging investment of pension funds into heavy oil.
Also heard that they recently made changes to the pension plan so that when you try to convert it into a LIRA, you’re not going to get as much as you hoped for. So essentially you might be stuck in a bad DB pension plan.

#27 Lefty on 10.11.20 at 3:40 pm

3 years until I am 49 and decide if I want to commute my pension (I’m with club fed). I’ll have 20 yrs, anyone know a formula to estimate how much cashola I can get out?

#28 SoggyShorts on 10.11.20 at 3:48 pm

#21 wiggleroom on 10.11.20 at 3:23 pm

Thanks Garth. I think I’ve seen the 4% rule too many times. My own B&D portfolio contains zero US bonds and the ‘safe stuff’ you recommend here so I suppose I’m also safe with 6% withdrawal. (Currently at 5% SWR and we’re not retired yet.)

*************************
I’m targeting a 3.65% withdrawal rate since this has a historical 0% failure rate for a 50 year retirement.
http://www.earlyretirementnow.com has possibly the best researched information on SWR on the internet.

Bonus: a 3.65% SWR means spending $1 per day for every $10K in your PF. This makes things easy if you are going semi-tropical for retirement or SEA like us.

#29 cristian on 10.11.20 at 3:50 pm

mike from mtl on 10.11.20 at 3:01 pm
Our ten-year average rate of return on a balanced and globally-diversified account is 7.4%. Current portfolios are doing just fine, since low-yield bonds constitute a relatively small position. Don’t slag what you don’t understand. – Garth
/////////////////////////////////////////////////////////////

No disrespect on your own blog, but you’re being a politician and dodging the question.

Total return (long average) as you mention is one thing, that’s fine. Sell off some gains to get $$s back, but that’s not exactly risk free in short to medium term.

Yield =/= return.

Standard 60/40 cannot reliably generate payout of 5% each and every year, unless you’re chipping away at it sometimes. But that’s not a payout last I checked.

Most people are happy with a 6%-or-so return on invested capital while preserving the principal. Apparently you want more. No risk. Good luck with that. – Garth

********************
Mike I am also puzzled .. I think the 6% and preserving the principal is what you have when you start needing money … so let’s say you have 1 million … lets say 10000 shares of XVZ ETF or balanced portfolio total at 100$ a share .. after one year with 6% growth you will have in account 106000$ with the 1000 shares at 106 price per share.. so you trim 6% which leaves you with 9433 shares at 106 per share worth 1 million .. so principal is not touched but you have less shares .. if anybody can confirm but this is how I see it

Most people invest to obtain growth to finance a good life, not to hoard it. – Garth

#30 Flop... on 10.11.20 at 3:53 pm

Garth, that Bandit photo is a beauty.

One thing I’ve always wondered about you, how many holidays do you take a year?

Your travels in recent years seem to revolve around Toronto and Nova Scotia, but you used to travel all over Canada apparently.

You bang out posts normally 6 times a week, this could be done anywhere, do you ever holiday in the States?

You know you cracked a joke about Monterey once, that brought that town into my travel focus and I paid a visit to, but other than that I don’t remember much travel talk.

I have plans, plans change, but I live with one eye on today and one eye on the future.

In a normal year I do two flying trips and one camping trip.

Used to go to Europe once a year but that was getting too expensive to justify the toll on my body.

I also invest a decent percentage of my wage, it would obviously be more without the trips.

I don’t see myself as a senior doing one of those coach tours, I want to do my travelling now as I age, with my wife, just in case retirement never comes.

Sitting around on a couch drooling porridge would suck as a retirement, but it would be a little easier to accept if I have done all the travel I desire.

Dreary day in Vancouver today, so in my mind I am in Pensicola, Florida…

M46BC

#31 espressobob on 10.11.20 at 3:56 pm

During the GFC over a decade ago, many a senior cashed out fearing the worst. Took a big hit. Duh!

Festering over the future is pointless. Time proven.

Mortality is the real conundrum. Too bad we all have a date on the calendar.

#32 FreeBird on 10.11.20 at 4:08 pm

#19 Guelph Guru on 10.11.20 at 3:21 pm
You are the best custodian of your wealth. Take it and manage it on your own. If you dont understand investment, learn. It’s simpler than you think.
———————
Agreed up to a certain point or smaller amounts. For larger or more complicated situations some choose to focus energy other places and when life deals serious wild cards (a given) it’s good to have one less thing to worry about. Advisors you can trust and go the extra mile are well worth the fee. This incl accountants. They do exist.

#33 ImGonnaBeSick on 10.11.20 at 4:19 pm

#20 Guelph Guru on 10.11.20 at 3:21 pm
You are the best custodian of your wealth. Take it and manage it on your own. If you dont understand investment, learn. It’s simpler than you think.

—-

Yeah, very simple, when you have a group run by a philanthropist that puts all his spare time into writing a blog telling you what weightings to have in what types of vehicles, with detailed information about managing your tax burden and avoid unnecessary taxation… Please give credit where credit is due, and that is to Mr. Garth Turner, Ryan, Doug and Sinan.

#34 baloney Sandwitch on 10.11.20 at 4:22 pm

One risk she may run into is getting an incompetent and/or conflicted financial advisor. I believe about 75% of the FA’s out there are in this group, including most nice ladies at the bank, as Garth kindly refers to.
I was faced with a similar situation at the age of 40, when I changed jobs going from one big pharma to another. I left my pension in place as I had low confidence in my abilities (or the FA’s I had dealt) with up to that time. So I left the defined pension in place.
Of course since then I have learnt a lot about investing and have averaged 11% CAGR for the last 20 years. (far better than 95% of the FA’s out there). Clearly I would have been better taking it out in hindsight. But however if dementia or alzheimers does get me before I die, at least a small part of my pension is gauranteed.

#35 James on 10.11.20 at 4:32 pm

What would happen if people commuted then arranged that money in such a way as to have near zero reportable income. With this done what would stop these same people from using the proposed universal benefits income,pharma,dental, ect? It makes a compelling case for no longer striving(not good)

#36 mike from mtl on 10.11.20 at 4:37 pm

Most people are happy with a 6%-or-so return on invested capital while preserving the principal. Apparently you want more. No risk. Good luck with that. – Garth
//////////////////////////////////////////////////////

That’s exactly my point. I’m okay with the real world risk and volatility to achieve those figures, not everyone is. Throwing around averages and hopeful returns is well being a realtor.

Risk free is basically becoming impossible. I’m sure you know that despite your clients saying they’re okay with risk, market selloffs have your phones ringing.

Life is risk. You are making no sense. Unless you have millions already, the risk you face is running out of money. Far more consequential than temporary market reversals (and they all are). – Garth

#37 Stone on 10.11.20 at 4:40 pm

#16 Stone on 10.11.20 at 3:08 pm
#2 Jason on 10.11.20 at 1:12 pm
Interesting article, thanks. I’m wondering if you could comment on that withdrawal rate. 78k on 1.3M is 6%. From what I’ve read elsewhere 4% seems to be the rule of thumb, and I see 3%-3.5% being mentioned more often lately.

Thanks,
Jason

———

I’m wondering the same thing. If a B&D portfolio returns 7.4% per Garth’s comment on #11, then, shouldn’t you just withdraw 4% and leave the other 3.4% invested to keep pace or surpass inflation. Is that not the smart way to go?

Retirement money is to spent enjoying retirement. – Garth

———

I guess the piece that’s missing in regards to a 6% withdrawal rate is the duration. Over how many years approximately is this sustainable before depleting the capital?

Why would it be depleted if properly invested and managed? – Garth

#38 NSNG on 10.11.20 at 4:45 pm

Too bad we couldn’t commute the CPP. I guess the private slaves aren’t special enough.

#39 NSNG on 10.11.20 at 4:54 pm

WHO Flip-Flops: Urges World Leaders To Stop Using Lockdowns To Fight COVID Contagion

“Just look at what’s happened to the tourism industry, for example in the Caribbean or in the Pacific, because people aren’t taking their holidays. Look what’s happened to smallholder farmers all over the world because their markets have got dented. Look what’s happening to poverty levels. It seems that we may well have a doubling of world poverty by next year. Seems that we may well have at least a doubling of child malnutrition because children are not getting meals at school and their parents, in poor families, are not able to afford it,” Nabarro said.

“This is a terrible, ghastly global catastrophe actually,” he added. “And so we really do appeal to all world leaders: Stop using lockdown as your primary control method, develop better systems for doing it, work together and learn from each other, but remember – lockdowns just have one consequence that you must never ever belittle, and that is making poor people an awful lot poorer.”

https://www.zerohedge.com/medical/who-flip-flops-urges-world-leaders-stop-using-lockdowns-fight-covid-contagion

As the great philosopher, Popeye once said, “I shakes me head.”

#40 Westcoast Islander on 10.11.20 at 5:06 pm

#27 Lefty on 10.11.20 at 3:40 pm
3 years until I am 49 and decide if I want to commute my pension (I’m with club fed). I’ll have 20 yrs, anyone know a formula to estimate how much cashola I can get out?
——————————————
Hi Lefty – I recently got an estimate done on my pension if I were to commute by going through an actuary. It cost me approximately $700. My next step is to terminate my employment at which time my employer will calculate the actual amount and I can then choose the pension or the commuted value.

#41 Penny Henny on 10.11.20 at 5:17 pm

35 years old, so maybe 12 years of paying into a pension and it’s worth 350,000 already.
Huh?

#42 1% Prepper on 10.11.20 at 5:19 pm

#35 James

You hit the nail almost on the head. The elephant in the room is structuring your investments for minimal or no taxable income. Then add some generous social programs like UBI, and GIS and then taking a few jobs on the side for cash.

Voila. You make more than you ever did while working 9-5. This is the ultimate result of socialism as the High income earners get sick of being squeezed for an ever increasing “fair share” of taxes.

Tax evasion on earned income is illegal. – Garth

#43 cristian on 10.11.20 at 5:20 pm

********************
Mike I am also puzzled .. I think the 6% and preserving the principal is what you have when you start needing money … so let’s say you have 1 million … lets say 10000 shares of XVZ ETF or balanced portfolio total at 100$ a share .. after one year with 6% growth you will have in account 106000$ with the 1000 shares at 106 price per share.. so you trim 6% which leaves you with 9433 shares at 106 per share worth 1 million .. so principal is not touched but you have less shares .. if anybody can confirm but this is how I see it

Most people invest to obtain growth to finance a good life, not to hoard it. – Garth

******
Garth I am not saying it is a bad thing .. just I wanted confirmation which thanks for providing .. You are correct this is the goal and I agree

#44 Midnights on 10.11.20 at 5:21 pm

Listen to what Trump has to say about Biden. And substitute Biden’s name with Trudeau because this is exactly what Trudeau wants to do.

#45 The Woosh on 10.11.20 at 5:29 pm

#41 Penny Henny on 10.11.20 at 5:17 pm
35 years old, so maybe 12 years of paying into a pension and it’s worth 350,000 already.
Huh?

———————————————

It’s possible if you’re with a pension plan like HOOP. Most pensions are not this generous.

#46 Born in Hamilton on 10.11.20 at 5:35 pm

One of my favorite topics. In my opinion, taking a lump-sum at retirement (commuting) is truly a no-brainer if the option is there. I did so in 2008 at age 55 and invested it in a 55/45 couch potato. Then Lehman Bros happened. Didn’t matter in the long-run. Left it alone and now it’s 3x the original amount.

#47 Prarieskeptic on 10.11.20 at 5:43 pm

Great discussion of the 60/40 portfolio generated by today’s post! Garth, you have suggested that your superior returns are due to the composition of the “40” in fixed income. If memory serves, you keep about half your fixed income in preferred shares. This is a hybrid security somewhere between corporate bonds and equity. Thus do you get a superior return for taking more risk? IE having more volatility or potential for steep declines in the portfolio. I’m pretty sure there’s no free lunch.

A 5% yield with reduced taxes is worth a lot in terms of retirement income. Preferreds will be big winners in capital value, as well, as rates inevitably rise. A 15% portfolio position is entirely justified, and valuable. – Garth

#48 Ponzius Pilatus on 10.11.20 at 5:50 pm

#7 crowdedelevatorfartz on 10.11.20 at 2:08 pm
Yep.
Timely blog subject.
Had dinner with some former co-workers.
5 years to go til retirement.
3 years left on their mortgage.
No pension savings except our crappy ex-company pension plan that they didnt commute.
Live in a Strata.
Insurance & Maintenance fees are over $1000 month.
They make good money and have zero savings but great holiday photo albums.
I suggested they sell now( their property has doubled in 10 years), rent and invest for retirement….
They looked at me like I was nuts.

Commuted my crappy LIRA away from the ex-company after they sold off our division.
Have never looked back.
Its more than doubled in 10 years.
Far better now than the crappy returns the previous, expensive , lazy managers ever accomplished.
———
Typical condescending comment by CEF.
Did you at least pick up the tap?

#49 Russ on 10.11.20 at 5:53 pm

1% Prepper on 10.11.20 at 2:04 pm

I’m with #4 Gonkman. Been looking at this option for the past 5 years. Got 1-2 more to go.

Trudeau spending like a drunken sailor will keep the CB rate low for the foreseeable future.

… Thanks Justin and Jagmeet. You have secured my children’s future.
==============================================

Time and time again we have to go over this. Justin is not spending like a drunken sailor.

A drunken sailor spends his (or Her) own money. It is all they can do.

Justin is spending everyone’s money but his own. Just because he is spending recklessly it does not make him equivalent to drunken sailors.

We have our reputation to protect here. He is not one of us!

Cheers, R

Feel free to chime in here Ishmael. I believe you are in the know.

#50 Prarieskeptic on 10.11.20 at 5:53 pm

Thanks for your answer. I guess my concern with your 60/40 is that it seems like it is 75/25 in terms of its risk profile due to the 15% allocation to preferred stock.

Preferreds are considered fixed income, for good reason. – Garth

#51 Midnights on 10.11.20 at 6:04 pm

DELETED

#52 Izzy Bedibida on 10.11.20 at 6:10 pm

Recently past 50 yrs of age and just found out that OSSTF will not let me commute my pension. It must be commuted before 50 yrs of age. I was hoping to hang in there for a few more yrs and commute my pension to take advantage of the commuting advantage.
Unfortunately OSSTF will not allow that to happen. It kinda sucks

#53 Linda on 10.11.20 at 6:14 pm

Excellent post Sinan, many good points regarding the potential benefits of commuting one’s pension. However, like any other financial transaction doing so is not risk free. When RRSP’s were first rolled out, many examples touted how easy it would be to become a millionaire by age ‘X’. However, those examples all of the counted on steady market returns, many in the 8% plus range. Never did those examples mention market fluctuations, poor investment choices, panic selling during market downturns etc. Also many did not completely understand that taxes were deferred, so for some the fact their RRSP income would be taxed in retirement came as an unwelcome surprise.

As for work based pension plans, sadly the private sector plans have many of them been allowed to take contribution holidays. As mentioned in the Sears example – also sadly not uncommon – many pensioners find out late in life that their work based plan isn’t the guarantee of stress free retirement income they had expected it to be. The much envied public sector plans have not been without their challenges; politicians have shown themselves to be ready to appease the electorate by attacking those plans, which means even the public service sector might find themselves without the income they expected in retirement. Further, many plans have either banned commuting one’s pension or have a time limit on when the pension can be commuted. In the plan I belong to commuting is allowed, but must occur before age 55. On the plus side commuting is allowed, but on the negative side the amount available might not be that much depending on length of service. There is also the fact one must quit/retire in order to be able to get one’s hand on the funds. Fine if you are financially able to do so or have another job to go to, not so great if your finances are in poor shape & another position isn’t readily available. The plan to grow those funds to have more in retirement can easily be derailed by unexpected events that force one to draw on the funds available to the detriment of retirement plans.

#54 tbone on 10.11.20 at 6:25 pm

I took my pension money 8 years ago , and gave it to [email protected]
Got me some cracker jack mutual funds and now its doubled . I have this huge tax bomb now that i have to deplete while still being eligible for max OAS .
Didnt know being a boomer would be so hard.

I have other dividend income from my investment account and CPP. Not eligible for OAS yet.

#55 Please help on 10.11.20 at 6:27 pm

My employer has told us that our pension funds are locked and not eligible to be commuted.

This was because in the past people who retired would take the lump sum and run, as a result was hurting the overall health of the plan.

Do you know if there is a way around this so that I can still take a lump sum? Or is it that once it has been written/declared/made official that no commuting shall take place that no one can commute it legally?

PLease help

#56 Nonplused on 10.11.20 at 6:32 pm

I think anyone who switches jobs should take their pension with them. Why would you want to leave money with a company you don’t even work for anymore? So that means realistically it will be primarily government workers like teachers and firefighters that might get to retirement without commuting their pension, as nobody else seems to be able to keep a job for more than 10 years these days.

#57 De Castro on 10.11.20 at 6:32 pm

de Castro wrote:

Guys
I am talking about Real estate values in TORONTO.

This market has NOT only stalled … it will go down … first in Condos; then in detached homes.

The worst example of over-valued properties I have ever seen in my 40 + years in the real estate business occurred a couple of months ago … at the peak of the Market:

A client purchased a 3 bedroom condo in a prime location in Toronto in 2014 for $1.1 Million from the Builder’s Plans . She has not yet taken possession as the building is still incomplete.

When I spoke with her two months ago…. the Resale value of the unit was $3.6 Million … That MY Boys …tells ME something has got to give ….. the giving has begun .. at this moment – I would say THAT unit has lost at least $500,000 in value over the last two months

Between 1989 and 1996 the average price of a property dropped 27% from $273,000 to $195,000 … NOTE the price then … also, the average price today is just under $1,000,000

It is cheap money that is mostly driving the price … The major Banks are beginning to tighten up on their lending and it is just a matter of time that in Renewal of a mortgage … where the bank will simply send an offer of the different terms and rates for you to choose from…The bank will be asking for an appraisal BEFORE committing to renew .. this is it… The shit will really hit the fan as the appraised value will in some cases be LESS than the outstanding balance of the mortgage.

Also rents are dropping like crazy .. In the 1970s, in my long career when I used to rent townhouse that I own .. I have seen rent increase from $250 per month to $450 per month and then back down to $250 over a few years.

I would admit that I expected this Drop in prices/rents years ago but the interest rates kept dropping and therefore prices kept going up – BUT, we all know De FREE MONEY rates cannot continue indefinitely.

#58 Ustabe on 10.11.20 at 6:33 pm

#30 Flop… on 10.11.20 at 3:53 pm

As someone who through luck, happenstance and hard work made it out the other end in quite good circumstance all I would add to your thoughts are the following.

When you cease “work” that your neighbours would recognize as work you are in your go go years.

All too soon you begin entering your go slow years. they slowly chip away at the go go stuff.

Next up are your no go years…again they creep in and slowly take over.

All too soon you find yourself in the “where did everyone go years”

As I enter my mid seventies I find myself fighting against the erosion of the go slow years. The bucket list includes one more trip up the Dempster and all the summer roads in the Northwest Territories. Among other things. I sure hope I’m allowed to do this.

No sense at all having a ton of money but needing medical help to poop, you are right to think you should be doing this stuff now because tomorrow isn’t all that certain.

#59 Nonplused on 10.11.20 at 6:39 pm

#22 Marcia M on 10.11.20 at 3:26 pm

Do we have “neocon nitwits” in Canada? If we do, are there enough to form a party?

#60 TurnerNation on 10.11.20 at 6:40 pm

DELETED

#61 Dogman01 on 10.11.20 at 6:47 pm

I’ll show:

@ Age 55

$430,000 LIRA
$300,00 Cash before tax (Only $8000 RRSP room ☹ )

$29,000 per year at Age 55, this is 1/3 reduced option when me or my spouse dies
COLA is at 60% of Inflation, and no health benefits

Plan is government secure but….a few years ago the Province tried messing around with it….then got push back and left it along, so there is that risk. Option to Commute is a parachute but I do worry they will instead give us a seatbelt.

Inflation has me concerned….

#62 Nonplused on 10.11.20 at 6:48 pm

#38 NSNG on 10.11.20 at 4:45 pm
Too bad we couldn’t commute the CPP. I guess the private slaves aren’t special enough.

——————-

The CPP doesn’t really have any assets with which they could commute any significant number of people. Other than what government bonds they hold the system is mostly pay as you go. You can start taking payments early though (at a reduced rate), which as I recall is Garth’s advice for most people.

The CPP Investment Board has $435 billion in diversified assets under management. – Garth

#63 James on 10.11.20 at 7:05 pm

Thanks for the Nod 1% Prepper. I know of people that have commuted. Assuming a rate of return like the ones mentioned here today, these folks receive an income without reducing their investment that is roughly equal to 1/2 their income. Some of these people are in their 40s and now have 2080 hours per year to engage in whatever they see fit including working at a different, more enjoyable job. All the while potentially insulating oneself against funding shortfalls, rule changes to pensions(ie Omers indexing formula changes post 2023). Not giving some thoughtful consideration could be regretful, especially given current political climates.

#64 Ponzius Pilatus on 10.11.20 at 7:13 pm

#58 Nonplused on 10.11.20 at 6:48 pm
#38 NSNG on 10.11.20 at 4:45 pm
Too bad we couldn’t commute the CPP. I guess the private slaves aren’t special enough.

——————-

The CPP doesn’t really have any assets with which they could commute any significant number of people. Other than what government bonds they hold the system is mostly pay as you go. You can start taking payments early though (at a reduced rate), which as I recall is Garth’s advice for most people.

The CPP Investment Board has $435 billion in diversified assets under management. – Garth
————-
Thanks Garth for that information.
Good news for pensioners who rely on CPP.
Any chance that any government could raid these funds?

None. – Garth

#65 Nonplused on 10.11.20 at 7:18 pm

It is too early to plan for this, but if I read the tea leaves correctly this is what Trudeau has planned for our great country:

– Phase out CPP but continue to deduct the amount from paychecks.
– Phase out EI but continue to deduct the amounts from paychecks
– Phase out OAS.
– Phase out RRSPs. The fate of money already in RRSP accounts is unclear.
– Eliminate TFSAs. The fate of money already in TFSA account is also unclear.
– Phase out welfare.
– Implement a UBI of $500 a week to replace all of the above but as with the above it will be taxable income, so you won’t really get $500/week. (That’s $26,000 a year so there will be income taxes deducted. Of course if you have a job you’ll pay at your marginal rate so you might only get $13,000 a year.)
– Get rid of child benefits and proposed day care subsidies and pay a UBI for children as well (perhaps at a reduced rate).
– Raise taxes. A lot.
– Let the deficit balance itself.

This is highly speculative and at first seems like a nightmare, but there is also a beauty in the simplicity of more or less ending up with just one program rather than many. But would it work? My gut tells me “no, it’ll cost too much money and collapse the economy”.

If these speculations come to pass, and they are speculations, it will have a dramatic impact on both how much you need to save for retirement and your ability to do so. And it seems to me to be quite a broad transformation that might take years to implement. But I don’t see how else it can be done. A UBI makes all these other programs redundant.

This is reckless speculation and utterly false. What’s your agenda? – Garth

#66 Ponzius Pilatus on 10.11.20 at 7:25 pm

#59 Nonplused on 10.11.20 at 6:39 pm
#22 Marcia M on 10.11.20 at 3:26 pm

Do we have “neocon nitwits” in Canada? If we do, are there enough to form a party?
————–
In the States, about 40% fall into that category.
And they already have a party.

#67 tbone on 10.11.20 at 7:37 pm

When the company i worked for was sold we had a choice
of commuting pension money or leaving it with them.
90 % took the money .

#68 Nonplused on 10.11.20 at 7:39 pm

“The CPP Investment Board has $435 billion in diversified assets under management. – Garth”

Yes, but it is projected to run out sometime in the future (2050 rings a bell, but maybe that is the US number) based on actuaries. My point was more that CPP doesn’t have the money to commute everybody. Also it is hard to see how it would work. If you commute, do you still have to contribute? Does that mean you are still building up more CPP but starting from zero again? What about the people who will commute (and there will be some) so they can by a new RV or boat? Are they on their own?

Also if I did my math right that is only about $12,000 per Canadian. Of course most of those Canadians aren’t 65 yet but it doesn’t strike me as a whole ton of money. Especially if commuting becomes popular.

So my point was more about how it is difficult to see how CPP could be commuted, not to go in to the specific details of how much money they have. Perhaps they could commute people at 65 and then stop making payments, maybe that would work. But I am guessing to do that they would have to commute at a lower level than the NPV of the cash stream because right now they use actuaries to predict future payouts. I suppose that is true of all pension plans.

#69 Tripp on 10.11.20 at 7:40 pm

#10 Bytor the Snow Dog

Bytor, I can’t find the numbers in your last link, please advise, thanks!

#70 NSNG on 10.11.20 at 7:41 pm

#64 Ponzius Pilatus on 10.11.20 at 7:13 pm

#58 Nonplused on 10.11.20 at 6:48 pm
#38 NSNG on 10.11.20 at 4:45 pm
Too bad we couldn’t commute the CPP. I guess the private slaves aren’t special enough.

——————-

The CPP doesn’t really have any assets with which they could commute any significant number of people. Other than what government bonds they hold the system is mostly pay as you go. You can start taking payments early though (at a reduced rate), which as I recall is Garth’s advice for most people.

The CPP Investment Board has $435 billion in diversified assets under management. – Garth
————-
Thanks Garth for that information.
Good news for pensioners who rely on CPP.
Any chance that any government could raid these funds?

None. – Garth

====================================

I’m surprised you guys didn’t know about the CPP investment board. They are actually getting a pretty good return (though there has been talk of them moving to ‘activist’ investing which could bring harm to the returns)

You can read more about them here:

https://www.cppinvestments.com/the-fund/our-performance

#71 Handsome Ned on 10.11.20 at 7:44 pm

#58 ustabe

We were planning to drive the Dempster this summer, but nwt. was locked up tighter than a bulls sphincter during fly season. 3 years ago we drove the north and south canol roads and Nahani range road, only saw 3 other vehicles the entire time.I would move to the Yukon in a heart beat if it were not for minus 40 and d 3 months of darkness in the winter.

#72 Nonplused on 10.11.20 at 7:49 pm

“This is reckless speculation and utterly false. What’s your agenda? – Garth”

I said it was a speculation. I was musing. I decided to put the other thinking cap on and address the question “If we had a UBI, how could that be made to work? And what programs would no longer be necessary?” I am not suggesting any of this will come to pass because the changes would be so dramatic, but I am wondering if we have UBI, do we need CPP? What else don’t we need? How do we fund it?

For the record I am totally opposed to the concept of UBI. But if someone were to tell me “Ok, Mr. Consultant, we are doing this regardless so tell me how we can make it work” this is what I would come up with. If I have an agenda it is to point out that UBI is a really bad idea and overlaps too many of our existing programs. It would require a complete rethink of how things government related work.

#73 Flop... on 10.11.20 at 8:05 pm

I often think about what I would like to get out of retirement, but I guess will all the goings on of this year, then perhaps none more than this year.

If my body holds out for a little while longer I will make the most money I have ever made in one year.

Should be happy days, right?

I feel trapped, right about now, which probably led to my first post which Ustabe Metaxa was good enough to give me a Boom style reply with some good points to ponder.

Have to watch what I do with my money as I don’t have a safety net, being estranged from my family in Australia.

Horror show there too, from the limited information I’ve had fed to me.

Sold house, moved to tropical climes, Dad got diagnosed with cancer, Mum has to look after him with no support system, she has failing health too, this stuff keeps me up at night, but I have to stay strong.

Reconciliation with my Mum is a distant possibility but I have to focus on my own life and family first.

You can’t segue from that, but life can have painful chapters.

So….

I don’t ever see me buying real estate in Canada, but sometimes think about buying in a country I am not eligible to live in all year round.

The United States.

Not too sure where that thinking comes from?

Been probably over 25 years since I last purchased some real estate, so I could make some mistakes.

My last trip was to Corpus Christi, Texas.

After doing the downtown thing and walking along the Bayfront we decided to cut through a neighborhood on the way to a supermarket.

Cute little houses that in my neighborhood in Vancouver would probably fetch 1.5 million CAD can be had for less than 200k U.S

I looked on Zillow at some of the sales the happened around 2008 during the GFC, and there was some tasty discounts going on.

This place on the link has had a decent run-up but just hit the market for 175k.

5 blocks to the bay, couple of blocks to the supermarket and amenities.

I would like to find something for around 100k.

This place is 94 bucks a square foot, that is not a number I’m familiar with real estate wise, unless it’s a construction estimate…

M46BC

https://www.zillow.com/homedetails/4230-Estate-Dr-Corpus-Christi-TX-78412/28780050_zpid/

#74 AM in MN on 10.11.20 at 8:18 pm

#22 Marcia M on 10.11.20 at 3:26 pm
——
Most of these plans are half funded by the employer, whose contributions are negotiated in exchange for lower wages. The rest is by the employees’ deductions. It’s a fair deal, not some communist conspiracy, all you idiot Trump worshippers. Government employees receive generally lower wages than private sector counterparts in exchange for DB plans. Fact.

————————————-

What world do you live in where govt. employees get paid less than counterparts in the private sector?

On avg. it’s about 20% higher.

They negotiated well by first taking $10’s of M to help elect their people to the government, then raided the treasury, leaving the debt for the grandchildren. Then, to make themselves feel good, funded all the SJW’s & Eco terrorists to kill off any heavy industrial wealth creation.

It won’t end well.

Ask a former Nortel employee how they faired under the onslaught from the Ontario Teachers Fund?

#75 Bytor the Snow Dog on 10.11.20 at 8:24 pm

Click the links. Look harder.

#76 Nonplused on 10.11.20 at 8:38 pm

Part of the problem many people have saving for retirement is that there is no money left at the end of the month to save. Another part is that at near zero interest rates money has no (or little) time value so you may as well spend it now. This is very confusing for people and drives future consumption to the present, but that is exactly what it is intended to do.

#77 crowdedelevatorfartz on 10.11.20 at 9:11 pm

@#48 Ponzie Prattle
“Typical condescending comment by CEF.”

++++

How is pointing out that a couple has focused all their money on real estate and spendthrift lifestyle and NOTHING towards retirement …..condescending?
They could sell their place and invest the money while paying not much more in rent than they currently pay in strata fees, taxes and insurance……
A no brainer.

Oh right.
They have a great photo album to stare at in retirement as they eat cat food and road kill in less than five years.
Perhaps I should suggest they spend their last vacation dollars on a visit to Vienna?

#78 Marcia M on 10.11.20 at 9:49 pm

#74 – AM in MN

You sound like a complete twit, a typical financial illiterate who wants to shame public sector employees instead of addressing the incompetent and unfair pension processes in the private sector.

Like most of the Trump-loving, union bashing bozos here, I’d rate your Intelligence Quotient at around 75.

Here’s an in-depth analysis of why so many public sector DB pensions do so well. Interestingly, it points out that even the often (erroneously) respected Bill Davis government in Ontario demonstrated incompetence in pension management for teachers, using their funds for years to buy government bonds to make it appear that those conservative governments were ‘balancing’ the budgets, when they were not.

https://thewalrus.ca/pension-envy/

Lesson?

Never, ever, EVER vote for conservatives if you care about competent, forward-looking, effective fiscal management when it comes to pensions.

Conservatives are financial doofuses and fraudsters, claiming to be fiscally responsible, but doing the exact opposite simply to enrich the elites among their base.

Don’t be stupid and support them.

Are you listening, Alberta?

Learn from what smart public sector DB pension plans do. Don’t just be petty and envious.

#79 Phylis on 10.11.20 at 9:59 pm

Traders short the market all the time. Ever wonder where those borrowed shares come from? That’s right your pension plan provider. Who benefits from that? Correct again, your plan provider. Read the fine print. Providing market liquidity is a sufficient justification for this market behaviour. This needs to stop.
Please correct me if I am wrong.

#80 BoxOfChocolates on 10.11.20 at 10:28 pm

#4 Gonkman on 10.11.20 at 1:22 pm

Finally, someone who understands pensions!

#81 TurnerNation on 10.11.20 at 10:33 pm

From the While you were Distracted dept.
On the telescreens what if they published real-time the national debt and deficit numbers?
We cannot have that. People might demand the accountability.
No we only get “case numbers” which keep us frightened and on the run, as a herd of animals.
Our global rulers must be roaring with laughter now.
So easy.

#82 George on 10.11.20 at 10:45 pm

Our ten-year average rate of return on a balanced and globally-diversified account is 7.4%. Current portfolios are doing just fine, since low-yield bonds constitute a relatively small position. Don’t slag what you don’t understand. – Garth

……….

impressive Garth

is that 7.4% before or after management fees?

thanks

Management fees on non-registered accounts are 100% tax-deductible. Fees for RRSPs, LIRAs or RRIFs come out of those registered accounts without being considered income. Since you got a tax break when investing, the government is paying part of those fee for you. Only fees on TFSAs are purely after-tax. Because investors’ personal tax rates vary, it’s impossible to give after-free returns on portfolios. The only responsible way to compare performance is report it before fees are taken (which should not exceed 1% for any account, nor more than 0.85% for combined portfolios of $1 million or more). – Garth

#83 TurnerNation on 10.11.20 at 11:00 pm

What’s really going on?

Got it. What’s after the Compliance Stage (Phase one of the rollout March – Sept. Is the Normalization stage.
That is normalization of total control over your way of life, assets and business. For harvesting said assets.

Remember that there’s no ‘news’ only predictive programming. And this is is. For us proles:

https://www.ctvnews.ca/health/coronavirus/majority-of-canadians-support-closing-non-essential-businesses-during-second-wave-nanos-survey-1.5141296

#84 George on 10.11.20 at 11:01 pm

Never, ever, EVER vote for conservatives if you care about competent, forward-looking, effective fiscal management when it comes to pensions.

……..

Marcia, gross generalizations are for kids. Be less angry

you’re welcome

#85 TwoNickels on 10.11.20 at 11:06 pm

#27 Lefty on 10.11.20 at 3:40 pm

3 years until I am 49 and decide if I want to commute my pension (I’m with club fed). I’ll have 20 yrs, anyone know a formula to estimate how much cashola I can get out?

—————————————————————————–
No can do. It requires some higher math that is beyond the capabilities of most who follow this pathetic blog! (excluding myself of course) A few derivatives, an invertible square matrix and more theorems and proofs than you can shake a stick at!

Regardless, it’s a “shiiteload” … I can tell you that without a doubt. You obviously didn’t read my long-winded pension platitudes several weeks ago. The biggest determinant is the 5 year rate .. which is at historic lows. Think of it as a teeter totter … the lower it goes , the higher your commuted value goes. And right now … you are in nosebleed territory!

#86 George on 10.11.20 at 11:10 pm

Pay attention to what our host has said for years about Harper. This was pure fiscal incompetence.

………….

fiscal incompetence? Um, Marcia, doesnt even remotely touch the level of fiscal incompetence trudeau has set

a whole new level. Denial gets you only so far

#87 fishman on 10.11.20 at 11:29 pm

Marcia M #22 If we’re going to denigrate our \fellow bloggies, at least get the classifications right. Neocon nitwits are not idiot Trump worshippers. Neocons believe in application of massive American military power in foreign countries. Bush Jr. tried but unfortunately for American blood & treasure only made nitwit. Smart guys like Dick Cheney, General Powell John Bolton, David Frum. You know, drive Russia from the Crimea, Putin is our enemy blah blah. Neocons are Never Trumpers who will do anything to drive Idiot Trumpers out of power. Idiot Trumpers want to disengage from foreign wars & make kissy kissy with Putin. And his 16,00 nuclear warheads loaded onto hypersonic missiles.
Now Idiot Trump Worshipper is not PC. Personally,I find being called an idiot triggering. Keith Olbhermann has upgraded Trumpsters to Maggots. Quite appropriate. A maggot looks for dead rotting flesh. What’s more enticing to a maggot than the post modern, neo marxist, MMT dribbling dying putrid corpse of the body politic. The giant distended belly of the bloated bureaucracy beckoning.
A little early? Not all the 4 horsemen have shown up. Tracks from the plaque here & there. Wait till those bond vigilantes ride in. Then us maggots will feast.

#88 Nonplused on 10.11.20 at 11:35 pm

#78 Marcia M on 10.11.20 at 9:49 pm

Woah. That made my eyes hurt. I’ll condense it for you, see if you can understand why.

“complete twit, a typical financial illiterate, shame public sector employees, incompetent and unfair private sector, Trump-loving, union bashing bozos, Intelligence Quotient at around 75, incompetence in pension managements, Never, ever, EVER vote for conservatives, financial doofuses and fraudsters, simply to enrich the elites among their base. Don’t be stupid, petty and envious.”

I didn’t add a word, but I did take all the ones that weren’t offensive out. I have to admit it is the best rant I have seen Garth let through.

#89 Tccontrarian on 10.11.20 at 11:37 pm

#79 Phyllis
I short the market too, sometimes. And I’m grateful that I can. Nothing wrong, as long as the rules are followed ie. no naked shorting.

#90 Lead Paint on 10.11.20 at 11:38 pm

#78 Marcia M on 10.11.20 at 9:49 pm

100% of public sector pensions come from taxpayers. The public sector broadly overpays compared to private sector when all compensation is included. No one ever leaves a public sector job for the private sector and many people feel they have won the lottery when they get a government job, for good reason.

And no I don’t like Trump as I like transparency and truth, unlike public sector unions that love to blackmail politicians 4 year terms by threatening strikes to leverage future unsustainable liability in terms of pensions.

#91 Sam the Sham on 10.11.20 at 11:52 pm

“One of the lucky people with a defined benefit pension”? 20% of Canadians are now employed by the Federal Liberals as civil servants and that’s just the tip of the Provincial and Crown Corp spear.

What the rest of us poor suckers have to concern ourselves with is ‘How will we pay for the political employment of votes needed to keep Trudeau at his present status?

If you think underfunding is a problem now, just wait until your income taxes are 85% to keep the retired leftist voters circled around the GTA ridings cozy.

If you’re concerned about that then protest the current state of weaponized votes in ridings where Trudeau builds a civil service out of sand and pretense.

#92 Nonplused on 10.11.20 at 11:53 pm

#79 Phylis on 10.11.20 at 9:59 pm
Traders short the market all the time. Ever wonder where those borrowed shares come from? That’s right your pension plan provider. Who benefits from that? Correct again, your plan provider. Read the fine print. Providing market liquidity is a sufficient justification for this market behaviour. This needs to stop.
Please correct me if I am wrong.

—————————-

And so correct you I will. Your broker cannot lend out shares held in your RRSP. Margin account, yes. Not sure about a cash account.

I imagine assets held in a pension fund also cannot be lent out if it follows from RRSPs.

The reason RRSP holdings cannot be lent out is so that if the brokerage goes bankrupt you still have your assets. They are ring-fenced from the other operations of the brokerage. Is that fool proof? Probably not. Fraudsters don’t stop at the door. But it is designed to ensure RRSP holdings survive the failure of whatever entity is holding them on your behalf. The idea is that if the brokerage goes tits up the receiver delivers your shares and your account to another broker, whoever pays the most for the customer base, and you decide from there whether to continue or transfer the assets to another broker.

#93 Dr V on 10.12.20 at 1:23 am

Re – US and Canadian public services pensions

http://fairpensionsforall.blogspot.com/

Apparently they all do not do as well as the Ontario Teachers.

Three things to keep in mind when looking at DB pensions

1) Employer contributions

2) low fees. According to the link at 78, the management fee for the OTP is about 0.5%, where the individual investor can expect something closer to 2%.
Yes you can lower that with ETFs, index funds, and
robo advisors, but true expert advice will cost you.
A 1% difference is more than 30% over 30 years.

3) The big plans only have to play for the average, or average survivor, plus a small safety margin. The individual should be playing for the 80-90 percentile.

And while Nortel and sears had no backup, the public
service has the taxpayers. Granted, the plan members also pay taxes, so I guess we’re partners!

#94 Phylis on 10.12.20 at 7:42 am

#88 Tccontrarian on 10.11.20 at 11:37 pm
#79 Phyllis
I short the market too, sometimes. And I’m grateful that I can. Nothing wrong, as long as the rules are followed ie. no naked shorting.

++++
Agreed. Once I dig up the fine print, i’ll chime in again, but not today. Specifically, i was referring to a DC plan account with a major lifeco, not a rrsp account.

#95 Don on 10.12.20 at 9:32 am

What is a pension? Do they still offer them? How do I get one? We will hear that more and more going forward.

#96 Classical Liberal Millennial on 10.12.20 at 10:00 am

Is there a simple way to tell what the value of one’s pension is at any given time? Not so much the monthly amount I would receive based on what I’ve contributed so far, but the total value of my DB pension. It’s purely for curiosity as I am not retiring or planning to leave my job anytime soon.

#97 KLNR on 10.12.20 at 10:10 am

@#84 George on 10.11.20 at 11:01 pm
Never, ever, EVER vote for conservatives if you care about competent, forward-looking, effective fiscal management when it comes to pensions.

……..

Marcia, gross generalizations are for kids. Be less angry

you’re welcome

true, but the gross generalizations are pretty evenly distributed on here.

#98 Gruff403 on 10.12.20 at 10:19 am

Great article Sinan.
Is it realistic for a 35 year old to have $350K in commutable pension value? Perhaps with today’s low interest rates. If a couple have two solid DB pensions, perhaps commute one and keep one in place.

#99 KLNR on 10.12.20 at 10:19 am

@#58 Ustabe on 10.11.20 at 6:33 pm
#30 Flop… on 10.11.20 at 3:53 pm

No sense at all having a ton of money but needing medical help to poop, you are right to think you should be doing this stuff now because tomorrow isn’t all that certain.

—-

Bingo!
be smart with your money but don’t obsess about it.
Any year after 50 really is a crap shoot.
enjoy em’ while you got em’

#100 Dharma Bum on 10.12.20 at 10:21 am

#30 Flop

I don’t see myself as a senior doing one of those coach tours, I want to do my travelling now as I age, with my wife, just in case retirement never comes.
——————————————————————–

Good strategy.

At 50 years of age, I took a year off (without any guarantee of getting my job back) in order to travel.

A year sounds like a long tme, but it flew by faster than you can imagine.

We did some pretty decent travelling: Australia, New Zealand, Tahiti, Ireland, Alaska, Florida, Colorado, Arizona, Utah, California, and more.

I ended up retiring at 58, and have travelled a lot in the last few years (including skiing and hiking trips).

Let me tell you: you cannot predict with certainty how well you are going to age. I have very recently noticed ny physical strength and stamina deteriorating. It’s getting tougher to endure some of the longer hauls.

So, you are right. Do the things that you want to do sooner than later. The future is NOW.

You will not regret it.

#101 the Jaguar on 10.12.20 at 10:30 am

@#87 fishman on 10.11.20 at 11:29 pm …’You know, drive Russia from the Crimea, Putin is our enemy blah blah.’……..

Now Fishman. Crimea was part of Russia since Christ was a Corporal, until a drunken Krushchev signed it over to the Ukraine in January 1954. When you break down the languages spoken in Crimea you get ‘ 65.2 percent Russian, 16 percent Ukrainian and 12.6 percent Crimean Tatar’. That speaks volumes as does the location of the Russian Black Sea Fleet in Sevastopol founded in 1783. They were liberated.
The Crimean Ruskies voted to beam back up to Mother Russia in 2014. Fair and square. If it was under the watch of some Russian troops it was only to ensure the vote took place without the benefit of American intervention. ( Iran, Guatemala, Cuba, Venezuela, etc).

John Bolton is not a ‘smart guy’. He’s just a war mongering little chicken hawk who probably got bullied on the school playground as a kid. Horrible moustache as well.

#102 crowdedelevatorfartz on 10.12.20 at 11:42 am

@#78 Marcia M
“You sound like a complete twit, a typical financial illiterate who wants to shame public sector employees instead of addressing the incompetent and unfair pension processes in the private sector.”

++++
“Unfair pension processes in the private sector…”

ahahahahahahaha.

You mean 99% of the private sector pensions that aren’t GARANTEED like 100% of the public sector pension?
A typical arrogant , gloating public sector “servant’s” response.

Personally I will enjoy the taxpayer/voter push back as our population ages and fewer and fewer people can fund govt sector shortfalls through higher taxes and inflation.
Enjoy your mythical pension “superiority” my delusional, haughty public “servant”.

Claw backs, medical benefit cuts, higher taxes and a new govt looking for cheap votes will crack that golden “egg”.
When we finally realize Modern Monetary Machines handing out hundreds of billions of dollar we dont have……..were nothing but lies built on more vote buying lies…..Trudeau will be living in the south of France in a Chateau next to his millionaire former Minister clinking glasses while we…..collectively get to clean up his financial disaster.

#103 Armpit on 10.12.20 at 11:51 am

Interesting Subject

Everyone is envious of the “generous” Government Defined Benefit Pension Plans (I.E. OMERS, HOOPPS, TEACHERS) compared to the Defined Contribution Pension Plans.

So from reading everyone’s slant – if you invest your Defined Contribution Pension Plan in a Balanced funds – you be better off than OMERS (and the rest?)

So why the Rave about the DBPP?? If only to Commute?

People would have to be really disciplined – and unfortunately – most are not.

#104 crowdedelevatorfartz on 10.12.20 at 11:52 am

@#101 the jaguar
“John Bolton is not a ‘smart guy’. He’s just a war mongering little chicken hawk who probably got bullied on the school playground as a kid. Horrible moustache as well.”

+++
While I disagreed with his political views I found his observations of Trump fascinating.
Bolton served with several other Presidents and had one on one meeting with dozens of world leaders over the years.
His book “The Room Where it Happened” paints a troubling picture of Trump.
A rank political amateur who barely grasps the “greater picture” of the world around him.
Trump ignores advice from everyone and feels he knows best.
One of Bolton’s best lines about Trump was ,
” I was warned it would be like dealing with an 11 year old….they were wrong by a decade…..”

Bolton may be a war mongering pig but his up close and personal stories about how Trump screws up even the most basic of tasks and then lies, blames and when cornered( usually by the press) unashamedly contradicts himself……is truly breathtaking.

#105 Dr V on 10.12.20 at 11:55 am

Thinking some more on the topic of pension bailouts (or lack thereof).

Nortel, Sears pensioners took a lickin’. Is this fair? Should their pensions be (more) protected?

As a private investor, I could have (almost certain I did) held stock in those companies via the funds I had
inside my RRSP. Should I have the same protection?

Or, just as likely, did the Nortel pension hold Sears
stock and vice-versa?

#106 crowdedelevatorfartz on 10.12.20 at 12:02 pm

@#65 Nonplused
“This is highly speculative and at first seems like a nightmare, but there is also a beauty in the simplicity of more or less ending up with just one program rather than many. ”
++++

ahahahaha.
You actually believe the public sector unions would agree to the elimination and or the radical reduction of their untouchable depts?

Will never happen unless a meteor the size of Ottawa….hits Ottawa…….

#107 Stone on 10.12.20 at 12:15 pm

Sinan with over 100 posts. Doug and Ryan must be sweating.

#108 NoName on 10.12.20 at 12:19 pm

#101 the Jaguar on 10.12.20 at 10:30 am

Crymea is only port in that doesn’t freezes completely and its ice locked. That why is important. Every thing else is a just every thing else.

#109 NoName on 10.12.20 at 12:26 pm

@flop @drahma bum

Interesting read about perception of time, as for squiky and losse joints i am im same boat as flop…

To counter this te.thing is to have fat friends, according to what i red time slows down around heavy objects…

https://www.google.com/amp/s/qz.com/1516804/physics-explains-why-time-passes-faster-as-you-age/amp/

#110 crowdedelevatorfartz on 10.12.20 at 12:39 pm

@#109 Noname
“To counter this te.thing is to have fat friends, according to what i red time slows down around heavy objects…”

++++
So , if I become morbidly obese AND ( according to Einstein) travel on the International Space Station….I could live forever?

https://www.businessinsider.com/do-astronauts-age-slower-than-people-on-earth-2015-8#:~:text=And%20for%20astronauts%20on%20the,gravitational%20force%20bends%20space%2Dtime.

#111 the Jaguar on 10.12.20 at 12:49 pm

@#104 crowdedelevatorfartz on 10.12.20 at 11:52 am

Yes, there’s a word for people who like to telegraph their ill feelings or opinions about other people, but have no problem making money off their past or present association with them. The word is parasite. David Frum is a world class example. Mr. ‘Axis of Evil’. Both of them like to criticize Trump, but don’t mind making money off his name. Bolton and Frum are my idea of nothing.
Can’t wait for the election on November 3rd so the hell bent and single minded Trump haters can give it a rest or get another hobby. And the terms ‘Trump Fan Boy and Trumpsters’ can also be given a rest. What a bore.

#112 Ponzius Pilatus on 10.12.20 at 1:05 pm

@#101 the jaguar
“John Bolton is not a ‘smart guy’. He’s just a war mongering little chicken hawk who probably got bullied on the school playground as a kid. Horrible moustache as well.”
—————-
Looks like Asterix.

#113 Barb on 10.12.20 at 1:33 pm

Excellent and interesting post Sinan.
Wish I had such knowledge before I retired at 49.

Re corporate, private pension plans, there should be legislation to protect employees’ money. Corporate buyouts/mergers consider those pensions to be corporate assets!

And there should have been years-ago legislation to protect employees’ wages when corporate bankruptcies occur. If employees are ever listed as Creditors in such events, they should be at the top of the list. But aren’t.

Husband many years ago was asked to stay on with a failing company–as watchman. Six weeks later, when all was concluded, he didn’t receive a bean. Bankruptcy folks told him he should have known employees weren’t creditors.

#114 Metaman on 10.12.20 at 3:27 pm

Defined benefit retiree here.

I’m using ten year numbers here. Though the S&P/TSX has averaged 3.8% per year, the real number you should use is one based on total return. Unfortunately I haven’t found a T/R index I could electronically retrieve like ^GSPTSE, but I find HXT which tracks total return an acceptable substitute. That shows an annual total return of 7.1%.

That 7.1% vastly outperforms my partially indexed and capped company pension, CPI averaging 1.7% in the past ten years. However, my pension plan allowed me early unreduced pension at 55 as long as I met my years of service and age prerequisites. All of this is to say you have to take in to account all the variables. It is difficult to generalize.

#115 NoName on 10.12.20 at 8:40 pm

@fartz

You and i can just only aspire to be an astronauts and get younger buy spending some time in orbit.

Me because i am to expensive (30-45k usd per lbs coast to lift cargo to iss). And you already know why you cant.

Now that we are on topic of age, one pice of advice be weary of cougars, they can be quite dangerous.

https://mobile.twitter.com/RexChapman/status/1315743906152280066