Personal Finance

Take Commuted Value or not

  • Last Updated:
  • Apr 22nd, 2017 4:26 am
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[OP]
Newbie
Jan 13, 2017
36 posts
9 upvotes

Take Commuted Value or not

Hey guys

Quit my job in February. Was part of HOOPP for 3.5 years... Need help crunching some numbers... I'm turning 33 next month and now enrolled in OMERS

Here is what HOOPP offered me...

Lump sum amount of $25,500 to a locked-in vehicle & non-locked-in lump sum of $22,500 .... i have lots of room in rrsp for the lump sum

OR... Age 65 pension of $235

I can also transfer to OMERS but I'm planning to start my own business in next 6 months so not sure if I should bother with transferring over or not...
37 replies
Sr. Member
Jan 2, 2013
857 posts
94 upvotes
Etobicoke
I was in the same boat as you a few weeks ago, but to make a long story short. If you're young, just take the money now.
You can do so much more with 25k if you invest it yourself than to let it sit for 30 years.

I just got 33k from my DB pension and put in my TD waterhouse account.
Jr. Member
Sep 2, 2009
105 posts
27 upvotes
Ottawa
Before cashing out, I would also look into what benefits you would qualify for if you were to keep the pension. Usually these could include life insurance, reduced medical insurance, survivor benefits, etc... it really depends what the benefits included are (and I know zero about HOOPP but know my buddy had the same decision to make and he decided to keep the pension instead of cashing out because of the potential access to benefits that he would forgo by cashing out)
Deal Addict
User avatar
Dec 27, 2009
2947 posts
999 upvotes
Ottawa, ON
Take the lump sum and grow it. 65 is a long way off for you, and $235 will be peanuts (by then especially).
Deal Guru
Aug 2, 2001
13590 posts
4191 upvotes
Just using online calculators, $25K in your RRSP @ 5% turns into $119K. Withdrawing $235/mo at 65 for 20 years leaves you with $94K. Even with a 4% return you are left with $51K after 20 years.
(both examples above use a 1.5% rate of return once you turn 65 - so a HISA or GIC)

Unless you are receiving other benefits (as indicated above) it seems that even a conservative return beats out a $235/mo pension.
Jr. Member
Sep 2, 2009
105 posts
27 upvotes
Ottawa
TrevorK wrote:
Apr 7th, 2017 10:15 am
Just using online calculators, $25K in your RRSP @ 5% turns into $119K. Withdrawing $235/mo at 65 for 20 years leaves you with $94K. Even with a 4% return you are left with $51K after 20 years.
(both examples above use a 1.5% rate of return once you turn 65 - so a HISA or GIC)

Unless you are receiving other benefits (as indicated above) it seems that even a conservative return beats out a $235/mo pension.
It would also be important to see if the plan has indexing for inflation.
Last edited by cloak on Apr 7th, 2017 11:31 am, edited 1 time in total.
Deal Addict
User avatar
Dec 27, 2009
2947 posts
999 upvotes
Ottawa, ON
I believe OP is getting $48K all together, with $25.5K to be put into a locked in sheltered account (RRSP), and $22.5K taxable income. This is even more beneficial in swinging the decision to the lump sum.
Deal Addict
User avatar
Jan 31, 2006
2988 posts
90 upvotes
Toronto
I was in the same boat before i just cashed out. the locked in has to be in a LIRA, the non locked in you should put most of it in RRSP.
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[OP]
Newbie
Jan 13, 2017
36 posts
9 upvotes
Thanks guys

Yes it's a total of $48,000. I will be putting all of $22000 in rrsp because I have room available for that
Member
Jan 23, 2009
417 posts
114 upvotes
ilostmyid wrote:
Apr 7th, 2017 11:41 am
Thanks guys

Yes it's a total of $48,000. I will be putting all of $22000 in rrsp because I have room available for that

I was in the same boat before I took the money without hesitation the $48000.00 gives you income starting today $80.00 per month @ 2.00%
Deal Addict
Nov 24, 2013
3809 posts
943 upvotes
Kingston, ON
cloak wrote:
Apr 7th, 2017 9:20 am
Before cashing out, I would also look into what benefits you would qualify for if you were to keep the pension. Usually these could include life insurance, reduced medical insurance, survivor benefits, etc... it really depends what the benefits included are (and I know zero about HOOPP but know my buddy had the same decision to make and he decided to keep the pension instead of cashing out because of the potential access to benefits that he would forgo by cashing out)
cloak wrote:
Apr 7th, 2017 11:31 am
It would also be important to see if the plan as indexing for inflation.
I think these are worthwhile questions to look into.

If the $235 is indexed up the right comparison would be to RRSP investment performance after-inflation, not nominal, and if there's other benefits it could make a case for deferring.
Deal Addict
User avatar
Dec 27, 2009
2947 posts
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Ottawa, ON
Mike15 wrote:
Apr 7th, 2017 12:16 pm
I think these are worthwhile questions to look into.

If the $235 is indexed up the right comparison would be to RRSP investment performance after-inflation, not nominal, and if there's other benefits it could make a case for deferring.

Indexing (in the unlikely event it is indexed) would not start until he is receiving it in 30 some odd years. If the figure they gave him is $235 then that is what it will be when he starts collecting it (which will likely be worth less than half of what that would be in today's dollars by then). I still say that the $235 per month at age 65 will be worth peanuts. He will be far better off taking the $48K now and growing it himself.
Sr. Member
Mar 1, 2016
666 posts
205 upvotes
Chickinvic wrote:
Apr 7th, 2017 4:57 pm
Indexing (in the unlikely event it is indexed) would not start until he is receiving it in 30 some odd years. If the figure they gave him is $235 then that is what it will be when he starts collecting it (which will likely be worth less than half of what that would be in today's dollars by then). I still say that the $235 per month at age 65 will be worth peanuts. He will be far better off taking the $48K now and growing it himself.
Depends of the plan. I have pension credits that have been indexed in the deferral period and continue to do so.
Deal Addict
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Aug 1, 2005
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ilostmyid wrote:
Apr 7th, 2017 11:41 am
Thanks guys

Yes it's a total of $48,000. I will be putting all of $22000 in rrsp because I have room available for that
I believe (not 100% certain), that the $22k part can be transferred to an RRSP whether you have room or not. I don't believe you will get a deduction on it. It was the "non-vested" part of your pension. Essentially you just move it from a sheltered Benefit Plan to your sheltered RRSP.

If you remove it from the shelter (IE, spend it) there will be tax implications.

Not 100%, but 95% sure.
Deal Addict
User avatar
Dec 20, 2004
4540 posts
205 upvotes
Toronto
$235 is virtually nothing - why are you even considering this? take the money and throw it in a LIRA and play around with it.

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