Investing

Advice needed for retirement planning.

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  • Sep 7th, 2021 9:30 am
[OP]
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Sep 3, 2021
2 posts
3 upvotes

Advice needed for retirement planning.

Greetings everyone, I am new out here so please be nice. :oP

I am retiring from my job at one of the big three auto manufacturers, and I am unsure of what route I should take to fund my retirement.

I am 52, in good health, single, no kids, house paid for, only $40,000 in rrsp contributions (ie lots of room)

I have 3 options...

1) Take the pension offered by GM (Aprox $3400 per month bridged (ie once i start collecting old canada pension, etc my pension payout gets less so i will always make $3400 and will never take home more)

2) Take the commuted value of the pension ($737,000) to invest myself or through a financial advisor.

3) Transfer the commuted value to a copy cat annuity via a bank or insurance agency (some offering $10,000 cash back)

My thought process... (and struggles to decide)

-I am unsure of the long term stability of GM, thus impacting my pension.
-I believe the market is way over inflated and that the economy as a whole is due for a sizable downturn. (ie I would hate to have my money newly invested only to see it drop 30% or more and then have to rebuild.)
-Transfer the value of my pension to a annuity of say dejardins (who is offering the best rates atm)

Neither my pension nor a annuity would be indexed to inflation and that concerns me greatly.

I am going to sell my house and either rent or downsize (my house will net as much as my pension)

So I am asking for advice on what the best path forward for me would be... What would you do and why? How would you protect your money from inflation, a stock market crash or just play it safe and take the annuity/pension and invest the proceeds of the house? (what form and ratio would your investments take?)

I humbly await your responses.
Last edited by skyhi69 on Sep 4th, 2021 3:27 pm, edited 2 times in total.
17 replies
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Nov 8, 2009
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I am not a financial advisor so please don't take my advice without consulting with your own advisor. Also please be aware that any advisor you go to may or may not represent your financial interests unless you pay fee-for-service. Having said that based on your risk profile, and without knowing the amount you would receive I would lean towards going the annuity route. While the GM pension may have the best payout potentially, there is significant amount of risk in holding your pension with one company. I am hesitant to take the cash payout since your risk profile shows me you are risk averse and I'm afraid you won't be investing when you should be investing and potentially get in when you shouldn't be. Leaving your investments in cash is not really an option as inflation will eat away at your money and is probably the biggest risk you face. Your rrsp also leaves a lot to be desired which shows me you have very little experience investing on your own and would most likely need someone to help you manage your finances. Therefore I think the annuity is probably the best option for you assuming you can get something similar to your GM pension. You can sleep easy knowing that your investment is not really tied with any market fluctuations. Another reason this is advantageous vs taking the payout in cash is because you've already noted that you are single (I'm assuming no kids) so it's unlikely you have any reason to leave an inheritance to anyone in particular. The annuity will cover your expenses with a nice top up when you decide to take your CPP and OAS.

Edit: I must've skipped the part of you selling your house. Do you need to sell the house in order to live off the income generated? Would the pension/annuity be enough? Don't forget you have OAS and CPP to top off your living expenses which will make inflation less of a concern once you hit 65. If inflation is a huge concern of yours I would recommend downsizing rather than outright selling. Rent will continue to go up over the next 30-40 years and will continually eat away at your income. Your house will continue to be an asset that will appreciate and you can sell down the road if it fits your profile. Put the remaining cash from the sale of the house into a balanced index fund of 60/40 and make sure you don't touch it even during a downturn. Probably the #1 mistake that most people make while investing.
Last edited by TGokou on Sep 4th, 2021 1:20 pm, edited 1 time in total.
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OP, I started this thread to garner data on retirement and decumulation that involves self managing the investments. Give the thread a read. There are nuggets of great information in other threads but more focused on the investment side and less so on the decumulation side. As for options, there is always risks involved. It comes down to whether you believe the returns are commensurate with the risk. I don't know what your pension is for option 1 and how it would compare to the commuted value. That is something you can assess using the information contained in the decumulation thread. I do agree that company sponsored pension plans are not without risk. When there is no indexation to inflation, that adds further to the risk. Not having sufficient returns should be viewed as a risk. To that end, option 3 is bad due to prevailing interest rate environment. Annuity payouts are terrible. For option 2, I would say that you should not view market volatility as a pure risk because it can be managed. Typically a bear market will play out within about a years time. If you provide adequate liquidity in the planning to account for bear markets, there is no need to suffer huge losses if the market corrects. As for corrections, nobody knows when the next one will take place regardless of how overpriced we believe the market to be today.


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Will RRSP room be enough to transfer all of the commuted amount/what tax would you have to pay on the leftover portion if not? That would be my first consideration.

Given your inexperience with investing, I would probably buy an annuity to cover “fixed expenses” and invest the rest more aggressively (instead of going 40/60 on the whole amount) But even if you go with option 1) or 3), start practising investing in your RRSP account - so you’ll be ready to invest the proceeds from the sale of your house.

Lots of free info here and everywhere these days, and you’ll have more time once you retire! :)
[OP]
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Sep 3, 2021
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i edited my post as i forgot to state that my pension will pay aprox $3400 per month. It is bridged so that when i receive old age,etc it drops so that i make the same. (ie I will never make more then that amount.)

As per rrsp room i will be able to shelter it all but about 150,000
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OP first off congrats for being healthy as well as able to retire with a pension at age 52 single and mortgage free.

as a 74 year old I'll come at this from a different angle, from my armchair, points off the top of my head.

below for you to ponder, not necessary for you to respond back to the thread.

- look at retirement day +1, think of how your life will change not having to do the daily trudge, daily grind, interacting with all the folks in your work life. Many a long term employee do at times take retirement hard or it could be difficult if they don't have a post retirement lifestyle plans - even short term ones, say the first 5 years in retirement.

- I would hope being healthy that you will keep an active mind & body, do you have interest or a social network, or maybe just someone that likes their own company ... go fishing every single day in retirement?

- on the options you posted, knowing that you have to kill 10 - 12 hrs of day to fit into your new life schedule.

- are you planning on taking up paid employment at sometime after you retire?

- will you spend time doing volunteer work?

- do you know what expenses you'll need in the first 5 years of retirement, including any large purchases & maybe world travel?

- are you planning on becoming a couch potato or other?

- on the money side ....

- anything that you do investment wise should be as close to zero risk as possible.

- dont let Bank investment financial advisors play with your money.

- you'll have folks saying the market can be volatile & say 'but don't worry about that'. Do you want or need volatility, risk & have sleepless nights when you're depending on income from your investments to live on.

- look at the guarantee income options ... GM pension, annuity, put the $737k in to HISA/GIC/Annuity, depends or your risk & needs and/or if you're OK with a fluctuating stock market investment.

- do you currently have savings or investments - if so will these carry you for mths or years?

- IMO there isn't anything wrong with taking monthly pension from GM & (depending who is holding the pension fund) its unlikely the pension will disappear ... GM pension funds are paying thousand of pensioners.

- is the GM pension monthly pension equal more or less to your current take home pay - will it cover your expenses & more?

- if you were to take the $737k, I dont see a need to max up your RRSP for the reason what will the max tax return be, likely 80% of the tax you paid in your final year, if its that, look at how much of the $737k you would need to put into the RRSP?

- and on the RRSP maxing it up would take a chunk out of the $737k to invest & can you get a safe return to give you enough income to live on?

- lets suppose you took the $737k & invested it ... how or where you stick it, will the capital be secure, will it move around, will the $737k give you enough income in payouts or dividends?

- will the annuity give you the income that you need for your lifestyle?

- factor in at what age that you will will start collecting CPP & OAS.

- so at this time is there a need to sell the house, can you do it 10 years from now, maybe at age 65, sell it or do a reverse mtge?

- do not leverage your house to invest , do not take a loan HELOC on your house to invest.

- capital preservation is key ... you never ever want to be in a position a few years down the road reaching OAS age that you have to go back to work
Last edited by Janus2faced on Sep 4th, 2021 5:46 pm, edited 1 time in total.
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freilona wrote: Will RRSP room be enough to transfer all of the commuted amount/what tax would you have to pay on the leftover portion if not? That would be my first consideration.

Given your inexperience with investing, I would probably buy an annuity to cover “fixed expenses” and invest the rest more aggressively (instead of going 40/60 on the whole amount) But even if you go with option 1) or 3), start practising investing in your RRSP account - so you’ll be ready to invest the proceeds from the sale of your house.

Lots of free info here and everywhere these days, and you’ll have more time once you retire! :)
An amount up to the maximum transfer value can be transferred to a LIRA account (registered account that is similar to RRSP account) without immediate tax consequences. The remainder of the commuted value is issued as cash and is fully taxable.

https://www.advisor.ca/columnists_/lea- ... lue-rules/
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skyhi69 wrote: i edited my post as i forgot to state that my pension will pay aprox $3400 per month. It is bridged so that when i receive old age,etc it drops so that i make the same. (ie I will never make more then that amount.)

As per rrsp room i will be able to shelter it all but about 150,000
The commuted value transfer to locked in account does not require RRSP contribution room. The amount you can tax defer is based on your current age and the pension amount less the bridge. I will assume your bridge is $1000 a month and the age 65 pension is $2400 per month. Annual age 65 pension is $28,800. At age 52 your present value factor is 9.4. So you can shelter 28,800*9.4=$270,720 into a registered account. The remainder, $737,000-270,720=$466,280 has to be taken as cash. It will be taxed at source, so nothing can be done about the big tax hit. However, you can take some of the remaining after tax cash and max out the RRSP contribution and get a good tax refund.

https://www.advisor.ca/columnists_/lea- ... lue-rules/

This outcome may make the commuted value option look terrible. The big tax hit is an artefact of bond yields resulting a very large commuted value award. For a much smaller commuted value, the excess amount above the maximum transfer value would be much smaller. If you think about it, after tax, you will have roughly $500,000 net. If you could earn 5% average annual return, that would just about match your age 65 pension without ever touching the principal investment. The commuted value is supposed to represent the present value of the pension.

On the annuity option, the sun life annuity calculator estimates an annual income of $22,000. Personally I would take the risk and go with the company pension option over an annuity. The price paid for the guaranteed income from the annuity is too high. That is why I think that this option is not risk free.

https://www.sunlife.ca/en/tools-and-res ... alculator/

BTW, one of the strategy you can use to minimize the commuted value taxation is to take it right at the beginning of a tax year so that your work income would the minimized.
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I understand your concerns, I believe it was a big issue a decade ago where the Ontario government said they wouldn't help pensioners if GM were to go bankrupt. With your statement you are risk adverse (you feel there is a down turn, you have little other savings) and I think the prudent decision is to explore a more stable option for your pension dollars. GM, while seemingly too big to fail, well we all know how that went.

Because your pension is not indexed we are strictly looking as to the value of the annuity vs pension.

Before I start, I have to recommend seeing a fee-only financial planner.


That said, reading what you have posted, I see many options. Two potential options are:
a) Get an annuity with your pension. Invest the proceeds of your house into a equity-based portfolio with an ETF such as VGRO. This will mean half your money is safe / secure (annuity) and the other having has a bit of risk. That allows you to get a bit of a chance to beat inflation while protecting a large portion of your assets in the annuity. This would be a risk adverse solution.
b) Use both your pension and housing dollars to invest into an ETF such as VBAL and VGRO. Employ a bond ladder (https://www.newretirement.com/retiremen ... imb-on-up/) or something similar to provide a safe place for 3-5 years of expenses (this prevents you from withdrawing during a market downtown). The rest of your investment will simply grow.

Investing is about what is right for you and what is comfortable for you. Myself, I think you need a strategy that has a growth component to it to cover inflation (especially since you are renting you are much more exposed to it). This is where I like option (b). You have most of your money earning a decent return, and you keep a portion you predict you will need in a very safe investment. Then when there is a downturn you can use up your bond ladder (rather than invest more into renewing it) and by the time the market recovers you can work at topping up your bond ladder again. Hope that parts makes sense.


Either way, a fee only planner sounds like a good idea as there are tax implications with withdrawing your pension and such. They can also work to discuss whether you are ready to fully retire or need to supplement, as well as a strategy to draw more early on (until you hit CPP/OAS). Expect to pay $1000-2000 for this service.
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OP just curious but how many years of service is in the pension and is it a defined benefits pension?
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TrevorK wrote: I understand your concerns, I believe it was a big issue a decade ago where the Ontario government said they wouldn't help pensioners if GM were to go bankrupt. With your statement you are risk adverse (you feel there is a down turn, you have little other savings) and I think the prudent decision is to explore a more stable option for your pension dollars. GM, while seemingly too big to fail, well we all know how that went.

Because your pension is not indexed we are strictly looking as to the value of the annuity vs pension.

Before I start, I have to recommend seeing a fee-only financial planner.


That said, reading what you have posted, I see many options. Two potential options are:
a) Get an annuity with your pension. Invest the proceeds of your house into a equity-based portfolio with an ETF such as VGRO. This will mean half your money is safe / secure (annuity) and the other having has a bit of risk. That allows you to get a bit of a chance to beat inflation while protecting a large portion of your assets in the annuity. This would be a risk adverse solution.
b) Use both your pension and housing dollars to invest into an ETF such as VBAL and VGRO. Employ a bond ladder (https://www.newretirement.com/retiremen ... imb-on-up/) or something similar to provide a safe place for 3-5 years of expenses (this prevents you from withdrawing during a market downtown). The rest of your investment will simply grow.

Investing is about what is right for you and what is comfortable for you. Myself, I think you need a strategy that has a growth component to it to cover inflation (especially since you are renting you are much more exposed to it). This is where I like option (b). You have most of your money earning a decent return, and you keep a portion you predict you will need in a very safe investment. Then when there is a downturn you can use up your bond ladder (rather than invest more into renewing it) and by the time the market recovers you can work at topping up your bond ladder again. Hope that parts makes sense.


Either way, a fee only planner sounds like a good idea as there are tax implications with withdrawing your pension and such. They can also work to discuss whether you are ready to fully retire or need to supplement, as well as a strategy to draw more early on (until you hit CPP/OAS). Expect to pay $1000-2000 for this service.
I could not agree more on the comment about needing to consider a bit of growth in the strategy. Early retirement with 35-40 years of additional life expectancy makes the company pension and annuity option look very scary due to lack of inflation protection. Looking back 3+ decades in time, I recall gasoline being about 30¢ per litre, a big mac costing about a $1.50. While the two fixed income options are potentially safe from the income guarantee perspective, the lack of inflation protection will turn the amounts into pocket lint in the later years. Effectively, CPP and OAS is going to be the primary income stream over time. This is why I would favor giving the commuted value investing option a good hard look. The unfortunate thing is that where there is reward, there is also risk. The good thing about the current low yield environment is that it has made the commuted value option a viable consideration. If yields were higher, the commuted value would be so low that it would not make much sense. Retirement itself is a tough decision. When there are options for retirement income, it makes the decision making that much more difficult.
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By any chance you live in Oshawa/Whitby (GM country)? A few years ago I had some financial and retirement questions and saw Shelley Johnston at: https://www.pensionspecialists.ca/ . The office is on Brock Street, Whitby, just up from the 401.
She was very helpful, knowledgeable and answered my questions. My situation would not have brought her any business but I would have been comfortable doing so if that was the case. If I were in your position, I would be arranging a meeting to get advice and suggestions, it could be time and money well spent.
Good Luck!
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Just be aware that annuities are one of those things that pay pretty hefty commissions, so make sure you're not getting one solely on the advice of someone selling them.

I'd like someone more expert than me to corroborate this, but it's the health of the company pension fund that you need to worry about and not necessarily the health of the company?

GM Canada's pension is fully funded:
https://www.benefitscanada.com/news/ben ... ed-status/

Fully funded:
https://www.investopedia.com/terms/f/fully-funded.asp
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randomthoughts wrote: Just be aware that annuities are one of those things that pay pretty hefty commissions, so make sure you're not getting one solely on the advice of someone selling them.

I'd like someone more expert than me to corroborate this, but it's the health of the company pension fund that you need to worry about and not necessarily the health of the company?

GM Canada's pension is fully funded:
https://www.benefitscanada.com/news/ben ... ed-status/

Fully funded:
https://www.investopedia.com/terms/f/fully-funded.asp
Pension funding status can change over time. Company pensions are not 100% secure or at least a whole lot less secure than government pension plan.
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mrct1944 wrote: By any chance you live in Oshawa/Whitby (GM country)? A few years ago I had some financial and retirement questions and saw Shelley Johnston at: https://www.pensionspecialists.ca/ . The office is on Brock Street, Whitby, just up from the 401.
She was very helpful, knowledgeable and answered my questions. My situation would not have brought her any business but I would have been comfortable doing so if that was the case. If I were in your position, I would be arranging a meeting to get advice and suggestions, it could be time and money well spent.
Good Luck!
I know someone who used Ian Burns with pension specialists. All I can he made a bad decision and it damaged his retirement. When seeking paid help, it is best to go with a fee-only advisor rather than a salesperson.
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randomthoughts wrote: Just be aware that annuities are one of those things that pay pretty hefty commissions, so make sure you're not getting one solely on the advice of someone selling them.

I'd like someone more expert than me to corroborate this, but it's the health of the company pension fund that you need to worry about and not necessarily the health of the company?

GM Canada's pension is fully funded:
https://www.benefitscanada.com/news/ben ... ed-status/

Fully funded:
https://www.investopedia.com/terms/f/fully-funded.asp
I believe the concern is that if a company were to go bankrupt, any unfunded liabilities at the time will remain unfunded (pensioners are not at the front of the line).

With GM I am not sure if deals were made with the bailouts that forced them to fully fund their pensions, and whether they have to remain that way. But my concern would still be whether they become unfunded (this was the concern with Nortel for example, who was not close to being fully funded when bankrupt).

My understanding is that you are correct, as long as they remain fully funded then GM can go bankrupt with little impact.
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TrevorK wrote: I believe the concern is that if a company were to go bankrupt, any unfunded liabilities at the time will remain unfunded (pensioners are not at the front of the line).

With GM I am not sure if deals were made with the bailouts that forced them to fully fund their pensions, and whether they have to remain that way. But my concern would still be whether they become unfunded (this was the concern with Nortel for example, who was not close to being fully funded when bankrupt).

My understanding is that you are correct, as long as they remain fully funded then GM can go bankrupt with little impact.
Indeed, my mother-in-law still gets her husband's pension who was a mechanic at the previous Air Canada that went bankrupt. I think a fully funded pension was a prerequisite for previous government aid in that case.

Is this GM pension indexed or are those only on government DBB plans? If it's indexed the pension is a no brainer. Annuity is like reverse mortgage imo, attractive for the short term but you pay for it.
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admiralackbar wrote: Indeed, my mother-in-law still gets her husband's pension who was a mechanic at the previous Air Canada that went bankrupt. I think a fully funded pension was a prerequisite for previous government aid in that case.

Is this GM pension indexed or are those only on government DBB plans? If it's indexed the pension is a no brainer. Annuity is like reverse mortgage imo, attractive for the short term but you pay for it.
The pension is not indexed to inflation according to the OP.
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