This is for all my friends lucky enough to have an employer with a pension plan, although I am specifically speaking about the RCMP pension plan, this information holds true for most others as well. To my readers without pensions, you’re lucky not to have these “golden handcuffs”(you will be forced out of nessesity to find your path sooner, and done correctly your choices will dwarf any pention!)
You may not have realized it, but when you signed up you entered a world few people know.
About ten years later you’ve had your ups and downs, your career is off to a good start, and you likely have the rest of your working life planned out.
You’ve made a difference, changed many lives, did some great work, served your country and community.
You also have more responsibility. Perhaps you got married(more than once), had kids, started to support your aging parents, picked up some new hobbies, and likely some debt.
You’ve never worried about finances, after all there is plenty of overtime(one of the benefits of being short staffed), and you’ve got a pention at the end of it all.
Your set for life!
Did you know that eventually your pension will be something that rhymes with you(hero)?
That’s right, all your years of labour, your service to the people of this country, and the thousands of lives you touched will eventually be worth(financially) nothing.
Let me explain.
Once you hit 20 years service you are locked into the pension, the more you work after this the higher your pension(sort of).
But when you die(we all do), your pension does 1 of 3 things:
1. Splits in 2 with your spouse(s) getting 50%. Once they die your pension = zero.
2. Your children get 20% until they are adults then your pension = zero.
3. You have no spouse and/or your dependants are adults so your pension = zero.
You’ve spent most of your working life in service of others, looking out for thier best interests.
You owe it to yourself, and to those you care about the most to look after thier best interests too!
Here are some possible solutions:
1. Buy and maintain supplemental life insurance. Calculate what you’d dependants will need from you for the next 20 years. You will discover that if you’re not there to give it to them, the life insurance policy through your employer is a pittance.
2. Practice fiscal responsibility(be a good saver). This is hard for me. I work harder than most so feel I deserve more in my downtime. This costs money.
3. Invest wisely.
4. Make the Set for Life(?) choice – only available to those between 10-20 years service.
Once you are vested in your pension, a little timer starts, and you have 10 years to make a big choice.
It’s not an easy one. There is lots to consider. It’s a choice many lottery players fantasize about.
Monthly payments or lump sum?
To make the right choice for you, ask yourself a few of these questions:
How is my health?
What is my family history/life expectancy?
Will I get hit by a bus(or insert other disaster) early in retirement?
How long will I live?
Do I have the disapline to invest a lump sum wisely or will I spend it on booze/cars/travel, and after a few years of living large be left eating cat food under a bridge?
Do I need capital to start a business?(after all my skills are very desirable/transferable to the private sector and business world).
Will I work for another employer?
What do my dependants need when I’m gone?
How can I leave as much as possible for them?
How much is the lump sum?
How long would it last me?
Can I make it grow?
What would you do with $125,000 or $300,000 cash(a similar amount also is locked away till you turn 65)?
For many, taking the lump sum at 19.99 years or perhaps earlier makes sense.
Especially with this decades’ record low interest rates(lower the rate, higher your cash payout)!
If you have any further questions about your pension, are curious about your transfer value, or want to learn more about my financial plan, you can reach me by visiting InvestKamloops.com.
You can see what I’ve been up to(and why), sign up for regular newsletter tips, or read other interesting articles.
Until next time,