Commuted Values Explained | Pension Plan Termination Selection Statement
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Today we will cover Commuted
Today we will cover Commuted Values of a Pension Plan.
What is it?
When to take it?
Tips and Tricks to make the most informed decision.
If you have every left an employer with a Defined Benefit plan before age 55 (sometimes later) then you would have received something called 'Termination Selection Statement'.
This statement gives you options on what you want to do with your pension. The first and default option is to take a monthly pension when you reach 55, which usually reduces at age 65 (bridge drops off).
The second option will be a commuted value. This is a lump sum paid to you in lieu of a set pension income amount. The commuted value option will be broken down into 2 parts:
1. Portion to move to a locked in retirement savings vehicle
2. Cash payment - which can be invested to a RRSP if you have the contribution room.
Hire a professional to crunch the numbers for you, but also take into consideration a few other factors:
1. If you are not married, how does the survivor benefit work? You may lose out on a lot if you die early with no spouse. Your kid(s) could potentially lose our on millions of dollars.
We had a client with a teenage son and was worried that if he took the pension option and dies early, his son would be left with nothing. He ended up taking the commuted value for many reasons, one of them being to protect the asset for his son.
2. Can you defer other income sources to offset any income tax liability from the cash payment portion.
We had a client that now owned a business that could leave the income he usually takes in his corp until the following year and live off the cash payment. This kept his income taxes low for the year and the overall plan still met his retirement needs.
3. If you have a lot of RRSP contribution room, then the commuted value could make even more sense as you can shelter the tax liability with a large RRSP purchase.
There are key factors that should be calculated into if you take the commuted value, which we will cover in the video.
If you are looking for a Financial Planner to help you determine if the commuted value is right for you, a full breakdown should cost between $500 - $1000.
Download our free E-Book 'Are you Retirement Ready?' https://www.parallelwealth.com/E-Book
Find out more about our firm at https://www.parallelwealth.com/
What is it?
When to take it?
Tips and Tricks to make the most informed decision.
If you have every left an employer with a Defined Benefit plan before age 55 (sometimes later) then you would have received something called 'Termination Selection Statement'.
This statement gives you options on what you want to do with your pension. The first and default option is to take a monthly pension when you reach 55, which usually reduces at age 65 (bridge drops off).
The second option will be a commuted value. This is a lump sum paid to you in lieu of a set pension income amount. The commuted value option will be broken down into 2 parts:
1. Portion to move to a locked in retirement savings vehicle
2. Cash payment - which can be invested to a RRSP if you have the contribution room.
Hire a professional to crunch the numbers for you, but also take into consideration a few other factors:
1. If you are not married, how does the survivor benefit work? You may lose out on a lot if you die early with no spouse. Your kid(s) could potentially lose our on millions of dollars.
We had a client with a teenage son and was worried that if he took the pension option and dies early, his son would be left with nothing. He ended up taking the commuted value for many reasons, one of them being to protect the asset for his son.
2. Can you defer other income sources to offset any income tax liability from the cash payment portion.
We had a client that now owned a business that could leave the income he usually takes in his corp until the following year and live off the cash payment. This kept his income taxes low for the year and the overall plan still met his retirement needs.
3. If you have a lot of RRSP contribution room, then the commuted value could make even more sense as you can shelter the tax liability with a large RRSP purchase.
There are key factors that should be calculated into if you take the commuted value, which we will cover in the video.
If you are looking for a Financial Planner to help you determine if the commuted value is right for you, a full breakdown should cost between $500 - $1000.
Download our free E-Book 'Are you Retirement Ready?' https://www.parallelwealth.com/E-Book
Find out more about our firm at https://www.parallelwealth.com/
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