Pension Income Options for Planning Retirement Income

This can be a puzzle, especially when integrating several different pension income streams, for example perhaps an employer sponsored pension, Canada Pension Options, Old Age Security Options, avoiding OAS claw back, and planning income from personal investment plans including RRSPs and perhaps some Locked-In Retirement accounts and/or your self-employed business.

Employer Sponsored Pension Plans

An employer sponsored pension plan will be subject to maximum pension withdrawal limits and may be based on a Defined Contribution Plan (DCP) which provides income much like a personal RRSP. The amount of the pension income will depend on how much money is in the fund, the rate of investment return and the age of the retiree. It will also depend on the type of income stream you consider, for example a guaranteed annuity paid each year, or a flexible withdrawal based on the amount available in the fund in any given year.

Other employer pension plans are Defined Benefit Pension Plans (DBP). These types of plans are generally available to public service employees and the pension paid on retirement is based on the pension formula in the Defined Benefit Plan. This formula includes factors such as age, years of service and salary level while employed. Some DBP plans include several choices of survivor options for the spouse or beneficiaries. For example, a guaranteed benefit period of up to 15 years if the retiree dies within the guarantee period, payable to the beneficiary. Or a joint and last survivor pension of up to 100% of the retiree’s pension payable to the spouse for life, if the retiree pre-deceases the spouse.

Canada Pension Plan

CPP retirement income can be accessed as early as age 60 on a reduced basis (.6% for every month prior to age 65), can commence at age 65, or can be deferred to age 70 with payments increasing over the age 65 maximum (by .7% per month over age 65).

Old Age Security

OAS can be accessed at age 65 or deferred as late as age 70 and for every month deferred increases by .6% up to a maximum of 36%. You might consider deferring OAS if your annual pension income from other sources exceeds the taxable income level for OAS claw back, (currently $72,800 and over). For example, if your goal is to have higher spending levels prior to age 70 and you anticipate lower taxable income thereafter, you could consider deferring OAS – provided all the puzzle pieces fit together.

The Puzzle includes taking all of the sources of retirement income, considering the various options and strategies available within each component and fitting the pieces together within the framework of your goals and objectives. Goals and objectives include the required lifestyle expenses, income tax, discretionary spending and your desire to leave an inheritance for example, or to provide for your surviving spouse. Like any puzzle, this can take time and careful consideration of each how each piece adds to the total picture.

Portfolio Management

What should I expect to pay for Investment Management Services? What can I expect from a Portfolio Manager? These are questions clients often ask. Several years ago, we went looking for an Investment Management Firm to refer our clients to.

What did we ask for?

  • Independent fee for service professional Portfolio Management.
  • Client accounts designed specifically for each client, accounts that would recognize client risk tolerance, liquidity needs, values and investment preferences.
  • A firm that would be interested in our clients even if they didn’t have a million or more dollars to invest.
  • A firm that would have low fees, where ideally the fees would be tax deductible and could include ongoing third party monitoring and review.

What did we find out?

  • Most of the big firms weren’t interested in a different model.

What did we do?

  • We spoke to independent advisors we knew and had known for years. People whose personal values, professionalism, communication style, track record and commitment to clients matched our values, integrity and client profiles.
  • We developed a model, based on fees of no more than 1.5% of assets managed, tax deductible for non-registered accounts, to include payment of our services for on-going monitoring and review.

What is the process?

  • When we have clients with Investment Management needs who wish to be referred for Portfolio Management services, we provide an initial 3 way telephone meeting with ourselves, the clients and the Portfolio Manager.
    • We introduce the client to the Portfolio Manager.
    • The Portfolio Manager provides a summary of the process and services they offer.
    • When the client needs match with the services offered, and the client wishes to proceed, regulatory paperwork is exchanged and an investment account is opened.
    • Several times per year, we have 3 way telephone meetings with the client and the Portfolio Manager.
    • After each meeting a Summary of Discussion document is prepared and sent to the client and the Portfolio Manager, ensuring everyone has the same understanding.

When did we set this up?

  • Ten years ago, in 2008.

What do our clients say?

  • Thank you. I am so pleased to have the benefit of your independent professional advice.
  • I am happy my Portfolio Manager is looking after all of this, so I don’t have to worry about it.
  • I am satisfied with our returns within our managed risk profile.
  • Thank you, I appreciate your referral to Portfolio Management services, especially in these uncertain times.
  • These telephone reviews are great, they help me learn more and understand better.
  • The Summary of Discussion follow up is so helpful, and I really like that we are all on the same page. We often refer back to the summary when we need to remember something.
  • We really appreciate the comprehensive financial planning services you provide through your on-going monitoring and review process.
  • We value the low, tax deductible fee and the services it includes.
  • You make everything so easy, and I love the way it keeps us on track.

RESP Eligible Grants

RESP

Did you know children in BC qualify for $1,200 paid into their RESP accounts. Yes, free money – no strings attached. Here’s the link to find out more.

And for families who qualify, based on their family income and the number of children in the family, there is an additional up to $2,000 per child payable from the Government of Canada into the child’s RESP. 

You will need a Social Insurance Number for your children to set up a RESP account. You can go directly to your bank or credit union and tell them to expect the funds from the government. You needn’t deposit any other funds to get the money your children are eligible for. And, when you are able to make contributions, there is an additional up to 40% of amounts you deposit available from the Government of Canada as a Canada Education Savings Grant.

Yes, you can start saving for your children’s education, even when expenses are high and there is no spare cash. Get started with your children’s eligible funds from the programs available. Later on, when family cash flow improves, you can add to it – and receive even more eligible funds for your children.