Pension decisions: 6 six keys to a great retirement

By Ermos Erotocritou, CFP, CPCA

Special to the Financial Independence Hub

You’ve undoubtedly thought a lot about the shape of your retirement but whether your plans include traveling, volunteering, starting a new career, or a myriad of other retirement dreams, the most important thing is having sufficient finances to ensure all of them become reality. If you are a member of an employer-provided pension plan, now is the time to make some important decisions that will have a strong impact on the amount and length of your pension.

Decide when your pension payments will begin

If you have a defined benefit pension (DB) plan, your annual benefit may be reduced if you retire before reaching a certain age or before completing a minimum service requirement. However, your plan may have a bridging benefit to offset an early retirement pension reduction that is paid from the date of early retirement up to age 65 when it will stop.

Decide whether or not your pension benefit transfers to your spouse when you die

You can usually: Elect to receive a life-only pension that ends when you die. It will deliver a higher monthly benefit to you than a joint and last survivorship pension but will not provide a continuing benefit for your spouse after you die. The plan member’s spouse will need to sign a waiver to take this option.

Select the joint and last survivorship option. While your monthly benefit will be lower, the “joint and last survivor” option is usually better unless your spouse has his or her own pension, Registered Retirement Savings Plan, non-registered assets and/or adequate insurance coverage. Factor in the expected life expectancy for you and your spouse.

Choosing the survivor benefit

Not all plans allow you to do this: check the details of your plan. In most jurisdictions, the “standard” survivor benefit is 60% of the pension that was being paid to you prior to death; however, some plans will include other options such as 66 2/3%, 75% and 100% survivor benefits. If your goal is to leave an estate to your beneficiaries, commuting your pension could make sense.

Do you have the option of receiving your pension benefit for a guaranteed minimum number of payments?

Some plans allow you to choose to receive monthly pension payments over a minimum term of 5, 10 or 15 years, meaning that even if you die prematurely, the benefit will continue to be paid for the period you selected. Typically the longer the guaranteed payment period, the lower the payout so it’s a tradeoff.

Does your plan have a CPP (Canada Pension Plan) or OAS (Old Age Security) integration option?

If so, you can choose to receive an advance on your pension in the form of larger monthly payments until age 65, when CPP and OAS benefits normally begin. This option will result in reduced monthly payments after the age of 65.

Do you have the option to transfer the commuted value of your pension to a locked-in account?

Instead of receiving a monthly lifetime pension, you transfer the commuted value of your pension to an account you control. You lose the guaranteed payments for life but have the option of investing the money yourself to potentially get better returns and your beneficiaries will get whatever is remaining when you pass away.

Among other financial decisions, these six key pension decisions will help ensure your retirement dreams will become reality and you retire in Findependence.

To be sure your decisions are right for you, talk to a Certified Financial Planner.

Ermos Erotocritou is a Regional Director with Investors Group Financial Services Inc.

Disclaimer: This is a general source of information only. It is not intended to provide personalized tax, legal or investment advice, and is not intended as a solicitation to purchase securities. Ermos Erotocritou is solely responsible for its content.   For more information, please contact an Investors Group Consultant. Insurance products and services distributed through I.G. Insurance Services Inc.