‘No single choice’ for working pension as millennials make plans for future: expert – National

In the fall of 2021, 39-year-old Krista Lehman quit her job as a program assistant at a post-secondary institution in Vancouver to take a mental health hiatus and pursue other career options.

With respect to his defined benefit pension plan, his employer’s human resources department provided him with a package that offered him the choice of taking the present value of his pension – a lump sum based on a present value calculation. of the future pension – or keep the money in her retirement plan until 2047, when she would start receiving monthly payments.

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“I was shocked at how much money I had,” Lehman said. “I had never had this amount of money in my bank account before.”

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For millennials who haven’t yet had the chance to invest outside of mandatory employee pension contributions, it can be daunting to figure out what to do with a retirement plan after leaving a job.

In Lehman’s case, she felt that having autonomy over how to invest her money was more appealing than leaving it to her former employer.

“I wanted to be more actively involved in my savings and retirement planning than in the past, so this was an opportunity to do that,” she said.

“I also wanted to make ethical decisions about where my money should go.”

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Lehman took the full cash value, putting nearly 50% in a locked-in retirement account (LIRA), about 33% in a registered retirement savings account, and cashing out the remaining 17% to manage day-to-day expenses, such as a the computer again.

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Every employee will have their own set of choices when they leave their job, and those choices will differ even more depending on whether they have a defined benefit pension plan or a defined contribution plan, said Liz Schieck, certified financial planner at the New School of Finance in Toronto.

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Deciding what exactly to do with a pension can be overwhelming, Schieck added, which is why she recommends clients take the time to think things through and seek the advice of an unbiased financial planner if possible.

When it comes to defined benefit pension plans, Schieck finds that clients most often decide between leaving the pension with their employer, transferring it to their new employer’s pension plan, or taking the pension and investing it elsewhere.

In this situation, it depends on confidence and comfort levels. “Some people might feel more reluctant to invest it themselves in the market, while others might have less confidence in a pension,” Schieck said.

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In the latter case, people in their twenties and thirties might not be convinced that a business will continue to exist when they retire and throughout that retirement.

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For those who decide to take their pension with them, putting that money in a LIRA, and any remaining money in an RRSP if you have available rights, means it will not be considered taxable income. However, if you don’t put the remaining funds, outside of a LIRA, into an RRSP, you’ll get a check and that money will be taxed, Schieck said.

If someone is burdened with student debt, this money can make a big difference in helping them pay it off.

But the decision to put it into an RRSP or take the tax hit isn’t unique, Schieck said.

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“It depends on the tax rate you are going to pay, the tax bracket you are in, the debt you have, the interest rate and the savings capacity you will have in the future. to come up. That’s why it’s good to have advice.

When it comes to a defined contribution plan, the decision can sometimes be easier because there are fewer choices. The defined-contribution plan already acts like an investment account, Schieck said. There is a fixed amount of money that you can either keep in the plan or invest in a locked-in account elsewhere. There is also an option to purchase an annuity, but this is a much less popular route.

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When you leave a job with a defined-contribution plan, the decision whether or not to take the pension with you depends on what products you want to invest in and where, Shieck said.

For example, those who take their pension with them might feel more comfortable keeping their investments in their own bank or want to be more selective about their investments, like Lehman, who wanted to make sure his investments were ethical.

© 2022 The Canadian Press

Maria D. Ervin