Take the annuity or transfer to a LIRA? Choosing the right retirement option makes all the difference
Recently, one of our clients approached us for help in making a very important financial decision. He has been employed by a well-known manufacturer as a senior accountant for many years. Now 55 and retiring, he is eligible to begin collecting his pension. Even though he is financially literate and somewhat investment savvy, he found himself confused by the two options presented to him:
- Take a seemingly attractive, ‘guaranteed’ monthly pension for the rest of his and his spouse’s natural life.
- Transfer his pension plan, effectively taking a lump sum payment instead of a monthly payment.
What to Consider
The decision facing him was extremely important because either option could have a significant impact on his future retirement plans. The team at Bridgeport got to work, analyzing his options. There were tax considerations that came into play, the scope of which depended on his RRSP contribution room (he had little, so pulling the funds from the plan meant having to pay tax on a portion of the lump sum withdrawal.) We also had to make rate of return assumptions on the assets, as well as life expectancy and lifestyle considerations.
Further, were he to pass, his spouse would only be entitled to 60% of his monthly payout. It’s also possible that if his former employer were to go out of business, his pension could be put in jeopardy.
His Decision
The best option for him became clear not long after we started running the numbers. In fact, it wasn’t even close. Working with reasonable assumptions, we helped him decide on the most financially beneficial option to present to his former employer. His family is now positioned to benefit from his many years of hard work and loyalty to his former employer.
Many of life’s milestones, whether marriage, the birth of children and their education or retirement involve decisions that have a lasting impact on financial wellbeing. Even the most financially savvy professional accountant can benefit from a thorough analysis of these life choices. Consider reaching out to Bridgeport for assistance with any of your financial considerations.