Defined Benefit Pension Plans

Do you contribute to a defined benefit pension plan? For the past 19 years, I have taught for many of Greater Vancouver’s largest public-sector employers. And over the years, I have been able to identify some of the key challenges and opportunities that face this demographic.

From a very high level, here are a few of the areas we focus on:

Taxes

There are many aspects of taxation that we focus on but a specific challenge to defined benefit pensioners is the topic of income streams. Most Canadians in this sector will enter retirement with their RRSPs, government benefits, and a work pension. These income sources are taxed as if you earned a dollar of income from your employer, and therefore have no tax beneficial treatment. 

Forced Income

This topic is especially important for defined benefit pensioners, as the typical three income sources I identified above are all forced onto the individual at a certain age and therefore could push you up into an unnecessary tax bracket and go so far as to result in excessive taxation and Old Age Security (OAS) being clawed back, as this benefit is income-tested. 

Emergency Expenses

Most pensioners who rely on the same sources of income previously outlined can face the challenge of financing emergency expenses – typically family assistance and/or medical expenses among others. You cannot access capital from government benefit programs or a work pension and it’s extremely disadvantageous to access your RRSPs for large sums of money. The common result is having to go into debt. 

Pension Payout Optimization

There are many factors that go into choosing the right pension payout option and it’s very difficult to choose the right one. If you can believe it, I assisted a client not too long ago whose employer gave them 19 different pension payout options. Financial planning software should be used to run scenarios for the various options while integrating them with your other assets and additional sources of retirement income.

Why do we plan?

Knowing where you are translates into knowing where you're going, and we hope to provide every client with the trust and confidence to navigate through the waters of their financial lives.

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