Pension Income and Unlocking Them for Your Future

If you are fortunate enough to have a pension plan with your employer, it is important to understand the options available to you prior to retirement in order to plan ahead and make full use of the retirement income available to you.

For many Canadians, pension assets are a considerable source of their retirement income.   In certain circumstances, you have the option to move your pension to a Locked-In RRSP as an alternative to leaving the money with the pension administrator when you either leave the company or retire.   This allows you the flexibility of managing the Locked In RRSP independently until such time as you are transition it to a Life Income Fund,  typically any time after age 55, depending on the pension.  While Locked-In Funds (LIF’s) can provide attractive options and flexibility, including being able to leave pension money to your heirs, there are restrictions on the annual minimum and maximum withdrawal limits which can impact the total income you might expect. 

By working with an advisor who understands the advantages of the maximum withdrawal limits, pension holders can potentially unlock thousands of dollars in their plans while ensuring the funds remain tax-sheltered.

Often an individual’s cash flow requirement can be less than the maximum LIF withdrawal amount annually.  A strategy recommended in this case is to transfer the difference between this maximum amount and the actual cash flow need to a Registered Retirement Savings Plan (RRSP) or a Registered Retirement Income Fund (RRIF) if you are 71 or older.

What is the benefit of a strategy like this?  You are freeing up the locked-in savings without losing the tax-sheltered benefits.  You are then able to utilize the unlocked funds as and when you need them without any restrictions.

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In addition to the above strategy there are many jurisdictions that allow an individual the opportunity to unlock some or all of their locked-in funds.  Those jurisdictions that allow it have a one-time opportunity to transfer up to 50 per cent of their locked-in savings to a regular RRSP or RRIF.  This would leave the remainder in the locked-in plan and would continue to be subject to the annual minimum and maximum withdrawal limits. 

These strategies allow for unlocking of funds that can allow for greater flexibility with retirement cash flow, or for any emergencies that may arise. 

As with any retirement planning process, it is important to work with a professional advisor to ensure that you understand the details behind any financial decisions that you make.  At Insightful Wealth Group, our team works closely with our clients to ensure that the strategies we recommend are tailored to each family’s individual needs.  In providing a personalized Financial Plan we are able to review all options and determine the best possible outcomes to help you achieve your retirement goals.

Should you have any questions regarding your Pension options, or would like more information, please don’t hesitate to contact us at Insightful Wealth Group or mention it at your next review meeting.