Early Retirement Pension Considerations

Pinkney Wealth understands how difficult it is for people to make decisions regarding retirement.

Locked in pensions are an important consideration for those approaching the age of 55 whose work places have “Defined Benefit Pension Plans”. Many employees of Syncrude, Suncor and other companies with “Defined Benefit Pension Plans” have little to no understanding of how these plans work. Having someone with limited understanding try to explain how these pensions work can be problematic. They may stand to lose out on the benefits these programs afford them.

Pinkney Financial has many examples of clients who came in for financial advice and a need to understand how best to approach their retirement and their pension options. Following is a story of one couple who came to us:

Both are “SYN-COR” employees, the husband is 54 and they wife is 52. They own a home in Newfoundland, and plan to move there once retired. With their pensions, they plan to upgrade their home, and travel back and forth to visit their Alberta family. They are unsure if they are in a satisfactory financial position to retire now, despite the fact that they are both tiring of the shifts and daily physical demands of their jobs.

After further discussion, we suggest they wait until the wife is 54-11 (one month shy of 55) and both keep working for three more years. This plan allows them to continue to build up their RSPs and regain much of the income tax they pay into annually. This ensures three years of increased pension and RRSP investment for the husband.

The wife could retire at 54-11, controlling her pension money that will be split: 50% into a government-legislated Life Income Fund (LIF) and 50% into her RSP or Registered Income Fund (RIF), both invested through Pinkney Wealth.During those three years, we substantially increase their RSPs and future retirement income.

If you decide to retire before age 55, from Syncrude, Suncor or another employer who offers a “Defined Benefit Pension Plan”, your pension money must go into a Locked-In Retirement Account (LIRA) under Alberta legislation. (find out more on our LIRA page here: LINK) You can only access your Alberta pension funds before age 50 in serious situations such as extreme financial distress or a terminal health issue. Between ages 50 and 71, you can choose to activate your LIRA; in which case it is split 50-50 between an RSP or RIF, and a LIF.

The RSP portion can be co-mingled with your own RSPs and shifted into a RIF when you wish to turn it into an income stream. You decide how much you will take out per month or year. The amount you can draw from the LIF is set by the Government of Alberta. This ensures that it will last as long as you and (if you are married) your spouse are alive. Upon the death of the second of you, the remaining LIF balance goes to declared beneficiaries. The LIRA is desirable for this reason. It ensures that beneficiaries receive the balance of funds after the second death.