Retirement planning: Take the commuted value of my pension?

Today’s session is all about helping your clients retire with confidence.

We are going to address the retirement planning question, “Is it better to take the commuted value of my pension?”

Your clients have important financial questions that require personalized answers and recommendations.

For example:

1. Should they purchase Corporately Owned Life Insurance?
2. How can they reduce OAS clawback?
3. Can they afford to retire earlier?
4. Is it better to take monthly payments for a Defined Benefit Pension Plan or take the commuted value now?

As always, the only correct answer is—it depends!

As the Advisor, you can provide truly personalized advice that leads to optimal client outcomes by building multiple what-if scenarios to compare options.

During this retirement planning tutorial that was specifically designed for Canadian Advisors, you will get to see how quickly we can build multiple plans, compare them, and then ultimately use this functionality to highlight the net difference between where we started and where we’re going.

This is how you, as the Advisor, can not only improve your client’s outcome but easily demonstrate the value of working together.

This is a highly flexible module that allows you to pick which metrics you wish to compare and highlight. It allows you to change the timeline of your comparisons and you can visually compare metrics with additional charts.

Everything we are doing here is with the underlying goal of optimizing the client’s outcome.

From scratch, we are going to build a projection with a Defined Benefit Pension Plan. We’ll create a second scenario that models taking the commuted value instead, to compare the scenarios across a range of important and customizable metrics.

We’ll also evaluate the exposure each projection has to market volatility to help create the most informed comparison possible.

Once the client is confident with an approach, we’ll provide a digestible and actionable report to help them move forward.

Watch the retirement planning tutorial now

 

Specific client questions addressed

Lorene’s questions

1. Am I on track for retirement if I receive my monthly pension payments?
2. Does taking the commuted value improve my retirement readiness?
3. How much can I spend in retirement to minimize the risk of running out of money?
4. What happens if markets perform worse than expected?

Data entry details for the Case Study

1. Client
   1. Lorene Alvarado
   2. Age: 62 (1963-01-01)
   3. Province: Ontario
2. General
   1. Start Year: 2025
   2. Retirement Age 63
   3. Projections until Age 100
   4. Rates of return as 1%, 2%, 5%
3. Expenses
   1. Base Expenses of $60K
   2. Plus Additional Travel of $10,000 from 63 to 74.
4. Incomes
   1. $120K salary
   2. Pension starts at 63, $42,000 then $35,000 with 1.5% indexing (70% COLA guarantee).
5. Assets
   1. Savings $25K 100% Cash
   2. TFSA $140K at 40% / 60%
   3. RRSP $320K at 40% / 60%
   4. TFSA Contribution room of $7,000
   5. RRSP Contribution room of $120K
   6. Home worth $750K with $400K cost
6. Debts
   1. No mortgage
7. Gov’t Benefits
   1. We’ll change the CPP Start Age to 65 and set the Percent of Maximum to 85%.
   2. OAS we’ll leave as 65 and 100%.
8. Additional contributions
   1. $7K to TFSA
   2. $20K to RRSP

List of plans to create:

1. Scenario 1 with the DBPP
2. Scenario 2 with the commuted value
   1. Compare scenarios 1 and 2 for the Estate After Tax chart
3. Scenario 3 with DBPP and Randomized Returns
4. Scenario 4 with commuted value and Randomized Returns
   1. Discuss the variability in outcomes between the plans (e.g., show how much the Sustainable Spending changes with each subsequent run
   2. Select the plan for (1 or 2) to recommend and create a Snapshot for it

5 powerful planning modules explained

We’ve put together a review of the most powerful planning modules that were included during the lesson.

1. Compare Scenarios with customized metrics and timelines.

2. Instantly answer questions and provide options with Automated Recommendations.

3. Apply Randomized or Historical rates of return and inflation to Stress Test your projections.

4. Instantly create a 1 or 2 page SnapShot report from your projections.

5. From the Q&A portion of the session: is there a Corporate planning module? Yes, there sure is.

Advisors can start a Free Trial

Want to follow along in the software for yourself? Canadian Financial Planners, Advisors, and Wealth Managers are invited to start a 14-day Free Trial of Snap Projections financial planning software.