Alright, folks, let's talk about what I like to call the "golden handcuffs" – also known as a pension plan. Now, I know that many companies offer some pretty enticing pension plans. These plans should be one of the first things you consider when deciding where to invest your hard-earned money. Why? Because they give you access to additional funds, especially if your company offers a matching contribution. Translation: that $5,000you invest becomes $10,000 right off the bat, even before any investment growth kicks in. And when you factor in those investment returns, your pension plan can really take off and provide you with a nice income when you're ready to hang up that suit.
But here's the thing – what happens if you decide to leave that job and take a position elsewhere? What are your options when it comes to your pension? The first thing to remember is you do not lose the money! Yes, depending on the plan and how long you have been with the company maybe some money will not go with you. Yet, for the most part its yours so don’t forget it!
Well, if your new position also offers a pension plan, you might have the option to transfer your existing pension over. The process itself is pretty straightforward. Your old employer will provide you with some simple paperwork to fill out, and once you've submitted it, the money should smoothly move over. Now, I'd advise you to double-check the rules surrounding this because not all pension plans are created equal. Some are defined benefit plans, while others are defined contribution plans. This means that you might not be able to transfer your pension automatically. It's worth taking a closer look to ensure everything goes according to plan.
Another choice you have is to transfer that money out to a locked-in retirement account, or LIRA. Think of it as a cousin to the registered retirement savings plan (RRSP). Your money will stay invested and continue to grow while it patiently waits for your retirement. The main difference between an RRSP and LIRA is that a LIRA is locked in. Translation: you won't be able to access that money until you reach the ripe age of 55. But hey, since that money is earmarked for your retirement, it's not such a bad thing after all.
Now, let's consider the last option – if you have a defined contribution plan, you can take the money and dash. Yup, you can withdraw all that money and transfer it to your savings account. Just keep in mind that any income from that withdrawal will be taxed at your current tax rate. So depending on the amount of money in your pension plan, you might end up handing over a big chunk of cash to the taxman.
Here's the thing you need to remember throughout this whole process – there are time limits to make your decision. Typically, there's a90-day window to take action. If you don't submit the necessary paperwork, your defined benefit plan will turn into a deferred pension plan, and it will continue to invest with the current company. Don't let this decision slip through the cracks. This money is a crucial part of your investment strategy, so don't forget about it. Otherwise, you could be leaving a whole lot of money on the table.
I am sure now that you know your options, you are expecting me to tell you which one you should choose. Guess what I cant. Know why, because everyone's choice is going to be different based on what they want to achieve. There is no, here is the answer you have been asking for. Not unless we talk can I help you make a decision that is best for you. Book a free chat with me. Let's cut through the complexities and get you started on the path to financial success. Together, we've got this.
