How to Invest If You Have a Defined Benefit Pension

Learn the best way to invest if you have a Defined Benefit Pension Plan.
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DISCLAIMER: All content being published on this platform are for informational and entertainment purposes only, and do not constitute formal financial, accounting, nor legal advice. Kent Tilley does not hold formal education nor registry to be held accountable for any professional recommendations - those in need of formal financial advice/ planning must seek help from licensed professionals. Kent takes pride in the sense of freedom, satisfaction, fulfillment, and empowerment that financial competence that he has built through conscious management of his family’s money. With this, there is no guarantee that the overall content found here are appropriate or applicable for every individual. By proceeding, you agree to hold Kent harmless from any ramifications, financial or otherwise, that may occur to you by acting upon the information found on this platform.

[@larriveeman]

And as a retired fed you also pay your health insurance premium the same as when you were working, which is a huge benefit

[@JK-rv9tp]

I have a DB pension but it's a typical private sector pension, basically a fixed annuity. Only government employees get uncapped indexed pensions. So my fixed pension is shrinking. For CPP/OAS, I'm deferring those until age 70 to make the gov't gauranteed fully indexed pension as large a part of my income as possible. I've set aside the cash in an EQ Bank RSP account to bridge the Age 70 CPP/OAS amount between age 65 and 70, allowing for 5% inflation adjustments in the total amount set aside. I also have an RSP/LIF self directed portfolio that earns about 9-10 points overall and streams about 6-7% in cash flow. My investment cash flow is about 1/4 of the total (half is age-70 based CPP/OAS and another quarter the DB pension). It's in REITs, MICs, utilities, royalties, income producing gold, etc. All hard asset cash flow investments. No vapour. The cash flow can be expected to be pretty reliable and grow with inflation, so only about a quarter of my income stream is actually fixed income. Currently my LIF in June is down only about 3% from its peak.

[@RosamilaAngeles]

Great info Kent! When time permits, can you please restart this professional series and do one for nurses? Thanks in advance!

[@kenbarthSimAV8tor]

Since my stroke in 2019 I had not been contributing to my defined benefit pension plan so they required me to do something so I withdrew and put in GICs until I begin to draw on the funds to supplement my CPP Disability each month; I also can draw on my RRSP gradually

[@atw624]

Thank you so much Kent! I found your channel through Parallel Wealth and I am so glad I did. This is exactly the information I was looking for. Finding information for those of us who have these pensions and personal investing advice is very hard. I am also a teacher and as someone with a DBP I have been trying to sort out my risk tolerance in my TFSA and RRSP and this has helped clarify that I can take more risk on my personal end of investing. Your video was so clear showing the pension as an RRSP. It also helped me understand my pension and see it as more than a monthly deduction on my pay stub and annual statement of what I will receive when I retire and more as what I needed to see it as. I look forward to more videos and investment advice for those with a DBP. Thank you!

[@K4Financial]

You’re very welcome. Glad it was helpful 😊

[@kay203]

I'm putting 100% into stocks (VTI 80% +VXUS 20%). My pension plan is fairly strong, so I can be a bit more aggressive in my investing.

[@medwayhistory3101]

I have less than six years until a fully defined pension plan with OTPP at what will be age 55. I currently have topped up my TFSA and RSP contributions and am focusing on a non-registered account until more contribution room be comes available in the registered accounts. I plan to pay off the mortgage on my home by the end of 2025 when my current 1.86% rate expires. I regret not investing earlier and more aggressively but I know that I am in a good financial position compared to others my age. Thanks for the information and encouragement!

[@K4Financial]

Sounds like you are in great shape, so I certainly wouldn’t worry about not having invested earlier

[@jovicrazed]

So glad that I found your channel. Love the Oilers skull.

[@maxpayne7419]

Kent, you do a fantastic job 👍. You have an excellent grasp of financial planning. Thanks for the great content.

[@K4Financial]

Thanks Max

[@navidali9723]

Kent, can you recommend a custodian with low or no management fees?

[@DavincisGirl66]

I love your comment about your wife the teacher's risk tolerance. Me too but I had to force myself out of it. I look forward to watching your teacher plan focused video.

[@K4Financial]

I’ll finally get around to filming it this week. It’s definitely a pretty normal thing for teachers to avoid risk at all costs.

[@allison_in_canada]

I just wanted to thank you for making this video. 👊🤗

[@K4Financial]

You’re welcome. Thanks for watching 😊

[@ILWU4Ever2024]

Thank you for the advice and logical approach to investing. Good job! 👍

[@K4Financial]

You’re very welcome. Thanks for the support

[@ib516]

Thank you so much for sharing your knowledge Kent.

[@K4Financial]

Happy to do it. Thanks for watching and commenting.

[@LoftyEscapes]

Interesting video Kent. I always wondered if I should contribute to RRSP while having a DBP as I would end up paying too much tax. My plan is to retire at 60 and start using the RRSP money first, defer CPP till 70. Can you also defer DBP if you stop working at 60?

[@K4Financial]

You can never go wrong with the TFSA if those aren’t maxed out. Doubtful that you can delay the pension. Sometimes you have the option to convert it, which opens flexibility, but likely increases risk. RRSP still probably works if you utilize the return properly.

[@LoftyEscapes]

@@K4Financial The reason I am using RRSP over TFSA is because of the company bonus system that allows me to contribute the whole amount in RRSP then use the tax return for paying debt or TFSA in the future. 15k bonus -> RRSP + 6k return -> tfsa vs 7.5k into tfsa only. Have you considered making a video about bonus and RRSP / tfsa ?

[@paulpoco22]

So the 55/60/65 equivalent pension, does that take into account that the longer you stay the more your pension payment will be every month?

[@K4Financial]

I’m not sure I understand the question. I’ll see if I can answer what I think you’re asking. It is accounted for, but it’s not. You’d know that a pension might pay $2,000/month at 55 and $2,500/month at 60, so you just have to work backwards. Point being is that regardless of it all, they’re all equivalent to a very healthy RRSP

[@kitty4tify]

I’m not ready to retire and the amount of the pension seems lower the longer you’re in a defined pension.

[@GT-tm1ft]

@@kitty4tify just found this video, thus my late reply. If you start your pension earlier (ie: at age 55) it will be less per month than if you worked until say, 60. However, your total lifetime income from pension increases the longer you live. Live a long time, collect more overall. Die sooner, not so much. It really boils down to knowing how much money you need per month in retirement, then retiring when you reach that goal and hope you don't die early.

[@chelseas8791]

I'm late 30s, paying into a DB plan but won't be here nearly long enough to collect the full value because I'm intending to retire/semi retire pretty early. Would love a video on pros/cons on taking commuted values or leaving small pensions in the plan for folks who won't be in a job long enough to maximize pension benefit!

[@K4Financial]

I have a video or two somewhere. Think one might be called, “Learning About LIRAs.” In the end, it comes down to the math and a few other factors. Generally, if you have time on your side, it usually makes sense to take the commuted value and as you get closer to retirement, that benefit gets smaller. If you go to an advisor to talk about it, make sure they’re not giving you projections based on high returns, because it’s a sales tactic and not a realistic comparison. They’re obviously incentivized to get you to choose the option of investing the money rather than keeping it in the plan and I’ve seen some pretty outrageous stuff. I’ll do up a new video on pensions soon.

[@paulpoco22]

So DB plus full CPP plus 2 x OAS means you have it made? I watched yours and Parallel Wealth fee for service and Parallel Weath doesn't take clients less that 500,000 aum. How does long distance clients work? We are DIY investors with not lots of RRSP or TFSA, maybe one years wage household income.

[@K4Financial]

Pretty much if you have those things. You’re definitely doing better than most. We do everything via email, phone and Zoom.

[@caperboy1169]

I’m lucky because I don’t pay anything into my pension plan . I have a good chunk of RRSP as well

[@ather1276]

Did you just say live until 120?

[@bahijarhafiri]

I began my investment journey at the age of 33, primarily through hard work and dedication. Now at the age of 38, I am thrilled to share that my passive income exceeded $100k in a single month for the first time. This success reinforces the importance of the advice mentioned earlier. It is not about achieving quick wealth, but rather ensuring long-term financial prosperity.

[@caperboy1169]

I have a union pension .I haven’t paid a penny of my own in that pension.

[@blongshanks77]

Same here ! 17 years as part of a Union, and never put my own money into the pension. When I retire, I’ll get the pension payout, and medical coverage for the rest of my life.

[@caperboy1169]

@@blongshanks77 ours is a defined pension. We get it monthly for the rest of our life and then the spouse gets it

[@blongshanks77]

@@caperboy1169 Gotta love our Union jobs! Wish there was more Union representation for all workers.

[@samspade1841]

If you die early and don’t collect your pension for a longer period you don’t really lose anything. Your dead and it doesn’t matter. If you live a long time having a good retirement income is important to provide best outcome when your older. Delaying CPP and increasing that payout can provide that extra security. Don’t care if I die early and don’t get full benefit. But if I live a long time I’ll be happy I did delay. DBP allows for that strategy and drawing down RSP early.

[@johnnyboyvan]

Lol...120!! Average age before your demise is the early 80s.

[@paulpoco22]

I joke with my Wife that because of the DB pension plan and the smaller size of the RRSP that will be enough to pay Extended Health in retirement.

[@BarnabyBarry]

Move to California or have your kids move and get a state or city job and receive approximately 75-90% of your pay annually (if you work 30 plus years) as a pension. with cola for life! You can work for the state in every type of career from police officer to carpenter to secretary to physician to custodian! Unless Hollywood or Disneyland closes your pension will probably pay out! My kids have been warned!

[@joevenuto587]

Long time fan K4, but I am confused by the Video. I have cone to know a Defined Pension plan to be owned and managed by my employer's custodian, they invest, they define the benefit, its lights out for me. Outside of that vehicle, I am accustomed to owning, investing and managing my own RRSP. Your video seems to not distinguish between the two and seems to describe the Defined Benefit plan as an RRSP that the individual manages and as you indicate needs to understand Risk tolerance. I am not sure why your definition of Defined Benefit plan was presented here as an RRSP ? Thanks Ken and love the content !!!

[@K4Financial]

It is independently managed. I was just attempting to show what the value of an equivalent RRSP would roughly be if you didn’t have a pension plan, but had an RRSP that you expected to pay you “x” per month for “x” number of years. If you then look at that as an asset compared to your own RRSP, it’s probably much larger and you know the pension is quite safe, so it may allow you to become comfortable with more risk within your RRSP. Hope that clears it up a bit.

[@joevenuto587]

@@K4Financial Thanks Ken, that's why I tuned in and agree. If one has a Defined Benefit plan and an RRSP, yes you can take a little more RISK on your RRSP, because your safety net is the DBP.

[@tomcooper2449]

Excellent explanation. Great video.

[@K4Financial]

Thanks.

[@jagjitparhar214]

Perfectly explained. Personally I’m a risk taker and figure over time I will come out way ahead. But I never thought of it like you laid it out. I am lucky to have a pension plan through work and should be making max CPP and OAS. I will berate my family who are in similar positions. But even if your not if your sitting in bonds or GIC’s your out to lunch. Just my humble opinion. Thanks Kent

[@murraytown4]

I tend to agree...only to a point. I’ve a relatively handsome DB plan. However, much depends on your time horizon. My TSFA will be for large scale purchases (home renos, new vehicle etc.). I live in a condo but if I needed a new roof on a house all of a sudden, you cannot plan for that, so a TSFA weighted heavily in equities in the 2022 market would be ill advised. IMHO

[@K4Financial]

Oh yeah, in the case of an emergency type fund that has a shorter time horizon, you should never take much risk. Definitely wasn’t what I was referring to

[@paulchisholm66]

Have you done the professional series that you spoke about here? kzbin.info/www/bejne/fXrSnmyoa7WGoZo

[@K4Financial]

Not yet. Going to film the first one this week

[@paulchisholm66]

@@K4Financial Thank you. Have a great day.

[@Andrew-je8fm]

Thanks for the video. I had wondered what would be best for my wife who has a pension plan. I’m managing her tfsa so it’s all stocks. What you described sounds accurate for her.

[@rickjunior6478]

Is there anyone that have Defined Benefit Plan that is not in Government?

[@K4Financial]

They exist. Not as much anymore. Lots of unions have pension plans still, like members of a trade union.

[@terrygelinas4593]

They still exist with some private companies (e.g. large corporations), but not as many as before. Companies now prefer DC (Defined Contribution) over DB, because of financial liability.

[@grahamr939]

Interesting video Kent. I am in a similar situation with a DB plan. I contributor to RRSP and put the tax return into my TFSA. I am more of a risk taker but try to invest in stable companies that may or may not pay dividends.

[@K4Financial]

By risk, that’s all I was really suggesting. I think it’s a good long term strategy

[@91rss]

as you know pensions get clawed back at age 65 from 2% of best 5 to 1.3% Unless your a politician or judge, on a lot of govt work pensions.

[@K4Financial]

Which pension plans do this? Don’t recall ever seeing this. More often, they may be bridged until 65 and the pensioner collects CPP.

[@smallmj2886]

My wife's pension is 2% of best five, but after 65 the calculations include CPP/OAS in that 2%. Whether it is a clawback after 65 or a extra bridge benefit before 65 depends on your point of view.

[@91rss]

@@K4Financial yes bridges till 65 then drops to the 1.3% is what I was told

[@K4Financial]

@@91rss guess I see it the opposite way. It’s enhanced until 65, which is a great benefit that allows members of DB plans to retire much earlier than most with way more money.

[@91rss]

@@K4Financial Def a bonus, knew someone that was at a 30 and out employer, retired at 49. Forces were good I heard at 25 and out. many returned to the same spot they retired on the following Monday, at as a contractor, Plans I heard of Gov;t wise, have clauses regarding cost of living increases tied to plan health, so know teachers that havent seen a raise in a decade. and health is only reviewed every 5 yrs. know of also where Govt was supposed to be making their contributions and they werent, and were caught by the employee reps on the pension fund they had to fight for to get on. Govt owes millions now . Out east in Nova Scotia, Dr's caught the govt not making contributions as well we read about.