I recently accepted a new position and have the opportunity to buy back up to 10 pensionable service years from other workplaces. When I left each of the other plans, I transferred the funds into Registered Retirement Savings Plans and Locked-in Retirement Accounts. This means I have a hodgepodge of accounts with different rules attached to them. The security of a pension is attractive and I have the resources to do this, but it\u2019s a big number and I wonder if it\u2019s worth it. I am 53 and single, so am solely responsible for my financial future. <\/p>\n
We asked Jillian Bryan, senior portfolio manager and senior investment adviser at TD Wealth Private Investment Advice, to answer this one.<\/p>\n
Ms. Bryan said she has guided dozens of clients facing the same crossroads. She suggested identifying the possible consequences before making a decision. <\/p>\n
The offer to buy back up to 10 years of pensionable service is attractive, she said, because it trades flexibility for a predictable, lifetime income. It also forces a real conversation about what you value most: certainty or control. <\/p>\n
\u201cYou can convert liquid savings, currently in RRSPs and LIRAs, into a pension promise that you cannot reverse and that you cannot access as a lump sum,\u201d she said. <\/p>\n
The question is whether that promise, which often includes inflation protection and longevity insurance, is worth the upfront cost when compared with keeping the assets invested in accounts you control. <\/p>\n
The \u2018singles tax\u2019 of going it alone on saving for retirement<\/a><\/p>\n When you are single, guaranteed lifetime income has outsized value. \u201cThere is no partner to smooth cash flow, and longevity risk becomes, as you said yourself, purely your responsibility,\u201d Ms. Bryan said. But pensions that offer indexing reduce the risk of outliving your savings, she added. <\/p>\n \u201cOn the other hand, locking funds into a plan reduces flexibility to respond to emergencies or opportunities and may limit what you can leave to heirs. That is why these types of decisions are rarely purely financial,\u201d she said. <\/p>\n Ms. Bryan suggested these three steps:<\/p>\n Get the facts from your pension administrator. Request a written buyback cost estimate and a projection of your pension at retirement both with and without the buyback.Calculate the implied return. A useful benchmark is whether the buyback generates an effective, inflation-adjusted yield in the 4- to 6-per-cent range on an actuarial basis. If the implied yield is within or above that range, the pension will likely outperform a conservative investment outcome for someone in their 50s who values income certainty. If it is well below that range, the pension may be less attractive purely on return grounds.Confirm tax treatment and funding mechanics. Ask whether you can transfer RRSP or LIRA funds directly to the plan to avoid immediate tax.<\/p>\n She recommended analyzing different scenarios with a qualified financial adviser. <\/p>\n \u201cModel a range of market returns, inflation rates and lifespans. Include worst case, base case and optimistic case scenarios,\u201d she said. Ms. Bryan also advised paying particular attention to the longevity and liquidity outcomes: How long must you live for the buyback to have outperformed keeping the funds invested?<\/p>\n \u201cThe security provided by a pension often reduces the mental burden of financial planning and makes practical choices in retirement simpler,\u201d Ms. Bryan said. \u201cThat is not a small benefit.\u201d<\/p>\n