Q&A: How to manage retirement money

Question: I am 54 years old and I am retiring at the end of August. I will
be receiving my first pension cheque in September and I received a severance
of $129,000.

With this severance I am eligible to roll over at least $47,000 into an RRSP.
I have about $35,000 of unused deduction room for 2006. So about $82,000 can
be rolled over for the tax year of 2006, is that correct?

Can this money be put into a life income fund instead of an RRSP? I do not
have an RRSP at this time. I would like to withdraw money when needed. What are my options? – F.S.

Gordon Pape answers: Let’s start with the rollover. I can’t
say for sure whether your math is right but I can provide the information you
need to figure it out. You are entitled to roll over $2,000 for every year of
service prior to 1996, assuming you were vested in the company pension plan
the whole time. (If you weren’t, add $1,500 for each year before 1989 that you
were not in the plan.)

Your working years from 1996 on do not count towards the tax-free rollover.
However, you can use any available RRSP room to roll over additional money,
providing certain coditions are met. I suggest you try to find a copy of my
2004 Buyer’s Guide to RRSPs at your local library for complete details.

It’s not clear whether the $47,000 figure you mention relates to pre-1996
service. If it does then yes, your $35,000 in unused deduction room can be added
to that amount.

You absolutely do not want to put the money into a life income fund (LIF),
and fortunately you would not be allowed to do so anyway. LIFs are locked-in
plans that have all kinds of restrictions. There is nothing involved in opening
an RRSP; your bank can do it for you if you wish. That is definitely the way
to go and it will give you the flexibility to make withdrawals at any time.
Just remember that the money will be taxed when it comes out of the plan.

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