Q&A: What to do about pension?

Question: I am a 56-year-old woman recently retired and have to decide what
to do with my pension from a large bank. Option 1 is either to take my pension
now at a reduced amount or wait until 62 and take my full pension. With this
option my spouse will receive 60 per cent of the monthly pension upon my death.

The other option I am considering is taking my pension and transferring the
commuted value of $152,000 to a locked-in RRSP of my choice and then converting
into a LIF.

The reason I am considering transferring my funds out of my pension is because
my spouse does not have any pension and will only received 60 per cent from
my pension but would be entitled to 100 per cent if he was the beneficiary of
my LIF.

I will probably need to start taking my pension now or, if in a LIF, start to
withdraw immediately.

What is the better option? If it decide to manage the funds myself what would
be a good investment strategy? – N. B.

Gordon Pape’s answer: As a general rule, I advise people to
choose a pension instead of moving the assets to a locked-in account because
of the certainty the pensionoffers. Many folks in your position know very little
about investing and therefore risk seeing the RRSP or LIF underperform or, worse,
lose money.

Your concern about your spouse is valid but the odds are that you will outlive
him so you may be placing too much emphasis on it.

You don’t say how much you would receive from your pension. The commuted
value of $152,000 invested to earn 8 per cent annually (which is about the maximum
you should aim for) would generate $12,160 a year or a little over $1,000 a
month. Compare that to the amount you will receive by drawing the pension and
it may make the decision easier.

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