A dash of cold water on my dreams of retirement

[Nuiloa]

I spoke to our HR retirement advisor yesterday and found out that my plans to retire on September 1st would be stupid. I'd totally forgotten about the severance payouts (in my case about $50K).

If I retire at the end of the calendar year, that severance will be added to my annual income, which will bump me up on the tax ladder. I'm already paying 40% - this would take me to nearly 50% and would essentially wipe out half of the severance.

If I wait until January, my income drops by 40% (pension), the tax rate on that amount drops to 30% and the severance will only bring the tax rate up to about 40%.

Sigh..... sorry about the whine.

 

[kombat]

What's a "pension?"

-Signed, a Gen-X'er

 

[martyb]

lol...it'll all be ok.....

 

[Alan]

At least you found out now, rather than after the event.

Since you've said that you enjoy your job, it should be no problem. Just take that dash of cold water and mix it with some single malt.

 

[67walkon]

Pension? We don't get no stinking pension. You've sorted it out, it will be fine.

 

[travelover]

That is actually kind of a nice problem to have........

 

[ziggy29]

That is actually kind of a nice problem to have........

Yeah, if I were in a position where I was fortunate enough to pay into a marginal rate of 40% or more -- and would pay into a 30% rate even into retirement -- I'd have already jumped ship.

What I don't understand is this: Severance in what sounds like a voluntary retirement on your own schedule? I'm puzzled.

 

[Alan]

What I don't understand is this: Severance in what sounds like a voluntary retirement on your own schedule? I'm puzzled.

I took this to mean a lump sum as part of the pension package, but if the company is asking for volunteers to retire early and not be on the payroll for 2012 then I can see them allowing folks to delay a few months.

 

[Nuiloa]

Yeah, if I were in a position where I was fortunate enough to pay into a marginal rate of 40% or more -- and would pay into a 30% rate even into retirement -- I'd have already jumped ship.

What I don't understand is this: Severance in what sounds like a voluntary retirement on your own schedule? I'm puzzled.

That's what our HR people call it - it's for people who are retiring. We get 40% of unused sick time (in my case 1190 hours) and a pay-out of 1 week for every 2 years of service (in my case, 26 years = 13 weeks). On top of that we get pay-out for unused vacation time (8 weeks/year). I will probably use up the vacation time and delay the pension.

My pension is based on the average of the 5 highest years of salary x 2% x years of service. By the time I retire, I will have 29 years in - so my pension will be 58% of my current salary.

Sweet deal, eh?

 

[Alan]

Sweet deal, eh?

The sweetest I've ever heard of. Congratulations.

 

[Nuiloa]

It gets better: we also get a "bridge benefit" which is an extra amount per month that is added to the pension from ages 60 to 65, to approximate the Canada Pension Plan. The bridge ends at 65 when CPP kicks in.

And we are allowed, at the time of retirement, to put an additional one-time $20K into a registered retirement plan (which defers taxes), on top of our annual yearly maximum. At least that saves the taxes on part of the severance.

Sometimes it's good to be a Canadian

 

[barnaby]

hi....just guessing but based on how juicy your retirement benefits will be, i figure you must work for the federal government. am i right

 

[Nuiloa]

Provincial

 

[Nuiloa]

Federal is much better. My sisters will get 100% of their salaries for life after they reach age 55.

 

[gettingthere]

Federal is much better. My sisters will get 100% of their salaries for life after they reach age 55.

Oh, Nuiloa I am so envious of your sister's retirement deal! Yours sounds pretty good, too!

 

[pb4uski]

Is it possible to retire in September and ask them defer paying you your "severance" payments until January 2013? If so, you might be able to have the best of both worlds.

Or stop working in October, take vacation through Jan 1, 2013 and then retire to push the severance income into 2013.

 

[Chuckanut]

These details are important to know ahead of time. I have heard some real horror stories of people who did not get the details correct and had problems. One fellow I know retired, but decided to delay benefits for a year since his wife was working and the delay would boost his monthly check. But he did not realize to buy into the medical plan one had to be getting a check. So he had several years of worry before medicare finally kicked in. Note: paid medical is not part of his plan, but he does have the opportunity to buy into the group plan at retirement if he pays 100% of the premium. Since he had pre-existing conditions, the group plan was the only one that covered his medical costs.

 

[chris2008]

It is a good problem to have... and to find out while you still can change your plans.
Would you feel better if you calculate your additional income per additional day of work, like a salary increase?

 

[Koolau]

Sometimes it's good to be a Canadian

And sometimes not, heh, heh:

Quote: If I retire at the end of the calendar year, that severance will be added to my annual income, which will bump me up on the tax ladder. I'm already paying 40% - this would take me to nearly 50% and would essentially wipe out half of the severance. End quote:

Now I see how you can have "free" healthcare.

YMMV

 

[NW-Bound]

The OP made me curious, so I had to check out the Canadian income tax system. See this.

The total of both Federal and Provincial taxes looks to be significantly higher than those of the US.

Yeah, if I were in a position where I was fortunate enough to pay into a marginal rate of 40% or more -- and would pay into a 30% rate even into retirement -- I'd have already jumped ship.

Well, I am not so sure, after seeing how high the taxes are up there. So, they take away nearly half of your income, then give back some to you for pension. In that light, not so good a deal. Of course, it would be a lot better to have a pension than not, in that system. For federal workers, 100% salary after age of 55! Son of a gun!

Now I see how you can have "free" healthcare.
YMMV

Kumquat, a Canadian, has made some comments about his free healthcare. Wonder where he has been?

What's happening here? Old-timers on this forum keep disappearing!

 

[REWahoo]

What's happening here? Old-timers on this forum keep disappearing!

Sounds like a great plot for a Sherlock Holmes mystery novel: "The Case of the Missing Posters"

 

[Cassius King]

Federal is much better. My sisters will get 100% of their salaries for life after they reach age 55.

Hasn't Canada learned anything from the US?! Do they want to put themselves in the same situation we are currently in? How do you pay someone 100% of their salary for the remainder of their life and not bankrupt the country?

 

[Meadbh]

There is some useful comparative tax information on the OECD website:

OECD Tax Database

Check out the Excel files in Section 3: Tax Burden on Wage Income.

 

[Huston55]

Sweet deal, eh?

Sweeeeeeeeeeeet!

That pension will certainly buy enough cookies to "shut that b*tch up.

 

[Huston55]

Hasn't Canada learned anything from the US?! Do they want to put themselves in the same situation we are currently in? How do you pay someone 100% of their salary for the remainder of their life and not bankrupt the country?

Looks like the answer is: take 40-50% of salary for 20-25 yrs and invest it; control health care costs; and don't spend a lot on national defense.