Yikes! Unplanned ER at 47 and moving to Canada!

[FlyingNorth]

Hi! I have found myself in an interesting situation and have discovered this board recently. I've found some great information already, and I'm hoping people here might be able to help me sort some things out.

After a couple years of seeking, my husband has accepted an offer to teach at a Canadian university (we currently live in the SF Bay Area, California). At the same time I was offered an early retirement package from my company. I would not have accepted the offer if his new position hadn't materialized, but in this case the time is right.

I am not financially ready to retire completely yet, but this move along with my retirement benefits will give me a welcome relief, both as a break from my IT career, and from the need to make as high a salary, so I should be able to "semi retire", do something part time, something other than IT, and perhaps something fun.

Our costs of living will be lower once we move; after selling our house here we should be able to buy something nice there with a minimal mortgage. We can probably live on his salary alone, but I still want to do something productive with my time and money.

Now my retirement benefit will be completely separate from my 401K and other investments. In a way this feels like "found money", since it was very unexpected. I have the option to take it as an annuity, which would be about $820 per month in USD. I could leave it in a retirement account up until I'm 70, or roll it over into an IRA. Or I could take it as a lump sum of about 164K. I would like to make this benefit be the source of a little income which would allow me to relax and "semi-retire". So my thoughts at first were to take the annuity. However, this would remain the same amount forever, and at my age I (hopefully) have a fairly long window of time ahead, and I'm sure inflation would eventually diminish its value.

Another thought I had was to take the lump sum (knowing that I would have to pay taxes on it all right away), and then invest it in something that could give increasing returns over the long term. Income property might be one option, or adding it to my existing investment portfolio.

Of course moving to Canada adds another layer of complexity to all this, which I have only started to investigate. I would be very appreciative of any input from people out there on any of this.

thanks!

Beth

 

[jdw_fire]

Welcome to the board FlyingNorth! To properly value the annuity we would need to know more, like your age and type of survivor benefits. If you left it in the retirement account what would it be invested in and is the company strong enough that you are sure it would still be there later? If it comes to taking a lump sum my first thought would be to roll it into an IRA but I have heard that residence of Canada don't get the same tax treatment of IRAs as do US residence, so this is something you need to look into. However, I don't like the idea of pulling it out and paying taxes on it.

 

[Nords]

Welcome to the board, Beth.

In general a lump sum gives you more choices, should you have the interest in exploring them and making the decisions. It also frees you from evaluating the quality of the company issuing the annuity. Since you could return to work and don't seem averse to it, you don't have much risk by taking a lump sum.

Have you read Bob Clyatt's "Work Less, Live More"?

 

[FlyingNorth]

Hi jdw_fire, I am 47, my husband is 48. For the annuity I could choose either sole lifetime benefits (for my lifetime only), or a 50% or 75% survivor benefit. Based on family history, general health, and the fact that I am a woman and he is a man, I am likely to live longer, but as always, anything can happen. My company is a "mega corp", has been around for decades and will probably be around after I am gone, but again, anything can happen. If I decided to leave the benefit for later, I would most likely put it in an IRA, but you're right that I need to research how that would be treated in Canada. thanks for your reply!

Nords, I am not averse at all to returning to work, and I do like the idea of being able to do something with the money that might have a better payoff as time goes along. I'll check out the book. thanks!

Beth

 

[Sam]

Another thought I had was to take the lump sum (knowing that I would have to pay taxes on it all right away)

Welcome, Beth.

The lump sum is about 16 times your annual benefit, which is quite good. But if you have to pay 25% or more on taxes, it does not look as appealing . Tough choice.

 

[FlyingNorth]

Thanks Sam, you're right, it is a tough choice. While the annuity or rollover would be "safer", and I wouldn't take as much of a tax hit, I guess the risk and taxes aren't bothering me as much as they normally might - this is money I didn't know I had until now. Hmm, what to do!

 

[Coach]

Beth, interesting dilemma!

I must admit it sounds tempting to me to just take the annuity now. As you say, it's "found money" that has never been part of your retirement planning, and you'd like to take some time off or work part time. I would think the annuity income would make that easier. Sure, it's value will evaporate over time, but if you've got a retirement plan that works without it, that's not really a problem.

It's a good situation in that I don't think there's a terrible choice, just several reasonable choices.

Have fun up North!

Coach

 

[Alan]

Welcome to the board Beth. Tough choice on annuity quesion which I won't attempt to answer

I just wanted to say that DW was in the same siuaion as you 3 years ago and at almost the same age (she is 51 now). I moved jobs suddenly to Texas and she quit her well paid IT job. She rolled her cash balance pension into her IRA so didn't face the same issue as you. Howver, she has loved ER, as have I. (enjoyed having an ER'd wife)

A few months she started working part time from home doing programming for her old company. Sent her a laptop etc. She only works a few hours a week, and it works great as she always enjoyed the job and liked her co-workers, but not for 40 hours a week with all the travel to/from work, limited vacation etc.

Do read Work Less, Live More, it is very good, and the author will be only too happy to exchange a few e-mails with you.

 

[FlyingNorth]

Thanks Alan, and congrats to your wife! If her IT career was as long as mine she well deserves her ER.

I could also roll this retirement payout into an IRA, or even into my 401K I believe, but I feel like I'd rather do something with it that would provide some income sooner, since this is such a "serendipitous" thing. I think my husband is happy about having an ER wife also. Somebody has to get us settled in Canada, do all the logistical stuff, get our daughter (9 yo) settled in school, etc, etc. He is going to be up to his neck in his new job, I know! And after several years of me being the breadwinner while he was in grad school and then looking for work, well, it could be nice to have the shoe on the other foot for a while.

I could also go back to my company after a time, but since this is a special early retirement program, with extra incentive payout, I can only go back after a year. That could happen, many at my company have done it.

I've already ordered "Work Less, Live More", it looks like it's right up my alley!

Beth

 

[steinj]

Hi FlyingNorth,

Welcome to Canada. I am Canadian, lived in the US for a few years, as well as Spain, then moved back to Canada. I know more than I ever wanted to know about cross border issues and am very familiar with the Canada/US tax treaty. The treaty allows you to keep your IRAs in the US while you are in Canada just like it allows Canadians to keep their RRSPs in Canada while living in the US. Likewise if your husband opens an RRSP in Canada (similar to US IRA), he can leave it here if you move back to the US and keep the investments tax deferred.


One consideration if you go the annuity route is that your annuity income will be taxed at the high Canadian tax rates.

Where are you moving to in Canada? Canada is a wonderful place to live.

JoJo

 

[FlyingNorth]

Thanks JoJo, that is all very good to know! We will be living in Toronto. I've been there several times, but not for about 15 years, and I expect it has changed alot in that time. We are all very excited about having a new place to explore!

Beth

 

[Meadbh]

Welcome to Canada, Beth!

Jojo is obviously the expert on tax treaties. As a Canadian resident you will be liable for tax on your worldwide income. Income tax rates are higher here than in the US. Income is taxed higher than dividends and the most favourable tax rates are on capital gains. Check out Walter Harder's marginal tax calculators to get an idea of how different cash flow streams will behave. For general information, you may want to browse the Service Canada website.

What does your DH do? If he is a professional (e.g lawyer, physician, engineer?) he may be able to incorporate his practice. This has significant tax advantages, including the fact that he may be able to "employ" you, e.g. to run the practice, and you would then pay tax at a low rate on that income.

There used to be a 15% differential in income between the US and Canada, but it is getting closer. Currently the economy here is healthy so you have a great opportunity to look around and see what interests you. I am presuming that your husband's employment offer comes with an agreement to sponsor him for landed immigrant status and that you will be able to work if you choose to. There is a smorgasborod to do in TO.

PS. With global warming, it's not as cold as it used to be!

Meadbh

 

[FlyingNorth]

Hi Meadbh, thanks for the links. these are really handy! We are prepared for the higher taxes in Canada, so it's great to get more information as we are able.

DH will be teaching at a University up there, and so qualifies as a "foreign academic". There is an agreement with NAFTA that will allow both of us to work right away, so that was really fortunate. I will be looking for something once the dust settles and we are more or less set up for housing, school, etc. Though this ER opportunity gives me lots more freedom, so I can work part time or do something different (22 years in IT are a lot!).

PS, I grew up in Western New York, so I am not unfamiliar with the weather in that area!

best,

Beth

 

[Alan]

I think my husband is happy about having an ER wife also. Somebody has to get us settled in Canada, do all the logistical stuff, get our daughter (9 yo) settled in school, etc, etc. He is going to be up to his neck in his new job, I know! And after several years of me being the breadwinner while he was in grad school and then looking for work, well, it could be nice to have the shoe on the other foot for a while.

I could also go back to my company after a time, but since this is a special early retirement program, with extra incentive payout, I can only go back after a year. That could happen, many at my company have done it.

Beth,

I'm sure your husband is going to love having you stay at home and look after all the important stuff, it is soooo important. My wife left work for 10 years to raise the children before going back to work. After she went back to work in 1992 I forgot how great it is to have her at home taking care of things and organizing everything from kids at college to our vacations and plans for when I finally retire.

Alan