As one of our province’s largest employers, Manitoba Hydro hires and retires a tremendous number of individuals every year. It’s no wonder the Crown Corporation is able attract new employees with their flexible work schedules (“Hydro Mondays” are a wonderful thing), competitive wages and extensive benefits package. After a long career working with Manitoba Hydro, the transition to retirement can be daunting if you don’t know what to expect. To better prepare for life after Hydro, consider taking these proactive initiatives to save yourself time, money and headaches:
Save Some Retirement Money on Your Own: Manitoba Hydro’s defined benefit pension program is a key cornerstone to any employee’s retirement plan. The key is that it is meant to be a “cornerstone” and not the “foundation, walls, window and ceiling!” Defined benefit pensions are fantastic, but they can feel restrictive in retirement when it’s your only source of income. If you want to take a tropical vacation, put a down payment on a new truck, or renovate your home, you can’t simply dip into your pension to do so.
Consider supplementing your retirement by directing some personal retirement savings into other vehicles, like a Tax Free Savings Account. This will generate a tax-advantaged pot of money you can access as needed, so you aren’t stuck trying to budget and save for larger retirement expenses, in retirement.
Create an Estate Plan BEFORE Retiring: If you have a multi-decade career with Manitoba Hydro, your pension may be the single largest asset you ever create. It’s not uncommon for seasoned employees to have pensions in the high-six or low-seven figures. That pension is, without a doubt, a significant asset for both you and your family. So how would you feel if you passed away suddenly, early on in your retirement, and your family never received another dime from your pension? Or how would you feel if you passed away and Canada Revenue Agency was cut a bigger cheque than your children?
Those are both very real scenarios that can occur if your estate affairs are not in order. Some truly monumental errors in estate planning can’t be undone if you make the wrong choices the day you submit your retirement notice. If you have a spouse, children, or charity you care about, don’t procrastinate on meeting with a Financial Planner and an estate lawyer to devise a strategy that keeps your money where you want it.
Calculate The Taxes: Income tax has a unique ability to appear without warning and disrupt your retirement plans in a number of ways. If you are thinking of commuting your pension into a lump sum, a significant portion may be taxable in the year you do so if you’re not prepared. If your pension income stream is significant, and you start layering on income from Canada Pension Plan (CPP), Old Age Security (OAS) and Registered Retirement Savings Plans (RRSPs), you could find yourself in an unenviable position of high income tax bills or even facing your OAS benefits being clawed back.
Your pension plan does create opportunities for positive tax planning strategies, like splitting pension income with a spouse or claiming the Pension Income Tax Credit. What’s important is that you plan for optimizing the tax efficiency of your retirement plans early, so you’re prepared to make the right moves when the time comes.
Manitoba Hydro offers many, many benefits to their employees; but a fully planned retirement and legacy are responsibilities of the employees themselves. Take some time to be proactive in your plans and you’ll find the right paths to getting the most out of your retirement!
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