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Let me know if this sounds familiar…  you open the mail and there’s your annual  pension statement. It reads “if you retire at  age X, you can expect a monthly pension  of $Y.” After some quick mental math,  you realize that $Y isn’t going to quite be  enough for the retirement plans you have,  so you throw away the statement and  prepare for another year of work. 

But what if it didn’t have to be that way? What if you’ve  been focusing on the wrong number this whole time?  What if there was a way to “unlock” some of your  pension to fund the early years of your retirement? 

Pension “unlocking” is a very real thing. Instead of taking  the monthly annuity payment, you convert some or all of  the lump sum (commuted value) into a self-directed and managed account. The rules differ far too much from  province-to-province to address here, but the key point I want you to take away today is that you should be asking  the questions: “can I do it?” and “is it right for me?” 

Your first step is to understand if you can or can’t unlock  some of your pension. In Manitoba for example, our  provincial pension legislation allows for a one-time  unlocking of up to half of the pension proceeds into an  account called a “Prescribed Registered Retirement Income Fund” or PRRIF. If you understand the rules of  your province, you can move on to the next question.  Contact me for a list of provincial options depending on  where your pension is legislated. 

Is it right for you? This is a much harder question to  answer and unique to each family. All financial decisions  come with tradeoffs, pension unlocking being no  exception. Examining the pros and cons can help lead to  an informed decision:

Pros:  

• Unlimited access to a larger pool of money at the start  of your retirement. 

• Potential for higher retirement income than the annuity  payments if investment holdings perform well. 

• Flexibility to adjust, up and down, your taxable income  in retirement years. 

• Unused funds can be bequeathed to heirs, for a  potentially larger estate. 

Cons: 

• The funds need to be managed by yourself or a  professional (no longer “set and forget”). 

• Guaranteed income for life may be lost by poor  investment performance or overly-aggressive withdrawals. 

What kind of scenarios would you recommend a person  unlock their pension? Glad you asked! If you go into  retirement knowing you need higher income in the early  years (finish paying off debt, extensive travel, expensive  hobby, etc…), can handle the volatility that inherently  comes with investing, and have the self-discipline to only  take planned withdrawals and not splurge, unlocking your  pension may be right for you. If you want to leave more  money to your heirs, want to have more flexibility in your  retirement income, or simply want more control of your  retirement, unlocking your pension may be right for you. 

If you lose sleep over what financial markets do, find it  difficult to stick to a budget, or don’t want an active role  in income planning, you may be best to stick with a fixed  annuity plan.