The Worst Defined Benefit Pension Plan Mistake You Can Make

if you're watching this video and you have a bridge benefit on a different benefit Pension Plan you're using it wrong and in this video I want to walk through kind of five strategies and reasons why you're using it wrong and how to use it correctly going forward a bridge benefit is just that it's a benefit that's attached to a defined benefit pension plan for anyone that is part of a defined benefit plan at their work so if you have a defined benefit pension plan that you're paying into if you retire before 65 the likelihood is you'll have this thing called a bridge benefit and this is a monthly amount it goes alongside your regular benefit so let's say your pension is two thousand dollars a month you might get an additional 500 a month for a total of twenty five hundred dollars a month all the way till age 65 but at 65 your Bridge benefit drops off so typically this bridge benefit covers you from date of retirement until 65. now this was put in place originally to kind of offset the timeline between when you retire and age 65 when your CPP and old age security kick in so it's kind of an idea of look we're going to get keep you up to the same income so when you hit 65 there's not this big bump we're going to kind of try and keep it as level as possible so naturally what most of you will do is well my bridge benefit's gone so now I start my government benefits and that is the wrong decision so let's talk about how a bridge benefit works again it goes back to eligibility are you eligible for a bridge benefit well the first box to check is do you have a defined benefit pension plan if yes then move to step two and that is typically talk to your HR department is there going to be a bridge benefit do I have to work here for so many years or to until a certain age to qualify for this so if you're part of a defined benefit pension plan or maybe you know someone that is make sure they understand are they eligible for bridge benefit and what are the rules around that step two is if you qualify so you check the boxes and you do qualify again typically that bridge benefit is a monthly benefit paid to you from the data retirement until you qualify for CPP or qpp typically age 65. so this alone we've had clients that retire in their late 40s have a bridge benefit that is paid out all the way to age 65 at age 65 that bridge benefit stops so you continue to get your regular pension benefit but that additional Bridge benefit will stop at age 65 again is typically in line with CPP qpp now it'll be interesting if we ever get a bump in CPP and qpp start point to 67 which I doubt we will but if it ever does will Bridge benefit also increase as well something for discussion maybe that'll never happen but maybe down the road it does as the government talks about kind of bumping retirement required Rift withdrawals OAS CPP these are all discussions that have been happening for years I doubt it'll go forward but for now Bridge benefit ones from when you retire all the way until age 65. now the calculation of your Bridge benefit is kind of like the calculation of your main pension in that it depends income how long you've been there your age there's a lot of factors that play into it a lot of you that have a defined benefit pension plan will also have a calculator an online calculator that you can go to and run through these case scenarios and it'll show you your Bridge benefit so if you have a defined benefit Pension Plan make sure you have online access to your calculator and your financial planner will need numbers around this as well so you're going to have to run some scenarios as you build out your financial plan with your plan so make sure you have hey if I retire 55 or 58 or 62 like hey what's my pension but B what is my bridge benefit how much is going to be provided to me in a temporary income solution now before I jump into how to kind of utilize your Bridge benefit CPP and timing a little bit better I just want to remind you that we are supporting move for freedom and this is a fundraiser put on by Ally Global Ally is one of the fastest growing fundraising and charitable organizations here in Canada and a good friend of mine Randy Watson we did an interview with him not long ago we'll link that up above they're doing a fundraiser for sex trafficking so what Ally Global does is both locally and globally is reach these people bring them in support them get them back on their feet and they have a full kind of recovery program so it's not just rescue but it's also recovery you can learn all about them in our video that we did with Randy we are looking to raise ten thousand dollars for this cause this is not money for us or for Randy it's for the cause and all that money goes out into the field to help these people that are or kids really that are less fortunate that have been put in a tough position so if you're looking to support a great cause you get a taxable receipt for your donation uh we'll put the link below you can learn about that support our team or you can even join our team start your own team the idea here is to raise money but also to raise awareness so I just want to put that out there and if you feel like you want to support either financially or getting involved we would really appreciate that so for those of you that have a bridge benefit here's my kind of two cents to you and here's this is based off 20 years of experience of working with people with Bridge benefits and the number one feedback I get is Adam when I turn 65 my bridge benefit's gone and I have to take my CPP I have to take my OAS and that is absolutely false and for a lot of you that have this bridge benefit what you want to be doing is let's say your pension is 2 000 and your Bridge benefit is 500 a month so it's a nice little income coming in and you're worried about look at 65 I'm going to be reduced by 500 like I need that money so of course I'm going to start CPP and OAS so for a lot of you where you need to look first is do you have an rrsp or a riff at that point you could start drawing down your Rift delay that CPP delay that OAS now in my scenario that I'm talking about here that 500 dollars well that could drop and you could start if you've been in Canada for long enough you can start your old age security and that's going to roughly replace that 500 a month but do you need to start CPP the answer is no you don't have to you can still defer that CPP longer there's the odd benefit Bridge benefit out there where it's kind of mingled in there if you have one of those it's a little bit different talk to your HR department but for most of you your Bridge benefit and your CPP are two totally different benefits like those aren't tied together and for most of you you think they are the bridge benefit and CPP are like this and they're like this one goes it stops and for most of you start that other one and you shouldn't delay that CPP the financial benefit is there unless you have a health issue you should be looking to defer that and there's kind of a double benefit here the first benefit is you get 0.7 per month for every month that you defer that CPP so if you're looking for a guaranteed 8.4 percent rate of return in essence look to defer your CPP the second thing you're doing in second benefit and tax benefit to you would be we can start drawing out your riff your rrsp start drawing them out you have five years now from 65 to 70 where you don't have that bridge you've deferred that CPP where does that income come from hopefully you've built up a bit of an rrsp and you can draw out of the Riff in that time frame and that allows you now we've drawn out of the Riff so we've reduced that tax burden at death if there ever was one either eliminated it or reduced it substantially and then when you hit 70 you scale back on your riff and you ramp up or start your CPP so this is kind of the flow of things so if you have a defined benefit if you have a bridge benefit you need to make sure you understand how these things work how they come together and how to maximize your benefit too many of you are just kind of doing things because that's what your co-worker did or your neighbor did or your family member did don't follow those around you that have no Financial Training or have gone through this modeling with their plan okay understand again if I had a bridge benefit if I was you watching this video and I didn't know what to do here's what I would ask my planner I'd say first off I'd say if I lose my bridge benefit at 65 and start CPP in OAS I kind of have my other tfsa and riff and all that like what does retirement look like now what does retirement look like if I defer my CPP and kind of more aggressively draw my ref like how much income tax is a state all of this can I delay my OAS is that worth it what's the difference between 65 and 70. if your financial planner is not running kind of apples to apples Like A to B as far as take it at 65 take it at 70 here's strategy in between you're not getting a proper financial plan you need to then change your planner push back on your planner do what you need to do we offer fee for service financial planning so if you've never had what I'm talking about right now reach out to our office this is what we do for our clients we look at like what strategy makes the most sense for you and then we go through it with you and show you why you're doing certain things right every thing I do every single number thing I do in my life I need to know why I'm doing it and this is a just financial plan drives my wife crazy but I need to know like why am I doing this what's the end result what's the end benefit is there another way to do it that would get me there quicker better more efficient whatever it is and my last tip for you in all of this is make sure your average or your effective tax rate in retirement stays very level and so when you talk about Bridge benefit we've talked about yeah it goes to 65 it drops off what to do then but if you're retiring earlier you might want to start taking out a bit of Riff as well you might want to start drawing down that a little bit earlier or take other types of income everyone's going to have kind of different buckets of income but from the date of your your retirement to life expectancy you want that average tax rate to be quite level and for most of you your tax rate goes like this in retirement and that's a really bad plan so it's something that you need to fix today

Channel: Parallel Wealth

Views: 25,248

Keywords: Financial Planning, Retirement Planning, Retirement, Tax Planning, Investing, RRSP, TFSA, Wealth, Parallel Wealth, bridge benefit, defined benefit pension plan

Id: bnjhkI3gPr8

Length: 9min 55sec (595 seconds)

Published: Fri Jun 02 2023