Quote:
Originally Posted by V
Yeah, I'm pretty sure the consensus rate of return for people receiving these pensions is 4% in perpetuity (well, until they and their spouse is dead, at least).
So you have a low risk-free rate of return, and an inheritance issue on one hand, and security on the other hand. What else fits into that equation? Maybe a good question for Slava's forum.
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Well one of the major issues with just "pulling the money out and doing it yourself" is the tax issue, but not just because its registered money. So you can move a chunk from a pension plan to a LIRA (locked in retirement account), but not all. So essentially what happens with large pensions is that move s chunk, but a significant amount is going to come to the person as cash, which is fully taxable all in one year.
Another factor and not insignificant consideration is that DB plans in general have benefits plans attached to them. So the costs of health, dental and of course medications remains in place as these people age and generally require them more and more.
Those are two quick examples where you really want to think these things through before you base this entirely on how much you put in and what you get out. Can it work to your advantage to take the commuted value and do it on your own? Absolutely, and I have many clients where we have done this from their pensions for various reasons. All my point is, is to be careful and weight the pros and cons. There are reasons that employees everywhere want these plans though, and why financial institutions have tried so hard to equivocate them for retail investors.