Are you retiring soon?
Some things to consider: PART III
How to convert your Canadian Baptist Pension Plan (CBPP) into income!
As a short reminder from Part II, Canada’s retirement system includes three pillars:
- Publicly funded plans administered by the government such as the Canada Pension Plan (CPP), the Quebec Pension Plan (QPP), and Old Age Security (OAS);
- Employment-based retirement plans, which are registered plans offered by employers, and can come in the form of Defined Benefit (DB) Pension Plans, Defined Contribution (DC) Pension Plans, Group Registered Retirement Savings Plans (RRSPs), and Deferred Profit Sharing Plans (DPSPs). The Canadian Baptist Pension Plan is one of those plans, and is a DC pension plan; and
- Personal retirement savings in the form of RRPSs and Tax-Free Savings Accounts (TFSAs), or other non-registered accounts.
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Your CBPP is more than justa pension plan. It supports your financial well-being while helping you prepare for...Retirement!
There is a fourth pillar, which is the equity in your home. This can potentially be converted to income via a reverse mortgage structure or establishing a home equity line of credit (HELOC).
In this blog, we consider the second pillar and how to convert your Canadian Baptist Pension Plan (CBPP), and/or any RRSPs you may have, into retirement income.
There are several options:
- Registered Life Income Fund (LIF): One of the most common ways to convert your CBPP into retirement income is to transfer the account balance into a LIF, which is designed to provide an income stream during retirement. LIFs have a minimum and maximum annual withdrawal requirement based on your age, so you can choose to receive any payment within the range, with payments made monthly, quarterly, or on an annual basis. You choose how the money in your LIF is invested.
- If you have an RRSP account(s), you must convert it to a Retirement Income Fund (RRIF). RRIFs have a minimum annual withdrawal requirement based on your age (like a LIF), but no maximum limit, so you can withdraw the money from your account at any time. You also choose how the money in your RRIF is invested.
- Both your CBPP and your RRSPs must be converted to the appropriate income product by December 31 of the year you turn age 71 (if your spouse or common-law partner is younger, you can base the conversion date on their age instead of yours – but you should learn more about this strategy before applying it).
- Life Annuity: You can use the funds in your CBPP account to purchase a life annuity from an insurance company. A life annuity provides regular, guaranteed payments for the rest of your life. This option offers a stable and predictable income stream. Once you buy an annuity, it's a decision you can't reverse, and you won't have access to the initial investment amount again. So, it's crucial to consider the implications for estate planning when you decide to purchase one. In recent years, annuities haven’t been popular because of low interest rates. But with rates on the rise and the option to include inflation protection, they could be a smart addition to your retirement strategy.
- A combination of options: You can use a combination of any of the above-mentioned options to create a diversified retirement income strategy. For example, your CBPP could move to a LIF, and perhaps part of your RRSP to a RRIF and another part to purchase a life annuity to provide you with a guaranteed income amount.
It's important to consider the tax implications and rules associated with each option. In the end, the choice(s) you make will likely depend on personal factors like your retirement income needs, your tolerance for risk, and your financial goals.
Did you know that your spouse can transfer registered pension and savings plan assets into the CB Pension Plan? Visit My Canada Life at Work, or call 1-833-900-3853.
We are here to help! Email us at info@cbbenefits.ca.