Commuted values are directly influenced by bond yields. It’s like a teeter-totter: when interest rates go down, commuted values go up. Actuaries use a basket of bonds, but this is a good proxy for individuals to understand the trend.
If you have a defined-benefit pension plan and are considering taking the commuted value, now is a crucial time to act. When bond yields fall, commuted values are up. If you received an estimate six months ago and get another one today, it could be very different numbers because the Bond Yield has changed.
Book a consultation meeting with me over Zoom or call me at 1-888-554-6661 to discuss your options.
I posted a video on YouTube explaining commuted value and bond yields in more detail, watch below:
Timing Your Commuted Value
If you’re planning to take your commuted value, timing is crucial. Avoid taking a large piece of income on top of a full year’s salary. This can save you thousands or even tens of thousands of dollars in income tax.
One key hurdle in taking your commuted value is the maximum transfer value. This is a ceiling that generally means a third or a quarter of your money will be in cash, which is taxable. I’ve seen checks up to $150,000 issued to Revenue Canada. Let’s work together to minimize this impact.
Is Taking The Commuted Value Right For You?
Commuted value works best for someone who doesn’t need the money immediately. If you’re in debt and plan to use your commuted value to pay off your mortgage, cars, or credit cards, be prepared to continue working. Your money needs to grow, and we can help you put together an investment portfolio to achieve that. However, if you’re planning to make large purchases like a yacht or a new car, this option may not be for you.
For professionals like millwrights or accountants who plan to continue working, taking the commuted value can be a smart move. You can leave your current company, set up an investment portfolio, and watch your money grow. When you reach retirement age, you can start drawing on that money.
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Let’s Chat!
If you’re considering taking the commuted value of your defined-benefit pension, now is an excellent time due to low bond yields. For personalized advice, feel free to reach out to me, Bruce Youngblud, at Pension Solutions Canada. You can book a free 15-minute Zoom call with me or call me at 1-888-554-6661 to discuss your options.
