Tuesday, July 21, 2015

Free Pension Money? Yes Please!

     In May of 2002, after completing my Bachelor of Commerce degree at the University of Ottawa, and working for five grueling months in a law firm, I landed a job at the now defunct branch of Public Works and Government Services Canada.  Although my move from the law firm to the federal government meant a small raise, my primary motivation was to cultivate a career in finance. The government of Canada also offered a defined benefit pension plan that was fully indexed for inflation.
     Fast forward to March 2005 when I left Public Works to work for Canada Post (a federal Crown Corporation). Canada Post had its own defined benefit pension plan that was also fully indexed for inflation.  In contrast to the federal government's pension plan, the sustainability of Canada Post's pension plan has been repeatedly called into question. That said, during the three years I was at Canada Post, our controversial CEO, Moya Greene stood in front of employees and called the plan "perfectly safe". Like many other statements Ms. Greene made, this was at best uniformed, and at worst, a lie.
      After leaving Canada Post and starting work with my current employer, where I lucked into my third defined benefit, fully indexed pension plan, I kept my Canada Post pension plan information up-to-date informing them of changes of address, and of my marriage. This was mostly due to my desire to keep tabs on what I thought was a risky potential source of retirement income. Frankly, I think the Canada Post defined benefit plan is unsustainable, and will need to be bailed out within the next five to ten years.
     On the other hand, I've sat on an envelope describing my pension plan information relating to my time in the federal government for the past 10+ years. I never updated my address, spouse, or beneficiary information. While packing my office during my recent job change at my current employer, I came across the envelope and noticed that based on 2005 estimates, I would be entitled to over $200 per month once I hit the ripe old age of 60. A quick calculation showed that in order to generate that kind of income, I'd have to invest over $60,000 at an average yield of 4%. 
       Needless to say, today, during my vacation, I took the five minutes to look up a phone number for the federal government pension plan, called them, and updated my information. It's scary to think how long I left that free money on the table. One five minute called just shaved a couple year's worth of working, saving, and investing. After the call, I felt fantastic!
     While I'm grabbing at this free money, tomorrow's task will be completing all the necessary forms for my son's RESP. My plan is to contribute $2,500 a year to his RESP in order to receive the maximum $500 match from the government of Canada. Boom! A risk free, immediate, 20% return! If there's free money on the table, you might as well take it!

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