RAILWAY WORKER'S PENSION CHOICES

"Believe nothing,
no matter where you read it,
or who said it,
no matter if I have said it,
unless it agrees with
your own reason and
your own common sense."
Budda (536 B.C. - 483 B.C.)

To Do or Not To Do

Known Fact: You will not live forever LOL.

Yes of course, the security of a company pension plan is a nice blanket, especially if you live for many years and the plan keeps its head above water. Although, some plans, such as is mine, do not cover medical health benefits, therefore there is not much incentive to stay in the plan, other than the proverbial warm blanket that goes cold once you and your spouse die, and the money reverts back to your employer who as had money with your money, even while doling out your monthly pension cheque.

BUYER BEWARE: Upon retirement members are required to either buy into a restricted group health care plan or search one out for themselves. If you die, 40% to 50% of YOUR money vanishes and your spouse and estate never does see that money, it goes back into the company pension plan pot. If both you and your spouse die, well the money is pro-rated of course to the person's age of 65. This all can become very complicated and you should seek out professional advice, several different opinions is a good idea.

But, what about someone who does not want to belong to the company pension plan and wants their money to continue long after they are gone? Say, a person who does not want the company to reap the benefits of a lifelong savings by employees who have faithfully contributed to the pension plan. Here lies a gold mine of wealth...figure it out.

If a company has a pension plan that is stable and obviously making money, how is it that they can pay out a monthly cheque to pensioners and still make money? The answer is simple: THEY MAKE MONEY ON YOUR MONEY, otherwise they would not be still in the business of doling out monthly cheques, now would they?

One thing to remember is that you have the legal right to know how much money your personal investing into the pension plan is generating...that is the commuted value. If you find the people handling your pension money giving you a difficult time in forwarding your requested numbers, remember that you have the legal right to request the same and simply state this in their infamous VOICE MAIL system.

Here are a few points to ponder when making plans to decide whether to stay with the company pension plan or run with your money:

• Book Early: For many, it is a good idea at age 50 to start a "Five-Year-Plan". Send a written request to the company handling your pension money for the "Commuted Value" and in this request specify a specific date of termination. For instance, say you turn 50 in January...request a termination date account for June, a six month inquiry. At age 51 do the same, and so on until you finally make up your mind which way you are going to travel. This will show you the numbers in a continual growth rate, considering the interest rates do not go through the roof!!!

• Request Also: When sending in your request for your commuted value, ask also that it be accompanied by a summary calculation page that gives you sufficient information that would allow your financial adviser to confirm the calculated result. The summary would identify the parameters in the calculation, including the assumed final average earnings, years of service, the interest rate assumptions (net of any assumed inflation indexing), the early retirement age that was assumed to be most favourable and the corresponding early retirement reduction factors (less than the points), the unisex mortality ratio, spousal information, etc. - In other words: DO NOT DO THIS BY YOURSELF - GET PROFESSIONAL ADVICE, separate from the company and/or the pension plan holder.

• Even though you quit work, you still have 3 doors of opportunity, providing you are past the age of 54 and six months. You can opt to have your money stay with the pension plan holder until you decide exactly what you are going to do, and in this timeframe they have to pay you interest on your money...you can decide still, not to take your commuted value, but simply go with the company pension plan - again seek outside advice beforehand.

• The best case scenario is when your spouse has a pension plan, enough money to pay the monthly bills, and you watch your funds grow...or if you still want to work, as many people this day and age do not want to really retire, they simply are sick of the work they are doing, or they realize that the huge money in the commuted value is best set at investment growth, while they have another income source.

• First and foremost, make sure that you can try and be totally free of debt, whether you are going on the company plan or venturing off with your own money.

• And finally, remember that when you get your money you will be taxed on the "upfront" amount (usually apprx. 25% of the total) and this money will take about 6 to 8 weeks to arrive in your bank account. So, if you are planning to work another job you might want to consider quitting at least 2 months prior to an end of a year and pay the tax therein for that year and be free for the following year at a much lower tax rate. Again, seek advice.

One other note of mention here, is that over the past 4 1/2 years of requesting these numbers, in the past few months I have personally found the pension plan holder to be very difficult to get any information. They all seem to have switched to a very high tech VOICE MAIL, wherein they usually do not answer. So, it will take a lot of persistence on your part to wrangle the numbers out from them...do not give up, and do not rely on what your co-worker says he/she received...everyone is different in this game, everyone's numbers are different due to the nature of the beast. Remember, your best plan of attack is to plan your retirement early...
"By failing to prepare, you are preparing to fail." (Benjamin Franklin)

Good luck out there, which ever way you may travel...
...and beware of those Carp Diemers!!!