Transfer Value... buying an annuity?

[dapaterson]

Berkshire pays 2.97% dividend right now. Foreign income, so it doesn't get preferential income tax treatment.

Bank of Nova Scotia pays 4.35% dividend right now. Canadian, so it's eligible for the dividend tax credit.

Toss it in a registered account, make it a DRIP and while your adjusted cost base will slowly creep up, so too will your effective dividend rate, as Canadian banks are well regulated and regularly increase their dividend rates.

Note that one potential pitfall with Canadian dividends is that the gross-up of the dividend tax credit may reduce old age security through the high income claw back because of the mechanism of the gross up.

Understanding the Canadian Dividend Tax Credit: A Complete Guide

Learn how the Canadian Dividend Tax Credit helps residents reduce taxes on investment income from dividends, and discover the differences between eligible and non-eligible dividends.

www.investopedia.com

 

[Humphrey Bogart]

If I took the TV I would have a fixed income portion to try to reduce volatility. Not saying 40% of my portfolio would be government bonds but 20 equity stocks is aggressive for me. Ack that power Corp and Brookfield has many holdings. Keeping it ton just Canada makes me nervous too. At that point might as well just buy Berkshire and call it a day.

Agreed plus you're missing out on a lot of potential economic activity elsewhere, the Canadian economy is after all, only 2% of the Global economy.

For taxes though, if you invest in American Stocks, you will pay a withholding tax on dividends that the IRS will automatically take from you, unless you put it in an RRSP.

When are TFSAs and RRSPs actually taxable? - MoneySense

Here’s what investors should know about the tax payable on U.S. and Canadian stocks in an RRSP and TFSA.

www.moneysense.ca

Berkshire pays 2.97% dividend right now. Foreign income, so it doesn't get preferential income tax treatment.

Bank of Nova Scotia pays 4.35% dividend right now. Canadian, so it's eligible for the dividend tax credit.

Toss it in a registered account, make it a DRIP and while your adjusted cost base will slowly creep up, so too will your effective dividend rate, as Canadian banks are well regulated and regularly increase their dividend rates.

Note that one potential pitfall with Canadian dividends is that the gross-up of the dividend tax credit may reduce old age security through the high income claw back because of the mechanism of the gross up.

Understanding the Canadian Dividend Tax Credit: A Complete Guide

Learn how the Canadian Dividend Tax Credit helps residents reduce taxes on investment income from dividends, and discover the differences between eligible and non-eligible dividends.

www.investopedia.com

Berkshire Hathaway actually doesn't pay a dividend. They never have and won't, the company instead prefers to reinvest the cash but Berkshire does regularly conduct share buybacks which increase the value of the stock.

Why Doesn’t Berkshire Hathaway Pay a Dividend?

Berkshire Hathaway is sitting on $144 billion, but CEO Warren Buffett believes there are better ways to use the spare cash than paying dividends.

www.investopedia.com

Interestingly, 45% of Bill Gates personal portfolio is tied up in Berkshire Hathaway.

https://www.theinvestorspodcast.com/legend-investors-stock-portfolio/bill-gates-stock-portfolio/

Other big holdings of his are Waste Management, Caterpillar, Walmart and CN Rail.

 

[ballz]

If you have a Strategy and a Plan then work towards executing it and doing what you think is best for your own situation. A lot of people will tell you it won't work and it may not but it most definitely won't work if you don't try.

I would need a whole 'nother thread to talk about this strange human tendency. Suffice to say, I fully agree and my advice for people is the same... the hell with 'em, go swing for the fences.

Seriously, there's a weird psychological phenomenon with humans that seems to see people who have "settled" with their lot in life discouraging others from going after more, or that in order to "fit in" you should abandon your ambitions.... that there is something "uncool" about getting after it.... when you outgrow the insecurity to fit in and just get after it, it's something that really frees you.

"Maybe you could get what would really be good for you. Well, why don't you? Well, because you don't try...."

 

[Messerschmitt]

More confounding factors: 20 years ago pay rates were materially less, meaning the TV would also have been materially less; and over half the initial TV would have been taxable in the hands of the recipient, so needs to be discounted for initial taxes before investing.

less than 50% actually.

Half of TV is tax free and locked. The other half that would be taxable can be reduced with all the RRSP room + taken next tax year when you have 0 income (unless you itch to start working again, but personally I would definitely take 1-2 years off and travel the world).

Another tactic with TV is to sell everything before reaching 65. That way depending how your investments went, you should sit on several millions + get OAS + GIS if you don't have any income. Start drawing CPP at 60 too to lower CPP and boost GIS.

 

[dapaterson]

Tax deferred, not tax free.

And the attribution of the TV to LIRA and cash is not a simple 50/50 split, it's dictated by the ITA.

For a CFSA pension, the sheltered amount will be 9x your annual benefit at age 65 (reduced for CPP combination, but not increased for indexing). The balance will be taxable in your hands.

Given the relatively generous pension provisions of the CFSA, you are unlikely to have significant contribution room to shelter the cash amount.

 

[ballz]

So I just noticed on my T4 that when they paid out the back-pay to me in 2023, longer after I have released and after having taken the transfer value, that they withheld amounts for RPP contributions?

Has anyone encountered this?

 

[dapaterson]

That's an interesting situation. I'd recommend reaching out to RBA to get it corrected. I suspect it's something that was never adequately wargamed in their business processes.

Contact us about military release and severance pay - Canada.ca

Contact information for questions about release and severance pay for Canadian Armed Forces members.

www.canada.ca

 

[rnkelly]

So I just noticed on my T4 that when they paid out the back-pay to me in 2023, longer after I have released and after having taken the transfer value, that they withheld amounts for RPP contributions?

Has anyone encountered this?

You went for the TV eh, good luck with your endeavors!

Hope you get the withheld amounts back easily too.

 

[Lumber]

You went for the TV eh, good luck with your endeavors!

Hope you get the withheld amounts back easily too.

Frankly, it doesn't make any sense to get a deferred annuity. Invest your TV wisely (i.e. just throw it in an S&P 500 ETF) and you will have far more in the bank at 65 than what your pension would be worth at that point.

 

[dapaterson]

Frankly, it doesn't make any sense to get a deferred annuity. Invest your TV wisely (i.e. just throw it in an S&P 500 ETF) and you will have far more in the bank at 65 than what your pension would be worth at that point.

Except you can begin drawing well before that, there is no risk of exhausting your capital, and you gain access to subsidized medical and dental coverage.

Each individual situation, and each individual risk tolerance is different.

 

[ballz]

You went for the TV eh, good luck with your endeavors!

Thanks

Hope you get the withheld amounts back easily too.

With any luck someone else that this happened to noticed in July and the 6-12 months it will take them to figure out how to amend a T4A is at least already 6 months complete.

Frankly, it doesn't make any sense to get a deferred annuity. Invest your TV wisely (i.e. just throw it in an S&P 500 ETF) and you will have far more in the bank at 65 than what your pension would be worth at that point.

Except you can begin drawing well before that, there is no risk of exhausting your capital, and you gain access to subsidized medical and dental coverage.

Each individual situation, and each individual risk tolerance is different.

Agreed, there's a lot of factors that go into it. For me, I am not going to try and be and active investor. If you just do dollar-cost averaging with a NASDAQ 100 or a S&P500 ETF, you'll do better than like 90-95% of people who invest for a living anyway, trying to beat the market is not easy.

I'm all-in on my new life and wanted the outside amounts to invest in myself. If everything works out, my RRSP will soon be high enough (with the inside amount + additional amounts invested since then) that I'll be at a point where I have to stop putting my money into RRSPs because I'm accumulating too much in there. I took a huge salary cut in leaving but in 2 years have surpassed where I would be if I stayed in on the track I was on (1-year of French then promoted to Major, so the "bar" I am measuring against is Major 1 right now).

That is not a tack I would recommend to many people, but I was too cautious about releasing and spent too long in the CAF building up credentials / marketable skillsets before making the switch (opposite of most people's problem), so I was in an odd spot.

 

[dapaterson]

Fun fact: the civilian in DND responsible for all aspects of pensions (plus a hockey sock of other things) is in a position classified as an EX 1 - based on the last pay increase, he maxes out at $158K (as of April 1st) - the equivalent pay of a LCol at max IPC.

 

[brihard]

PRes pension doesn’t play well with others, so I took the transfer value too- got lucky there, I elected early in the pandemic when bond rates hit their lowest, so my TV was higher. A chunk went into a LIRA and the rest filled my RRSP. I’m in a defined benefit plan with my current job, and could take an unreduced pension as early as 25 years in, around age 53. Plenty of time left to move to another job and not touch my pension for lifestyle (roll it back into savings), and my RRSP will be able to keep growing as well. It’s important to me that that sum will pass to my estate rather than disappearing like my pension when I die. I figure this will give us the best chance of helping our kid(s) to start out their adult life and be able to afford ownership of somewhere to live.

 

[mariomike]

It’s important to me that that sum will pass to my estate rather than disappearing like my pension when I die.

Is there not a 66 2/3% Survivors Pension for your spouse when you die - before, or after retirement?

Guaranteed for the rest of her life. It does not stop when she remarries. And includes inflation protection increases.

Plus a further 10% for each dependent child, if there are any.

around age 53. Plenty of time left to move to another job

Nutz to that!

 

[dapaterson]

Is there not a 66 2/3% Survivors Pension for your spouse when you die - before, or after retirement?

Guaranteed for the rest of her life. It does not stop when she remarries. And includes inflation protection increases.

Plus a further 10% for each dependent child, if there are any.



Nutz to that!

CAF survivor benefits are 50% to spouse, plus 10% to children.

 

[brihard]

Is there not a 66 2/3% Survivors Pension for your spouse when you die - before, or after retirement?

Guaranteed for the rest of her life. It does not stop when she remarries. And includes inflation protection increases.

Plus a further 10% for each dependent child, if there are any.



Nutz to that!

There are survivor benefits, but my point stands.

 

[mariomike]

There are survivor benefits, but my point stands.

Nice to know.

My misunderstanding.

It’s important to me that that sum will pass to my estate rather than disappearing like my pension when I die.

 

[brihard]

Nice to know.

My misunderstanding.

I set you up for that misunderstanding, sorry. Yes, my pension will have a survivor benefit for my wife, and I plan on my pension primarily covering our normal lifestyle. But I want to leave a chunk to the kid(s).

 

[ballz]

That's an interesting situation. I'd recommend reaching out to RBA to get it corrected. I suspect it's something that was never adequately wargamed in their business processes.

Contact us about military release and severance pay - Canada.ca

Contact information for questions about release and severance pay for Canadian Armed Forces members.

www.canada.ca

Unsurprisingly, after two emails and a week having gone by, they just tried to brush it off with a bogus answer and no reference to any legislation or regulation to support their position.

"Good day, the Payment was made for the time in 2022 that you were in the CAF, if you receive money owed to you from a pay raise, you are still required to pay the amount to the RPP for the time you were in."

Oh and of course, no signature block.

Fun fact: the civilian in DND responsible for all aspects of pensions (plus a hockey sock of other things) is in a position classified as an EX 1 - based on the last pay increase, he maxes out at $158K (as of April 1st) - the equivalent pay of a LCol at max IPC.

Do you know the name of the position? I'm sure the requirements to fill that position would adequately explain a lot....

Nothing like having a bazillion dollar pension plan run by someone with an MA in any subject and BBB language profile.

 

[Humphrey Bogart]

Thanks



With any luck someone else that this happened to noticed in July and the 6-12 months it will take them to figure out how to amend a T4A is at least already 6 months complete.





Agreed, there's a lot of factors that go into it. For me, I am not going to try and be and active investor. If you just do dollar-cost averaging with a NASDAQ 100 or a S&P500 ETF, you'll do better than like 90-95% of people who invest for a living anyway, trying to beat the market is not easy.

I have a play account that I use for individual stock picking. I mostly focus on boring commodities & energy stocks though.

Vast majority of my equity is in ETFs that track S&P 500 & NASDAQ. It's boring as shit but it works and compound interest is beginning to reap benefits.

I'm all-in on my new life and wanted the outside amounts to invest in myself. If everything works out, my RRSP will soon be high enough (with the inside amount + additional amounts invested since then) that I'll be at a point where I have to stop putting my money into RRSPs because I'm accumulating too much in there. I took a huge salary cut in leaving but in 2 years have surpassed where I would be if I stayed in on the track I was on (1-year of French then promoted to Major, so the "bar" I am measuring against is Major 1 right now).

That is not a tack I would recommend to many people, but I was too cautious about releasing and spent too long in the CAF building up credentials / marketable skillsets before making the switch (opposite of most people's problem), so I was in an odd spot.

I tell this to people all the time. When you leave the CAF, you need to be aggressive and you need to be hungry. Don't be to humble or risk averse.

With my bonus, I am making LCol Pay now and then you add up all the other perks ( Company Ownership program, etc) so I am doing well for myself. I am also seizing every single opportunity that is placed in front of me. "Just Say Yes" and let the pockets fill up with money.

I think I can take it to the next level though and push myself further.