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With an indexed defined benefit pension, does Benjamin still need to contribute to a TFSA or RRSP? Thumbnail

With an indexed defined benefit pension, does Benjamin still need to contribute to a TFSA or RRSP?

Special to the The Globe and Mail – By Dianne Maley

A few years back, Benjamin made a work decision that changed his life for the better. He’s 34, single and living in British Columbia, where housing costs are high.

“I was working full-time as an engineer for seven years before deciding to forgo the stress and long hours for a more balanced life,” Benjamin writes in an e-mail. “For the past three years, I have been working part-time (roughly 35 hours a week) as a letter carrier for Canada Post, which I enjoy very much,” he writes. He’s now earning $52,300 a year gross, compared with $80,000 a year as an engineer. He’s been able to find time for his hobbies and volunteer work. “It’s been the culmination of a personal journey to live the good life,” Benjamin adds.

He’s kept his living costs low by sharing a house with roommates, but he might move to an apartment with his partner before long, in which case his housing costs rise.

After starting to shift his portfolio last spring into more socially conscious investments, Benjamin got cold feet and is sitting on a pile of cash. “I’m caught between being scared to buy into an overvalued market and being uncomfortable with such a large cash holding,” he says.

His questions: “Now that I have an indexed defined benefit pension, do I still need to contribute to a TFSA or RRSP?” Benjamin asks. He has stopped contributing to his RRSP for now. “Should I do something with my cash position – about $70,000 – even in this bull market in a highly uncertain time?” His goal is to retire at 65 or earlier with $50,000 a year after tax. He wonders as well whether he will ever be able to afford to buy an entry-level home.

We asked Ian Black, a financial planner and portfolio manager at Macdonald, Shymko & Co. Ltd. in Vancouver, to look at Benjamin’s situation. Macdonald Shymko is a fee-only financial planning firm.


Benjamin is age 34, so planning for retirement at this point would be “more like an educated guess,” Mr. Black says. Benjamin, like most people, wouldn’t mind retiring early, although he assumes that may no longer be feasible because of his reduced employment income, the planner says. Benjamin is also interested in purchasing a home some time in the next five or so years.

Although his current expenses are relatively modest, so is his income, Mr. Black says. After taxes, deductions and his contribution to his DB pension plan, his monthly saving capacity is about $750.

His current expenditures, before savings, are about $32,000 a year.

A goal of $50,000 a year after tax at age 65 is “very achievable,” the planner says. Most of Benjamin’s spending needs will be covered by his DB pension, Canada Pension Plan and Old Age Security. “His retirement income goal is actually an increase in his current standard of living.”

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