Re: Faculty Pension Options - Follow-up with some information that came out of a public discussion on Monday Nov. 19th

[Julian Christians <julian_christians@sfu.ca>]

Hi George
Thanks for that, and I certainly think that seeking professional advice is a good idea. I would note, however, that a financial advisor who obtains a commission from financial products may not be completely objective. A switch to the DB plan will take business away from financial advisors. 

Also, to balance your long list of questions to ask a financial advisor, I think it is crucial to remember that your financial advisor isn't going to be able to answer some key questions, e.g., "Should I be more concerned about the amount of capital available at retirement or the predictability of my income in retirement?" How much you value security and stability is not something that your financial advisor can answer.  Similarly "Do I expect to have longevity risk (risk of out living my savings)?" Your advisor will potentially be able to provide estimates of your income out to the age of 90 or 100, but if you are far from retirement, these estimates will make a lot of assumptions. Only you can judge how concerned you are about outliving your savings (and/or your spouse outliving your joint savings), and how you balance that concern against wanting to leave something to beneficiaries and/or wanting more flexibility.

I think a lot of the discussion on this list has been great, precisely because most of it has focused on issues of values and tolerance to different kinds of risk.

I would, however, add one question to your financial advisor: "How does the inheritance of RRSPs work?". My understanding is that you can "roll over" RRSPs in certain cases (e.g., your spouse), but that otherwise your RRSP is considered your income that year, and you pay income tax on it, e.g., if you have a million in RRSPs, it is as if your income was a million, and you get taxed accordingly (i.e., at a much higher rate than for a more typical faculty salary). So whatever inheritance you are hoping to leave (at least in terms of your retirement savings), it may be about half the amount that you think it is if it is passed to adult children.

Cheers
Julian

________________________________________
From: George Agnes <george_agnes@sfu.ca>
Sent: Wednesday, November 21, 2018 5:33 PM
To: academic-discussion@sfu.ca
Subject: Faculty Pension Options - Follow-up with some information that came out of a public discussion on Monday Nov. 19th

All,

Some of the information that was discussed on Monday’s open forum is;

(a) professional financial planners queried, and people who understand person finances better than I, have been unanimous is advising all individuals to
"obtain professional advice prior to casting your vote".
 And to emphasize this point, I quote from one of our colleagues, sample questions to ask yourself and your financial planner are;
 “ -What is the overall ROI / value that I expect to get from each option (based on contributing the same amount of income)?
- Should  I be more concerned about the amount of capital available at retirement or the predictability of my income in retirement?
- Is this my only source of retirement income?  Do I have other means to 'smooth' my retirement income?
- Do I expect to have longevity risk (risk of out living my savings)?
- Either way, do I need / want some of my income to be guaranteed?
- Do I want to be locked into contributing at this level from a cash flow perspective, or would I prefer to plan to contribute voluntarily each year and have the flexibility to adjust my contributions based on my cash flow needs?
- Do I want to be able to pass on a legacy to someone other than my spouse? Do I need this vehicle to be able to do that?
- How do I feel about the governance of each option?
- Personally, I'm also asking which vehicle has the greater potential to align with my values around responsible investment. “

(b) Related to (a), if you are unable to be as informed as you think you should be prior to casting your vote, do not remain silent, write to the senior executive of SFUFA explaining your situation and ask for a delay in the date of closure of the vote.

(c) Everyone should familiarize themselves with the information contained on the BCCPP webpages regarding payout selections at retirement.
If you have a partner, you are automatically categorized into Joint-Life Option, and the ‘entitlement rate’ is shown below.   For your own situation,
Plug this into the formula, maximum annual benefit = (rate from table below) x (average best five years salary) x (number of years serviced);

[cid:4896F72E-A9EC-4087-AE64-4BAC482D8BCC@telus]
(Thanks to Dr. F. Lee for doing the background work and providing the above table.)
There is an analogous table in the SFUFA FAQs.

(d) Please vote.

On behalf of Dr. TIm Beischlag and I, and the participants in the Monday forum, we hope this information is helpful.

George Agnes