You are considering leaving your job to pursue your career with another company or to become an entrepreneur. Perhaps you were laid off due to downsizing. Or maybe you're retiring because you want to travel the world.
Regardless of your scenario, each situation is unique and requires tailored advice as there will be financial consequences to this change. That's why it's important to consult your financial planner, review your plan and make sure your retirement goal is still in sight.
First, if you leave your job and it is considered a voluntary separation, it is important to know that you will not be entitled to regular EI benefits. You may, however, receive maternity, parental, sickness or compassionate care benefits if you are eligible. This is important because you may be without income for a period of time. You can consult the Government of Canada website for more details. https://www.canada.ca/fr/emploi-developpement-social/programmes/ei-liste/assurance-emploi/quittez-emploi.html
If you are part of the 32% of the working population that has a pension fund, you have one of two types of pension funds:
- Specified benefits
- Defined contributions
The defined benefit plan guarantees that the employee will receive a pension at retirement based on the number of years worked. Here the employer assumes the risk. Regardless of market performance, the employee will receive the guaranteed amount according to the plan's calculator.
In the case of a defined contribution plan, the employee assumes the risk. At retirement, he or she will be able to pay himself or herself an annuity with the capital accumulated in the plan at the time of retirement and with the return it will generate. The amount of the pension is therefore not guaranteed.
Question Retraite has an educational column on its website that illustrates the difference between the two plans. http://www.questionretraite.ca/chroniques/prestations-vs-cotisations/
An employee who leaves his or her job is entitled to all of the money that he or she and the employer have contributed to a pension fund, as well as its appreciation. The options are as follows:
- Leave the money in the pension fund and withdraw an annuity at retirement.
- Transfer the money to a locked-in retirement account or locked-in RRSP. The vehicle depends on the provincial or federal pension legislation. This option offers the most control over how the money is invested and when it is withdrawn.
- It may also be possible to transfer to the new employer's pension fund.
This is where your financial planner will have the biggest impact on your decision making. Each option has advantages and disadvantages. Your financial planner will be able to draw up scenarios and explain the impact of each one at the time of retirement, the levels of flexibility of the various plans and the differences in the event of succession.
For example, if you leave your job and are a beneficiary of a defined contribution plan, you will have the option of transferring the money to a locked-in plan or even purchasing a life annuity if you are at that stage in your life. The locked-in plan can be self-directed with the help of a broker (online or full-service) or managed by an investment counselling firm such as Archer Wealth Management.
Your financial planner's role is to ask the right questions to arrive at the right recommendation for you.
Theemployer may sometimes offer a bonus when the employee leaves. This is called a severance package or a retirement allowance, depending on the situation. In both cases, it is important to remember that the amount is fully taxable in the year it is received. However, there are strategies to reduce and/or defer some or all of the amount. Once again, your financial planner will be able to guide you.
Archer Wealth Management
Archer Wealth Management offers an alternative to large financial institutions and mutual funds. We are independent financial advisors and use an index-based approach to structure a diversified, customized portfolio that minimizes risk, costs and your tax bill. Archer is registered with the Autorité des marchés financiers.