Well that was unexpected. I opened my mail yesterday to see a rather thick envelop from my pension plan so I opened it and read the letter and stopped walking for a second. Then I read it again and realized I was getting a second chance to change a mistake that occurred when I left work.
My work pension was a defined contribution plan which I had for a number of years put in various voluntary contributions. It didn’t seem like much at the time but it ended up being close to a third of my pension’s value when I left work in late 2017. The total pension is now worth around $167,000. I also knew that according the rules around the pension I could only unlock the voluntary contribution portion and move it to a RRSP account within 30 days of leaving work. The reason I would want to do this is it would allow me the option of using that money prior to turning 50 (otherwise it would be rolled in with my locked in money that I can’t use until age 50).
Prior to leaving work I had contacted my pension plan to find out how that would work and I was told they would mail me a letter with my options. Just one small problem occurred…I didn’t get a letter from them and by the time I thought about it the 30 day window had passed. Rather than blaming other people, I just accepted I didn’t remember to follow up on that so I now had more money locked away than I wanted but I checked my numbers and I figured I could make it work regardless. So I just forgot about the mistake and moved on.
Now nearly 17 months after leaving work I now have that letter with my options including the one to move over $50,000 out of my pension into my RRSP. WTF?!?!? Obviously someone screwed up big time at their end of the situation (since the letter is MORE than a little late) and because of that I’m getting a second chance to move that voluntary contribution money out. I really don’t care how this happened I’m just thrilled I get a second shot at fixing this mistake.
I don’t particularly need the money but I prefer the flexibility have having that extra $50,000 or so in my RRSP account so I can access it at any time rather than being stuck waiting until 50 to access the money (like the rest of the pension which is locked in).
So now I’m printing off forms and stopping by my bank tomorrow to figure out how to make this happen. All in all, it’s a nice surprise to have in life. So did you ever get a second chance to fix a retirement mistake? How did it turn out for you?
This might sound odd but I am grateful for 2018 being a crappy investment year. Yes, you may now say: WTF?!?!
I think perhaps my greatest fear about my early retirement was the markets would go the hell after I retired and then I would be forced to go crawling back to my old workplace and beg for a job. Yet after that partly coming true in 2018: the bad stock markets part. I realized that I don’t have to go back to my old work at all. I still have a lot of money saved up, I can still live my life and find other means of making money that don’t involve my old job.
In short, I faced down perhaps my biggest fear about my early retirement and realized the greatest gift about early retirement isn’t really about having all this time off. The greatest gift is the choices that come from having financial stability. I have time to consider my options and try other things to make money. I don’t have to reach for my old career for a solution if I don’t want to. Simply put: I’m not limited by my previous choices in life.
Most of our adult lives we end up bound by our previous choices. If you buy a car you end up bound by your payments for it. Or if you buy a big house, you also end up bound by your payments for decades. And so very slowly you bind yourself to all these chains of monthly obligations that keep you at your job. You can’t quit without having another job lined up because your payments consume so much of your money each month and you don’t have much for savings.
Yet going for financial independence you in fact create the inverse of that situation. You pay off your consumer debt and you get more choices. You can invest a hobby like beer making to help save more in the future and still enjoy life. Then you pay off your mortgage and get more choices. Do you want to go part time instead of full time now your mortgage is gone? You save and invest your money and you get more choices. Do I really want to apply for a job in another industry? Until one day your investments earn enough you don’t have to go to work each day and your choices explode into a millions of pathways for you to choose.
Now this sense of freedom can be terrifying at first but over time you choose the life you want to live. I choose to write on this blog because I enjoy helping others get closer to early retirement and help those to adjust to life after retirement. I choose to help out at my kids school library because I get to spend an afternoon each week in a room just full of books. I choose my life one thing at a time because I enjoy them not because I need to pay my bills and I’m not afraid anymore.
So what is your greatest fear about early retirement?
Well with the Christmas over you might be focused on cleaning up the cardboard and packing up the tree before getting ready for the New Year’s fireworks. Yet this is also a good time of year to get some financial items in order before the New Year hits. The good news is many of these items only take a few minutes to take care of.
For retirees like myself you should consider pulling money from your RRSP and/or your TFSA for living expenses for next year. Why now? Well with the TFSA if you pull the money out now you regenerate the contribution room on January 1. Which may come in handy if you want to shift money around and maximize your TFSA to reduce your long term tax burden. After all, why keep money in a taxable account when you have contribution room in an TFSA? I would rather pay a small capital gain now and reduce the long term tax liability.
As to the RRSP, the fun part of those funds is if you have no other income for the year you can pull money out of it up to your basic income tax deduction and pay zero tax (the exact number can vary by province but generally you are safe around the federal deduction limit of $11,809 for 2018). The key point here is you eventually get your money back. You still have to pay the withholding “tax” when the money comes out but you get it back when you file your taxes next spring (it really isn’t a tax but rather an bulk estimate of income tax that is automatically deducted when you take the money out).
I already did both of those items. I pulled the cash sitting in our TFSA accounts out last month and then this month I pulled just under $7000 out of my RRSP. Which honestly felt more scary than it was…why? Because I pulled the money from the bond portion of my RRSP. That way I can ignore the noise of the stock markets which seem to acting closer to a yo-yo than anything else lately.
Finally, you might also plan to sell some of your investments, which I know sounds nuts given my last statement but there are situations where that is a good idea. For example, you might purposely sell off that dead end individual stock you own and that is worth a faction of its worth to create a tax loss which can be used to offset some capital gains from those investments that did turn out and you are getting out of. I’m personally not in this situation but it can be useful at times.
Finally, you likely want to gather any copies of tax documents you might need to get a jump on your taxes. So that might mean updating your accounting records for your small business or/and downloading digital copies of bills if you use your home for your business. Often this can be done fairly quickly and make the tax season a bit easier.
So what do you for a year end financial clean up?