A Huge Win (and Loss) for My Net Worth
For as open as I am about my numbers here, I have never really shared my overall net worth before. However, if the paperwork goes through this month, my net worth will increase by $11,000+, and I want to explain why. Note that this all sounds very exciting, but I actually made a huge mistake in this process that I’m going to be kicking myself over for a long time.
Before I started the job I have now, I worked full-time in the BC Public Service for five years. When I started, I was 22, making around $39,000/year and I thought I was going to be rich. I knew that working in the public service meant you had to contribute to a pension but, in all 5 years, the dollar amounts never ceased to amaze me. “What the heck is superannuation and why did $130 of my paycheque go to that?” The number was closer to $170/ paycheque – so $369/month, because I was paid bi-weekly – by the time I quit.
In total, I contributed $16,378 to my pension in 5 years. If we include that amount in my current net worth, I’m sitting at just below $35,000 right now (including all my savings + the value of my car).
Now, here’s where I made that huge mistake…
When I quit, I contacted BC Pension Corporation to find out what I could do with my pension. I knew someone else who had quit before me and taken his out as cash (after being taxed on it) to use for school in the UK. Another friend told me she had the full amount transferred into her RRSP. I don’t know if I talked to someone who was new to BC Pension or what, but I was told that my pension was vested, which meant I couldn’t access the funds. Instead, I’d get a final statement telling me how much I could expect to earn from it each month after I retired (at no earlier than age 55).
The first mistake I made was taking that as face value. And why wouldn’t I? You’re told your pension is vested by the people who oversee it… so that’s the end of that, right?
The second mistake I made was ignoring a letter they sent to my parents’ house when I was living in Toronto (which I don’t even remember doing). Mom and Dad always texted me about random pieces of mail that showed up at their place, and I usually just asked them to set it aside for whenever I came home next. Had I asked them to open this particular letter back in November 2012, I would’ve found out that I was able to transfer my pension into my RRSP, after all. And that mistake cost me $5,877 (plus 18 months of returns).
Last month, in a random moment of oh-my-gawd-I-need-to-organize-my-life, I found the unopened envelope. When I finally read through the statement, I discovered two pages at the back which outlined my options: 1) Leave my pension where it is until I retire, then get $271/month from 55-65 and $183/month after 65. 2) Take my $16,378 + a little bit of interest out as cash – after being taxed on it, of course. Or 3) Get a commuted value of $26,016 + $7,495 ($33,511 total) transferred into my RRSP. The deadline: March 31, 2013. So, I clearly missed the boat on that one.
In a panic, I called BC Pension and explained my situation. They told me not to worry. I could still transfer my pension into my RRSP, but the numbers may have changed since then. Before we could do anything, they had to issue me a new statement with updated numbers. Two weeks later, it came in the mail… and the new numbers suck (excuse my language), in comparison.
That first value of $26,016 went up to $26,420. But the second value of $7,495 dropped to $1,214. When I called and asked for an explanation of what that number even was, they had to transfer me to three different people and “specialists” before I got an answer I still only half-understand. Essentially, they said interest rates have fluctuated so much that $1,214 is all they’d need to invest today to fulfill their pension obligations to me. (I wish I could see the actual calculations they do, but that question was shot down with a no.)
So, the total commuted value of my pension today is $27,634; this is the amount I can get transferred into my RRSP (which will boost my net worth up to almost $46,000), and it is guaranteed until the end of September. If I wanted to take a gamble, I could wait until October and ask them to recalculate the numbers. But, at this point, I just want to get it into a higher-risk portfolio (with 90%+ stocks) and let it sit for a few years, so I can try to gain back some of what I “lost” by not doing this sooner…
Now, in case you’re curious, the decision to transfer my pension into my RRSP wasn’t as easily made as it might sound. The numbers sound great, of course – I’m taking control of close to $28,000, which I plan to leave in investments until I retire. However, I still had to ask myself two big questions: 1) Do I think I’ll ever end up back in the public service? Highly doubtful, but I’d have to “buy back” the 5 years I’m taking out of my pension today, if I ever do. And 2) Am I ok with giving up my access to the public service benefits plan when I retire? I’d have to buy into it, anyway, so all I can do is hope I’m in a financial situation where I can afford to buy my own package elsewhere.
Ok, that was a lot of numbers! Any questions?