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A Huge Win (and Loss) for My Net Worth

two piggy banks

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?

Flickr: teegardin

44 Comments Post a comment
  1. Elizabeth #

    Good for you for taking control back! I have a question — at the start you say your net worth is increasing by $11,000, but then we learn through the post that you’re getting more than double that amount. I think I’ve missed something? Were you already counting your pension contributions as part of your net worth and now you’re added the commuted value?

    I have money in a pension plan from long ago, but it’s not vested. Right now I’m counting the contributions as part of my net worth, but, like you, I’m tempted to transfer the money to an RRSP.

    June 9, 2014
    • Cait Flanders #

      Yep. I wrote up at the top that I included the amount I’ve contributed to my pension ($16,378) in my current net worth, so the difference is $11,256. :)

      June 9, 2014
      • Elizabeth #

        D’oh! This is what I get for reading before breakfast ;) Thanks for the response to my silly question.

        June 9, 2014
        • Cait Flanders #

          No, not at all! If you asked, someone else might’ve been wondering too. :)

          June 9, 2014
  2. Good point not to take what someone says at face value. If I ever have any doubts I always call for a second opinion. Being that I’ve only lived in Canada for almost 7 years now I have to learn from the bottom up which isn’t so bad as I’m doing plenty of research. Good for you to see that your net worth has gone up and that you learned something new about your pension.

    June 9, 2014
    • Cait Flanders #

      Yea, they spoke with such conviction that I didn’t think twice about what they said. But I also should’ve opened that piece of mail sooner, so I take total responsibility. Just disappointing that it cost me such a huge chunk of change. Lesson learned.

      June 9, 2014
  3. That sounds like a confusing process, but good for you for taking control. And increasing your net worth by $11,000 is awesome! For the record, I’ve totally had those “I need to get organized” moments and discovered important pieces of mail that were never opened too :)

    June 9, 2014
    • Cait Flanders #

      Scary feeling, eh!

      June 9, 2014
  4. Ugh, just reading that stressed me out. Glad you got it sorted (even if it wasn’t an ideal situation) – I don’t know if I would have known enough to investigate something like this further :(

    June 9, 2014
    • Cait Flanders #

      I’m really grateful that both my parents had careers in gov’t, so know a lot about pensions, etc. otherwise I would’ve been a little lost.

      June 9, 2014
  5. At least now you are in control of it! Even though it stinks right now, at least you have it all situated and you know exactly what is going on with your money.

    June 9, 2014
    • Cait Flanders #

      Yea. The decision still wasn’t easy though. I’ve never, ever had that kind of money in the bank… so having that control is scary. But I have to trust that I’m learning how to save, will keep it tucked away for 30+ years, etc.

      June 9, 2014
  6. kelly #

    OK..I guess this is one of those times when it sucks being an adult?? Or play the what if game…that can drive you nuts!! But i am glad you are taking control of your finances Cat. Way TO GO!! and on a positive note…you have learned from this right? so you take that experience and move forward with it…..

    June 9, 2014
    • Cait Flanders #

      Yea, I learned a lot in that process – mostly that it’s ok to make lots of phone calls, ask a million questions and always, always, always open your mail!

      June 9, 2014
  7. Carolin M. #

    Thanks for sharing this! I am considering quitting my public service job this year and never would have thought about transferring it to an RRSP. I’ve always just been told to leave it where it is. Retirement and any associated investment still baffles me and scares me a bit. You’ve definitely given me something to think about!

    June 9, 2014
    • Cait Flanders #

      It scares me a bit too, but I feel like I’ve read enough now that I just have to learn to take some risk? We’re young, so time is on our side… but definitely talk to someone you trust and find out all your options, before you make the switch!

      June 9, 2014
  8. Good for you for taking back control. We did something similar with my husband’s pension this year. I like knowing what’s going on with it, and investing it the way I want — like you, in stocks (we’re only in our 30′s). We knew that he wouldn’t be going back to that state’s pension system, though, so it was more of a no-brainer for us.

    June 9, 2014
    • Cait Flanders #

      Yea, I don’t *think* I’ll ever work in the public service again, but I’m from a government town where it seems like 50% of people do, so you never know. It’s a gamble, but one I’m hoping pays off. Guess we’ll find out when I retire, lol.

      June 9, 2014
  9. I’m in the US but had a similar situation when I left my job working for the Federal Govt. I trasnferred mine from my govt retirement account into my IRA (which is similar to the RRSP I think). Luckily, if I went back into the government sector, I wouldn’t have much to “buy back” into, my account was small since I was only part-time there during college.

    June 9, 2014
    • Cait Flanders #

      Ahh, well then sounds like it was a no brainer to have it moved over then!

      June 9, 2014
  10. Trista #

    I never think of my pension when I’m thinking about my net worth. I’ve got almost 3 years paid in now but I have no idea what kind of value it has. I’m not even sure how to find that out.

    Honestly, I’m trying not to think about net worth right now in general. I recently found out I’m severely underwater on my car loan. I was really only concerned about my credit cards and back taxes when I was paying off debt. I’m on the fence about what to do with the car. I know I should probably look at increasing my payments and keeping her for a few years afterwards but I really want something better for the winters (a pair of new snow tires and maybe a remote starter would satisfy me for now).

    June 9, 2014
    • Cait Flanders #

      You should ask someone in HR, Trista – or just contact the pension plan itself, if you can. I was blown away when I found out I’d contributed $16K.

      And yes, I think that’s the first time you’ve mentioned the car loan before (or at least that it’s stressing you out) – we’ve mostly chatted about credit cards. Is it possible to buy snow tires + a remote starter + increase payments? Or are you trying to decide between buying those two things OR increasing your payments? I’m sorry you’re stressed. :(

      June 9, 2014
      • Trista #

        the car loan wasnt even on my radar because it was only at 1.9%. So it wasnt causing me the stress that the credit card debt was causing and the payments were easy to make. But after this past extremely long, cold winter (over five months of snow) I was thinking about upgrading my vehicle. I lost shifts at work and many hours this winter waiting for help to get my car unstuck and even spent 4 hours waiting on the side of the road for a flat to be replaced. So I had my sights set on an SUV. Something higher off the road, bigger tires and a remote starter. So even though my car wasnt paid off yet I dropped in to the dealership. The object of my affection drove like a dream. I wasnt even deterred by the cost of the payment, Which was upwards of $175 more a month. But then I had the good sense to ask him what the trade in value of my car was -$6250. I still owe just over $14000. My car is only 3.5 years old with less than 35,000. I know you had a Kia so you’re probably aware of their future value financing. Well my car is already worth less to them than what I’ll owe on her at the end of the five years. Yes, I know I should never have gotten the car on that sort of arrangement but I was actually almost maxed out when I bought her. So I walked away. After learning how bad negative equity was from Gail all I could see was the $8000 of debt. So no new car for me. I will be replacing all my snow tires this year. I’ll price out the remote starter but I know that’s not a necessity like the tires. As far as paying more on my loan I’ll look in to that in September. I learned a valuable lesson. Future value financing is a bit of a scam to draw you in to a vehicle you can’t really afford. Also new cars loose way too much value too quickly. When I do upgrade to an SUV in the future. I’ll probably looking at one that’s 3 years old and get a good warranty. From the research I’ve done so far that could save me 15-20,000 on the purchase price.

        June 10, 2014
        • Just noticed that says -6250 should have said 6250. lol

          I also forgot to mention I moved in December because my car couldn’t tackle the driveway. My new place wasn’t much better and I spent the whole winter parking on the side of the road. I know I’m in a rural area but if I moved 10 min from where I am now I’d be in the city and I’d have a flat driveway but I’d be paying $300-350 a month more for a similar sized apartment when you include utilities.

          June 10, 2014
          • AshleyD #

            I’m just thinking, the 6250 is the trade in value from that dealership.

            Would you be able to get more if you sold it privately? That might get you closer to the SUV.

            I also focused on paying from credit cards first. Now I am focused on paying off my vehicle loan. I was able to make extra payments and now its worth more then the remainder of my loan.

            June 11, 2014
          • Cait Flanders #

            Agree w/ AshleyD’s comment. When I calculate my net worth, I use the black book value of my car. Have you checked out what your car is worth, if you sold it yourself instead? http://www.canadianblackbook.com/black-book-values

            June 12, 2014
  11. We’ve all been there and made stupid decisions via indecision or inaction. At least you’ve dealt with it now. Onward and upward!

    June 9, 2014
    • Cait Flanders #

      Thanks, Debs.

      June 9, 2014
  12. Rob #

    Hi Cait.

    Happy to see that you got your financial issues sorted out.

    You write:
    “I just want to get it into a higher-risk portfolio (with 90%+ stocks) and let it sit for a few years”.

    At your young age I would agree with your investment intentions. I was wondering though whether you have ever completed a financial investing user profile, usually provided by a financial adviser to clients to determine one’s investment comfort level.

    In other words, suppose you invest 90% of your money into stocks and shortly thereafter there’s a significant stock market decline of (let’s say, 33%), meaning that your portfolio declines in value by 1/3rd. What would you do? Sell out and convert the remaining stock into cash? Stand pat and wait a good length of time to see what happens? Or continue to regularly buy more stocks, which now would be at lower prices?

    This situation happened in 2008. Many sold off their remaining stocks (for various reasons – panic, margin calls, etc.) and lost much. Some stayed put (however, depending on their stock selections, still lost $ if the stocks were lemons). Others continued to buy more stock (even as it continued to decrease in value – it took nerve and courage). That said, and as it turned out, if one’s portfolio consisted of quality stocks and if one did not panic and sell off, within 12-18 months after the 2008 Great Recession, these people had regained all that they had lost in stock value. I was one of them.

    So, if one can handle the wild roller coaster of the stock market then by all means invest heavily in stocks (growth, dividend, index, etc) but if this keeps you up at night, worrying about possible portfolio loss, then maybe a more balanced 50-50 stock/bond portfolio investment might be preferable.

    One more observation: currently we’ve been in an historically long bull market, with stock values rising considerably over the last few years. This won’t last forever however (read the current situation in Greece, France, Spain, China). We are all in a global market now where many factors can affect the market. The goal is to stay informed as well as you can so as not to buy high, only to later have to sell low.

    June 9, 2014
    • Cait Flanders #

      I’ve taken it, and know I’m someone who prefers more of a medium risk, but I’ve read a lot about what I “should” be doing with my investments (e.g. investing in 90%+ stocks now, then decreasing that amount and increasing my % in bonds as I age) and I’d like to see what kinds of returns I can get. I’ll NEVER sell. If I lost a huge chunk of cash, I’d cry and then wait for it to go back up.

      I still have a lot to learn, but I *feel* like this is the best decision… (Investing is scary.)

      June 9, 2014
  13. Thank goodness you were still able to transfer the funds to your RRSP in spite of missing the 2013 deadline! It sucks to lose some of the past value but at least you’ll have control of the money now that it’s in your RRSP. Is it a gamble of sorts, yes but I believe you made a smart decision giving the facts of today.

    June 9, 2014
    • Cait Flanders #

      Thanks, Kassandra! Appreciate your input.

      June 9, 2014
  14. Aww man, that sucks so hard! It seems so sketchy that they won’t let you see the calculation either :(

    At least you did find out you had the option to transfer it out though :)

    June 9, 2014
    • Cait Flanders #

      Yea, I’ve been pretty mad at myself… but all I can do is move forward, right?

      Do you contribute to a pension at work? Or is it just that your company matches your RRSP contributions? (I’ve never experienced that, so am not really sure what that looks like.)

      June 9, 2014
      • My company has a pension plan that we both contribute to. The company’s contribution isn’t as generous as public service, but it’s better than a kick in the pants. I have an RRSP on the side that the company doesn’t contribute to, but I’ve been adding to it periodically for years.

        June 10, 2014
  15. Wow, that is rather bizarre that the commuted value changed so much in that time-frame. I will likely have to roll over something similar at my job when I leave – I know I won’t be there forever considering things just dint work like that anymore.

    Congrats on having the control over your investments now. What an increase. I’d be interested to hear about whether you’re buying index funds, or individual stocks for your high% of equity.

    June 9, 2014
    • Cait Flanders #

      Ahhh, we’ll get into that stuff soon enough!

      June 12, 2014
  16. L #

    Congratulations on taking control of the money! :) I didn’t realize the value could fluctuate like that.

    This post sounds a lot like something I would have done, so you are definitely not alone there. I’ve found that sometimes the people who “should” be the last word on what can be done….err…weren’t. Or I didn’t pay attention to some detail at the time, and it turns out it makes a difference. I’m better about it now, having learned the hard way…a couple times!

    June 10, 2014
    • Cait Flanders #

      The thing is, if I’d remembered seeing this envelope whenever I came home from Toronto, I would’ve opened it. But I must’ve just grabbed a huge stack of stuff, put it somewhere and lost track of it. Argh! But there’s nothing I can do to change that. Onward and upward!

      June 12, 2014
  17. I’m a public servant currently (five and a half years) but DO NOT plan to work for the public service indefinitely (hopefully, no more than a couple more years).

    When I started looking recently at the options available to me in terms of my pension, I found the same information as you – that my funds are vested, and therefore no access to them. I am really encouraged to hear about your experience, particularly as it really enraged me that I couldn’t make my own choice about MY investment. So, hooray for this!

    Megan

    June 10, 2014
    • Cait Flanders #

      I’d definitely look into it, Megan! I know every pension plan is a bit different. I only technically contributed for I think 4.78 years, and I know it would’ve been vested if I’d contributed for 10. Anyway, something to consider, whenever you leave!

      June 12, 2014
  18. Good of you to take control.

    I left a former employer with a DC pension, I had about $9k in the pension plan I recall. I had a few options at the time and decided to take the one whereby the money would be transferred into a LIRA (Locked-In Retirement Account).

    This would be money I could manage though, I wouldn’t need to keep the plan intact with the pension administrator.

    So far, this has worked out well. I now have about $26,000 in this account, over the last 14 years since I’ve been with my current employer.

    I’m sure you’ve gotten lots of advice, but I’d likely put 100% on equities, pick a few blue-chip stocks or maybe better still go 100% into an indexed product. Never look back.

    Mark

    June 11, 2014
  19. Kate #

    I am a member of the same pension plan you were, and cashed out some service from 2004-2005 when I quit government (for the first time). You should know that you cannot buy back once you have cashed out. Once you do that, it’s final. Also, if you were in the BCGEU, they have a really excellent pension expert on staff who will answer your questions for free, even once you are no longer a member. Just call their head office.

    June 19, 2014

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