Pension and RESP

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nex_s's picture
nex_s
Status: Member (Offline)
Joined: Jul 30 2010
Posts: 17
Pension and RESP

 

 Hi Everyone,

  I have a financial question regarding my Pension and our daughters RESP (Registered Education Savings Plan).

  My pension is managed by Sunlife and only my employer contributes to it.  I've been assured that it's not connected to the health of my company since it's a direct contribution type.  However, I'm unable to access it until I'm 65.  The fund mix I have to choose from allows me to be less risky but essentially when we see a downturn in the stock market I'll also see my pension fall drastically as well right?  Could it be worthless at that point?  Could it potentially be worth something in 10 or 20 years time?

The second question is regarding our daughters RESP.  I do have the option to withdraw it at any time.  For every $2500 we contribute, the government will kick in $500.  All the money stays there and is available for education purposes though she won't be using it until university (about 15 - 20 years from now) .  It can also make gains depending on the investment mix which is determined by the government.  If I withdraw it all, I lose any governement contributions.  I contacted the bank and they said that if there's a drop in the stock market we could lose not only the governement portion but also lose the money we contributed as well.  For the time being I could leave the RESP in place.  But at what point would you suggest I withdraw it, now, later, not bother since it'll be worth something when she goes to university?

Thanks

nex_s

Carl Veritas's picture
Carl Veritas
Status: Gold Member (Offline)
Joined: Oct 23 2008
Posts: 294
Re: Pension and RESP

Pension assets, like IRA assets are usually held by a third party, usually a trust company.    Pensions where only the employer contribute on behalf of its employees are called defined benefit I think.     Your employer contributes and Sunlife is contracted to offer investment management of pension assets.   Unlike yours, some defined benefit pensions do not allow employees to select investments, and in your case that might have been a better situation.    Stay conservative but start reading up on the basics because your own knowledge is the one thing you can count on to save your family money.     Vanguard has a decent tutorial.

 

SteveW's picture
SteveW
Status: Gold Member (Offline)
Joined: Jan 21 2010
Posts: 490
Re: Pension and RESP
nex_s wrote:

 Hi Everyone,

  I have a financial question regarding my Pension and our daughters RESP (Registered Education Savings Plan).

  My pension is managed by Sunlife and only my employer contributes to it.  I've been assured that it's not connected to the health of my company since it's a direct contribution type.  However, I'm unable to access it until I'm 65.  The fund mix I have to choose from allows me to be less risky but essentially when we see a downturn in the stock market I'll also see my pension fall drastically as well right?  Could it be worthless at that point?  Could it potentially be worth something in 10 or 20 years time?

Sunlife is the trustee holding the money "in trust" for you which is what you seem to mean by direct contribution. The pension itself is either "defined benefit" or "defined contribution" If it is defined benefit then you will, upon retirement, receive a pension defined as some fraction of, usually, your last 5 years of employment.

Since you are allowed input into the choice of investments I suspect that it is a "defined contribution" plan. This plan will accumulate your pension assets tax free until you are 65 when you will have several choices, annuities, transfer to RRSP/LRSP or RIF/LIF or some combination thereof. You should contact Sun Life as I'm sure they'll have documentation regarding these choices. Regarding your asset mix remember that the lowest risk produces the lowest return.

You might wish to look at one of the many retirement planners/calculators to get some idea of where you stand e.g.

http://www.hsbc.ca/1/2/en/calculators/retirement-planner

nex_s wrote:

The second question is regarding our daughters RESP. It can also make gains depending on the investment mix which is determined by the government. 

While the investment mix is determined by the government it is only very indirectly since the plan can include any "qualified" investments which are the same as those for RRSPs. The RESP is one of the better plans the government has introduced that allows tax savings. Although the contributions are after tax the RESP accumulates tax free, will attract little or no tax when your daughter makes withdrawals and includes a government contribution.

Also don't forget to use the TFSA for family members over 18.

Finally if you put TFSA funds in a bank account at 1% you are losing due to inflation. You have to be prepared to accept more risk in order to stay ahead. The banks generally won't give good advice and will push their own products, mutual funds and ETFs if they have them. The Globe and Mail online has a good investing section and some good educational articles. Often the best education comes from the comments section to those articles. An alternative to self education is to pay a financial planner to develop a plan for you. Since you pay for the advice the planner should work for you rather than pushing their own agenda.

Good luck.

nex_s's picture
nex_s
Status: Member (Offline)
Joined: Jul 30 2010
Posts: 17
Re: Pension and RESP

 

 Thanks for your information, I'll be putting it to good use, especially the Glob and Mail investment information.

nex_s

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