I’ve only been a public servant for a couple of years now. Prior to that, I worked in the private sector and always contributed the maximum allowed to my RRSP (and now my TFSA as well). Retirement planning has been an important consideration of mine since the time I got my first job. When I first started working for the government, I thought that my pension plan was a wonderful perk of the job. The more I look at the numbers, the more I have to wonder. I currently contribute the maximum to CPP, matched by my employer. I also contribute about $4665 of my earnings to my public service pension plan. According to the pension plan documents, I contribute about 40% of the value of my pension, while my employer contributes the remaining 60%. Once I hit 65 and start collecting CPP, my public service pension is reduced by about the same amount that I’m collecting in CPP. I think of the two pension plans as one entity for my purposes. Here are the numbers:
Withheld from pay: $2118.60
Employer portion: $2118.60
Public Service Pension contributions
Withheld from pay: $4665.00
Employer portion: $6998.00
Total: $15 900
At the moment, I can only contribute about $3200 per year to my RRSP because of the pension adjustment. Let’s say I had no pension and no CPP, but, instead, received the employer portions of those premiums as part of my pay. I could then take that $15 900 and invest it however I like.
So I ran a quick calculation with a retirement calculator on the Service Canada site. For the calculations, I assumed I had no retirement savings at all before starting with the public service at age 30. I assumed I started saving $15 900 per year at age 30 with retirement at age 60. I assumed I would need this income until I was 90. The calculator assumes an inflation rate of 3%, a pre-retirement rate of return of 7%, and a post-retirement rate of return of 6%. That gives me $44 117 per year in today’s dollars (an estimate only, I realise). In contrast, my pension and CPP combined will give me about $38 000 per year in today’s dollars.
I know that many people would love to have a defined-benefit pension plan and I know that my plan does not have the same risk that comes with investing on my own and that my pension lasts until I die. Having said that, I can’t help but think I could do better on my own.
What about you? Would you prefer to invest the 9.9% of your earnings currently dedicated to CPP on your own or rely on the government to invest it? Do you have a pension plan? Do you think it's worth the money you put into it or do you think you could do better?