Assist your clients in navigating intricate retirement choices. The commuted value calculator compares the commuted value of their defined benefit pension against a lifetime pension, highlighting crucial factors for a comprehensive decision-making process.
Commuted Value Calculator
Commuted Value calculator compares taking the commuted value of your defined benefit pension to taking a lifetime pension.
Commuted Value Considerations
The commuted value calculator can help clients decide between taking the commuted value of a defined benefit pension or opting for a lifetime pension. This decision is a critical and multifaceted due to several key factors:
Financial Implications
The commuted value represents a lump sum payment that reflects the present value of all future pension payments. While you may be eligible for CPP benefits, opting for this lump sum could provide flexibility in managing your finances and investments, but it requires careful planning to ensure it lasts throughout your retirement.
Longevity Risk
Choosing a lifetime pension means you receive a guaranteed income stream for as long as you live, providing financial security and protecting against longevity risk. However, the commuted value option shifts the responsibility of managing this risk onto you, potentially impacting your financial stability in later years.
Interest Rates and Inflation
The commuted value calculator is sensitive to interest rates and inflation rates. Low interest rates may increase the commuted value, making it more attractive, while high inflation rates can erode the purchasing power of a lump sum over time.
Personal Circumstances
Individual factors such as age, health, marital status, and future financial needs play a crucial role. For instance, younger retirees might favour the commuted value for investment growth potential, whereas older retirees might prefer the security of a guaranteed lifetime income.
Tax Considerations
Tax implications differ between taking a lump sum and receiving periodic pension payments. The tax treatment of each option can significantly impact your after-tax income and overall financial strategy.
Employer Stability
Considerations regarding the financial health and stability of your former employer or pension plan administrator are crucial. Ensuring the reliability of promised future pension payments is vital for long-term financial planning.
Estate Planning
Opting for a commuted value lump sum could provide flexibility in estate planning by allowing for the transfer of remaining funds to heirs or beneficiaries, whereas a lifetime pension typically ends upon the recipient’s death, unless survivor benefits are chosen.
In conclusion, the complexity of this decision lies in balancing financial security, risk management, personal preferences, and long-term financial goals. Seeking advice from financial advisors and using specialized tools like the Commuted Value calculator can help navigate these complexities and make an informed decision tailored to your unique circumstances.
Commuted Value Calculator
Companion Infographic
This CPP and OAS Retirement Benefit companion infographic illustrates what age you are eligible to claim these benefits, what the current maximum amounts are, and other considerations about applying for benefits and taxation.
Features
Consumer-facing
These consumer-facing financial calculators can be embedded in your web site quickly and easily.
Responsive
Calculators are easy-to-use and fully responsive on any device – phone, tablet, laptop or desktop.
Full Branding
Calculators can be fully branded according to your branding style guide. You’ll be up and running with a quick turnaround.
The calculator can be viewed for free up to five (5) times.
To use the full-featured versions of these calculators in FreshPlan, please contact us.