Friday, December 7, 2012

Short Takes: Defined Benefit Pensions as Bonds, How Parents Direct Inheritances, and more

My Own Advisor explains how he considers his defined benefit pension to be like a large bond that allows him to take more equity risk with the rest of his portfolio. This makes a lot of sense, but something that many people don’t consider with defined benefit pensions is the risk that you won’t collect as much as you think. If you decide you can’t stand your job or get laid off, you may be left with only a very modest pension (or none at all if you take a commuted value when you leave). Even government jobs aren’t as safe as people used to think, particularly with all levels of government facing huge deficits. When balancing a portfolio, it makes sense to consider only the value already accumulated in the pension rather than the entire future value if you stay until retirement age.

Boomer and Echo tells a story of parents financially supporting spendthrift adult children at the expense of their responsible children. Perhaps living only for today pays off if you have wealthy parents willing to bail you out.

Canadian Dream Free at 45 makes the case that good financial habits are more important than far-away goals of huge retirement savings.

The Blunt Bean Counter takes a look at how Canadians use RRSPs and whether they raid them too soon. The answer seems to be that some leave RRSPs alone until retirement, some raid them too early, and some have well-laid out plans for using them prior to full retirement. This one generated quite a few comments.

Big Cajun Man has some fun creating some sayings in Mad Lib style. My favourite is “Hoarding is valuing the invaluable”.

Preet Banerjee wants your financial questions for The Bottom Line Panel on CBC’s The National.

Young and Thrifty explains how to reduce your payroll taxes using a T1213 form.

Retire Happy Blog says there is value in simplifying your personal finances and suggests ways to do this.


  1. Thanks for the inclusion, the hoarding one has a special place (in the back of the basement under 10 years of newspapers I think). Have a great weekend.

  2. Thanks for including the post Michael.

    Fair point, only if I stay with the DB plan for about 25-30 years (or as long as they will have me), then my equity risk makes sense based on my risk profile. If I include my DB as part of my portfolio, I should have a healthy fixed income component.

    Regardless, I still invest in XBB registered but not very much. Not a big fan of bond ETFs because of low yield-to-maturity even though they provide stability.

    On that note, have you written about why you don't invest in bonds yourself? Is that because BRK is somewhat bond-like? :)

  3. @Mark: My suggestion would be to figure out roughly what your pension is worth right now if you quit your job and include that value (in bonds) into you portfolio.

    I don't invest in bonds because I'm content with the volatility (and expected return) of an all-stock portfolio. So, you might say it fits my risk profile. Another thing to consider is that I get a lot of job offers, and so I tend to think of my current employ-ability as having some bond-like qualities. This will likely change as I age, though.