“Should I be looking at the new pension fund for doctors?” Melissa asked me as a server set coffees and scones in front of us. “My accountant said not to, as he thinks I can get better returns in my RSP.” We were in one of my favorite coffee shops ( the lemon scones are amazing).
Since the Canadian pension fund for doctors launched almost two years ago, I receive this question every so often. Almost always the right answer is, “It depends.”
“What do you like about it?” I asked.
She thought for a moment.
“I like that it’s set and forget, knowing I’ll have a guaranteed income stream when I retire.” Melissa replied. “I don’t want to have to worry about the markets or losing what I’ve saved.”
I nodded. “That makes complete sense.”
“You’ve worked hard to get where you are, and the thought of losing money isn’t fun for anyone. It’s hard to know what the ‘right’ answer is now, and you don’t want make a mistake – only to find out later.”
Melissa smiled and said, “That’s why I wanted to meet with you, Adrian. I want your thoughts on this as you’re my retirement expert.” She took a happy bite of her scone.
I grinned back at her.
“The only way we can answer which option had the better returns is later, when we look in the rear-view mirror.
So while I understand what your accountant is saying, I think it’s more a matter of perspective of what’s most important for you.”
Your 5 Retirement Buckets All Have A Different Job
“What do you mean about perspective?” Melissa asked.
I took a sip of coffee.
“I totally understand what your accountant is saying, and they may very well be right.
But the reason I’d consider a pension fund isn’t for the returns, but to have a base guaranteed income that stabilizes your retirement income. You already have significant investments, and you’re the beneficiary of an insurance policy your parents have.”
Again, she nodded.
“So, even if we added funds to your RSP and did a better return, it doesn’t significantly change your circumstances. But having a guaranteed income stream adds to your overall plan.
When we created your retirement plan we set your retirement assets into 5 separate categories, each with different assets to achieve different results. I call it my 5 Bucket Formula.”
“Yes, I remember that! I love your bucket theory.” Melissa replied.
“A pension fund could fit into one of the buckets. If we have a minimum desired income stream that’s guaranteed, we can look to investing a little more in your other savings, knowing we always have this as a base. So, it wouldn’t be so much about your RSP or pension having higher returns, but rather WITH a pension, your other returns could be higher.”
“Your Canada Pension Plan, Old Age Security, GICs and possibly this pension would all fit into that bucket. This particular bucket’s job is to ensure you rest easy every night and protect your other assets as they’re left to grow until you want to use them.”
“When we created your retirement plan we set your retirement assets into 5 separate categories, each with different assets to achieve different results. I call them buckets.”
“That’s a LOT less confusing!” Melissa replied. “You mean I don’t have to pick which is right, but rather they both play a part?”
“Exactly. It’s not that either of us is right or wrong – I completely agree with your accountant that returns could be higher in your RSP.
“We just have different perspectives, and we’re helping you find which is most important to you for your retirement income: returns or stability.”
And then I took a big bite of my lemon scone and we dove into assessing what was the best decision for Melissa.
Just like the scone – setting up your 5 retirement buckets is done one bite at a time!
Enjoyed this article? I’d love to hear from you! I’m always interested in hearing about the unique financial situations doctors have. Send me a note! And make sure to check out my Amazon bestseller, The Doctor’s Handbook: 5 principles of wealth you weren’t taught in med school.
