We answer the top 5 questions asked by education members.
You can bet we’ve been asked many questions over the years pertaining to the unique financial needs of educators like you. After all, we’ve been exclusively serving the education community for over four decades.
However, similar to what you’ve probably experienced with your students over the years, there are certain questions that seem to pop up more than others.
So, in the spirit of financial literacy, we thought we’d gather the top 5 of these educator-specific questions (along with the answers of course) in hopes of shedding light on certain financial matters you may have wondered about but never asked.
Question #1: I am an educator that pays into OTPP and was wondering what the value of buying back pension credit is?
A: Generally, it’s almost always a good idea to buy back all eligible pension credit. The impact can vary depending on the length of the absence you are buying back. Overall, buying back credit helps you maximize the value of your pension and ensures you reach your 85 Factor at your earliest possible date.
Be sure to use the tools on otpp.com to help you make your individual decision.
Question #2: Will taking a deferred salary leave (‘4 over 5’ or ‘X over Y’) increase my RRSP contribution room since I’m ‘on leave’ for a year?
A: While taking a deferred salary leave, you would still be making regular pension contributions as though you were receiving your full salary. Meaning very little (if any) extra RRSP contribution room. This room is used by your pension contributions to significantly reduce your taxable income. With that said, working closely with the education community puts Educators in a prime position to help you minimize taxes and maximize cash flow to help you make the most of your deferred salary leave.
Question #3: I just started my education career. While I’d love to start saving, I’ve got a student loan and various credit card balances that make it difficult to put any money away. Is it possible for me to save?
A: Regardless of where you are on the pay grid, it’s always beneficial to re-evaluate the interest rate(s) you are paying on those debts. Consolidating all your high-interest debt into one low-rate line of credit for example, can reduce monthly payments and provide you with extra cash flow to start saving.
Question #4: I am a retired educator that just turned 60 and I’m wondering—should I start taking CPP?
A: This can vary based on your pension income and preferences. While the government used to penalize you 0.5% per month for each month before age 65 you chose to collect, now the penalty amount is 0.6%. On the flip side, you can grow your CPP payments by 0.7% per month for each month you wait past age 65. Bottom line: if you can wait, you’ll get more. If you don’t want to wait and can get by with a slightly reduced pension, then 60 is fine. Naturally every situation is different. Your best bet is to sit down with an Educators financial specialist so we can help determine what strategy is best for you.
Question #5: Should I put my money in a RRSP or TFSA? Which is specifically better for education members?
A: If you are early in your career and lower on the pay grid, you’ll generally benefit more by contributing to a TFSA. While contributing to an RRSP when you’re making more money typically makes the most sense for people who work outside of the education community, keep in mind that as an educator, the benefit you earn through your pension plan (OTPP, OMERS) is linked to RRSP contribution room. This means the greater the value of your pension benefit, the less room you will have available to contribute to an RRSP. Furthermore, if you are expecting a gratuity payout upon retirement, you’ll want to leave room open in your RRSP so you can deposit your gratuity while minimizing tax implications. Before making any decision when it comes to investing, be sure to consult with one of our Financial Advisors so we can work with you to select the right investment(s) for your specific goals and financial situation.
Have a financial question that’s not covered above? Reach out to one of our financial specialists.
Since we’ve literally helped thousands of education members with their financial goals since 1975, we’ve come to develop an expert understanding of pay grids, pensions, and all of the other unique elements that are specific to you. It’s this kind of insight that enables us to truly be your champion when it comes to answering your questions and achieving your own goals—whatever they may be.