Release now or later: 5 things to consider
Have a plan and get the timing right
Top five financial considerations when planning your release
1. Pension options and timing
CAF members have one of the best pensions in Canada. Your pension is calculated on the years of service you complete. Releasing early can have an impact.
Timing matters. As you decide how and when to collect your pension, take the time you need to make the best choice for you.
Four options for your pension payout
Receive your pension immediately upon release. If you’ve completed your mandatory years of service and are over age 50, or if you’ve served for a minimum of two years and are 60 or older, you can start collecting your pension almost right away.
Defer your pension until you reach retirement age. Perhaps you’re starting a second career, you haven’t reached the minimum age to collect your pension, or you’ve chosen to release early. You can wait to collect your pension until age 60. (Keep in mind, if you release early, your pension entitlement is based on your years of service).
Pension roll-over. If you start a job in the federal public service, you may choose to transfer your pension over to your new employer. Some people choose to keep their CAF pension separate. Ask your SISIP advisor how to evaluate the buy back cost of a federal public service pension so you don’t pay more than necessary.
Transfer your pension value. If you’re young or releasing early, you may choose to “cash in” your pension, so to speak, and invest it elsewhere. You may have valid reasons for selecting this option but be prepared. You could lose money.
- When you take a lump sum, there are significant income tax implications, which may cut the net value of your pension transfer substantially.
- External economics matter. When inflation is high, as it is in 2022, the transfer value of your pension may be dramatically reduced.
Tip: Connect with a SISIP advisor to examine your CAF pension options and determine the financial consequences of early release.
2. The income gap
When you release from the CAF, don’t expect a pension payout immediately. There’s a gap between your final paycheque and your retirement income.
Waiting periods range from six weeks to six months
- Minimum of 45 days for the first pension instalment, only if all your paperwork has been filled out and submitted correctly prior to your release.
- Between four and six weeks before Long-term Disability (LTD) instalments are paid out.
- Three to six months for a pension transfer.
Tip: Before you release, meet with a SISIP advisor to create an individualized financial plan, so you can budget and save to cover six months of expenses without income.
3. Insurance needs
Your life insurance and critical illness coverage needs will change when you’re no longer employed by the CAF. It’s much easier to get an insurance assessment done before you release when your medical records are held internally.
How much insurance do you need?
- Life insurance should be substantial enough to cover outstanding mortgages or other debts and provide income to your beneficiaries
- Critical illness insurance is uniquely calculated to ensure your beneficiaries are looked after if you’re unable to work.
Five times to review your life insurance
Tip: Reach out to a SISIP advisor while you’re still serving to determine your unique post-release insurance needs.
Did you know you have 60 days to transfer your OGTI/RTIP life insurance to Insurance for Released Members (IRM)?
4. Relocation
Where do you plan to live post-release? If you currently live in or near a military community, is it possible to find employment or housing in the area that’s suitable once you’re no longer serving? Often, people choose to move following their release.
Three financial reasons to consider relocation before your release
- Secure a mortgage. If you plan to purchase a new home, it’s often easier to get a mortgage when you still have employment income.
- Access relocation benefits. You could be eligible for a relocation allowance for your final move.
- Secure civilian medical and dental services. Having a family doctor and other services in place prior to release makes it easier to update your insurance.
Tip: Talk to a SISIP advisor about how to budget, save and pay for your relocation, and how to access exclusive mortgage rates for serving CAF members.
5. Second career income
Planning to start a new career or launch a business following your release? Don’t go into this next phase without a financial plan to ensure your income and spending match your lifestyle.
Create a tailored financial plan
- Discuss tax implications, pension and investment options if you have multiple sources of income in retirement.
- Develop a budget that accounts for income from your new career, costs associated with work or running a business and your retirement income.
- Determine if the timing is right for your release, or if there are financial benefits to waiting.
Tip: SISIP advisors are part of the military community, offering tailored financial services to CAF Members, veterans and their families.
Get in touch to plan your release
- Create a plan for your release from the CAF, short or long-term
- Discuss your pension options and payouts in detail
- Assess your unique insurance needs
- Understand how to save, budget and plan for post-service life.
