Reader Case: Locked-In Pension Holding Me Back!

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Hey all,

It’s Friday, so here we go again: another reader case!

After Monday’s article on retiring with a locked-in pension, I thought it would be fun/instructive to show how to do an analysis with an actual reader having this exact problem.

Hi Firecracker/Wanderer,

Love you guys and are so inspired by what you’re doing!

I would TOTALLY appreciate your advice regarding our financial situation so here goes…

I’m currently 41 years old (husband 42), have two kids (12 and 10), live in Regina SK and would love to quit the rat race because my job is affecting my health.  We are doing well however most of our wealth is tied up in two major things: 1) house and 2) defined contribution pensions.  We could always sell our house and move to a smaller (cheaper) center but not a red cent from pension is not accessible (in any way, shape or form) until I’m 55 years old – which royally pisses me off. Apparently trying to be financially independent in your 40’s doesn’t “fit the traditional mold” so everyone thinks we’re crazy.

Gross income: approx $120K (me) and husband makes 60K = $180K
Net income: roughly $110K

Monthly family spending is just under $5K/month.

Debts: NONE

Assets:  House    525K
Vehicles       23K
RRSPs/TFSAs   342K
Pensions (DC plans) 465K
RESPs   63K

We put away $5K/year in RESPs, $11K/year in our pensions ($22K if you include employee contributions) and around $40-50K/year in our RRSPs/TFSAs however I feel like the financial party is almost over as my health/job situation is unraveling.

The only thing I can think of is to sell our house, move elsewhere (say a house worth $225), take the $300K difference and add it to our $342K of investments.  Then we would live off the $642K for the next 14 down and deplete it down to zero before we finally get access to the pension lump sum (which will be worth a lot more in 14).  This would involve living more frugally from now to 55, with more disposable income after 55.  Not ideal since I’d want to travel and enjoy the money more when we’re younger.  It also makes me very nervous to deplete ALL of our non-pension money prior to age 55. If only I could access some of the pension money I feel like we could make this work! With the provincial rules, the only way to get the money out sooner is if I have a shorten life expectancy (seriously!).

This is a puzzle that I just need to solve for my own sanity and peace of mind. Please help me find a solution!

Thanks so much!


For our American readers, “DC pension” refers to a Defined-Contribution pension. It’s basically a retirement account you can contribute to pre-tax off your paycheck, and the employer matches your contribution. It’s basically a matched 401(k) plan.

OK so here’s where we stand. LockedIn has (potentially) $342K + $274K (real estate proceeds after a 5% commission) = $616K in retirement savings accessible right now. An additional $465K is available in a DC matched pension plan provided through their employer, but it’s not accessible until the age of 55. What is LockedIn supposed to do?

Well first of all, double check that this DC pension is actually locked-in. It’s common for DB (Defined Benefit) pensions to have an age limit for withdrawals, but not DC pensions, especially after you leave the company. I had a DC pension that was supposedly locked-in until the age of 55, but when I quit my job there was an option to transfer the balance to a self-directed RRSP, which meant that the age restrictions went away. Call your pension provider and ask what happens if you quit. You may be pleasantly surprised.

But for the purposes of this analysis, let’s assume that it’s well and truly locked-in until 55. Can LockedIn retire?

Well, let’s ask FIRECalc, shall we?

First we need to determine what the locked-in DC pension will be in 14 years. To do that, we need to project what $465K will be in 14 years. Assuming a conservative 6% return on investment, we can project that this DC pension will be worth…


$1,051,320! That’s a lot of money, to say the least. BUT, the big question is, will LockedIn make it to that date with the money they have access to now?

To answer that, let’s turn to FIRECalc. LockedIn needs to survive for 14 years, spending $5000 x 12 = $60K a year, with a portfolio of $616K. According to FIRECalc, how likely is LockedIn going to make it?


Now, that’s not great, to say the least. We’re doing no better than a coin flip here. So as of right now, LockedIn cannot retire safely. Too much of her retirement savings is, as the title of this Reader Case implies, locked in. She needs more money accessible to her now. So what can we do here?

Well for starters, we can save some more.

Because our initial retirement period is 14 instead of the usual 25, the 4% rule we usually use doesn’t apply since the 4% rule assumes a 30 year retirement period and would therefore be way too conservative. Instead, we need to manually sweep the portfolio size in FIRECalc’s simulated results by entering in progressively higher and higher numbers into the “Portfolio Size” field until we come up with an answer that shows a 95% success rate. In this case, that number is $970,000.

So how long would LockedIn take to get to a portfolio size of $970,000? Well, given that LockedIn says that she contributes $50k to her retirement savings each year, we can project that fairly easily.


Looks like LockedIn can get there in 3.5 years. That’s pretty great. But what if we wanted to get there sooner? Especially considering she describes her job as “almost over as my health/job situation is unraveling.”

What if LockedIn were to drop their spending by $500 a month? From $5000 to $4500 per month, or $54,000 annually. By manually sweeping the portfolio size in FIRECalc, our required portfolio for a 95% success rate comes out to be about $870,000.

The reduced spending would also increase their monthly savings by $500 a month, or $6000 a year, bringing their time-to-retirement to…


…just under 3 years. So we’re getting closer.

Continuing this pattern, let’s see what reducing their spending by another $500 would do. So now we’re spending $4000 a month, or $48,000 annually. This would bring their required portfolio size for a 95% success rate to $775,000.

And how long would it take to get there?


Just under 2 years.

So by repeating this pattern, we can figure out what their monthly spending would be that would allow them to retire in less than a year. Turns out, this would be $3500 a month, or $42,000. This spending amount requires a portfolio size of just $675,000 to support for 14 years.

And since they have $616,000 (assuming they sell the house and downsize as LockedIn proposes), that’s less than a year of savings required to get there.

And of course once we add back in the DC pension becoming accessible in 14 years by using the “Portfolio Changes” tab in FIRECalc like we discussed on Monday’s article, we can bring our retirement timeframe back up to 30 years and see what our full picture looks like, which is to say “pretty fucking awesome.”

So basically, LockedIn has a choice to make. Either stay at their current spending levels and retire in 3.5 years (which quite frankly isn’t a bad outcome at all), or cut their expenses by about $1500 a month to $3500, or $42,000 a year. This would get them retired within a year.

Arguably, since they already have way too much in their DC pension, that $11k a year they’re contributing is one area where they could easily redirect to their RRSP. Normally, you never give up free employer contributions to your retirement plan, but this is the one scenario where it makes sense since that DC pension is already way more than they need. That would give them a little less than $1000 extra savings a month, so that’s most of the way there. After that, they’d need to find an additional $500 a month of expenses to cut, but since they didn’t break out their spending numbers, we can’t suggest anything specific.

It all depends on how bad LockedIn’s health/job situation is. Will it last just a few more years? If so, they can cruise there at their current spending levels in 3.5 years. If not, they may need to cut their spending now to get there sooner. Or they could hedge their bets, keep their spending the way it is for now, and make those spending cuts if they get laid off.

Either way, LockedIn has done surprisingly well despite a locked-in pension plan, and they’re super close to retirement whatever they choose to do.

So what do y’all think? Should they cruise to retirement in 3.5 years or cut and pull the ripcord now? Let’s hear it in the comments below!

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56 thoughts on “Reader Case: Locked-In Pension Holding Me Back!”

  1. Nice post, thank you.
    One minor point:
    Seems like you forgot to remove the extra years she’ll be saving from the years left until she has acess to her pension.
    If she works 2 more years, she only needs the money to last 12 years.

    1. Good catch!
      Because of that, my analysis is actually conservative given her situation. But I didn’t want to make the analysis more complicated than it had to be…

  2. Hi Wanderer… I enjoy your site, and the straight-forward approach to the case studies you take. Regarding the DC plans, I have seen many cases where the Employer matching portion ends up being transferred to a locked in account on leaving the company, but the Employee contribution portion and associated growth goes to a normal RRSP as it really is the same in nature as an RRSP contribution – that could make a difference and would be worth checking with the employer / plan administrator.

    1. Thank you for your comment! I will look into this again and ask my plan provider these specific questions.
      To my knowledge, when I leave my employer I can move the funds out of the plan and invest them as I choose but they are still locked in.
      When I called the provincial office they mentioned that for Saskatchewan regulated plans, I can’t access the money until age 55 unless the following 1) insignificant amount or 2) shortened life expectancy. Maybe I should call them again and talk to a different person?? Apparently different provinces have different rules. Anyone out there with a similar SK experience? I’d love to hear from you.

  3. Consider stopping or reducing RESP contributions. $63K saved for school already invested at 5% for the next 6 years when the first fraggle might need it is over $84 000! Even if you cut RESP contributions to $200/month that still works out to $100K+. Well done mom and dad. Average university cost is Canada is $9K per year if stay at home and $20K per year if they move away. This does not include any scholarship money, grants or Gramma/Grampa help let alone kids working some to help pay cost – as they should.

    Health before wealth. Your family needs their mom to take care of herself first. Stop working or see if you can work part time for same company. If they really value your contribution they’ll make it work, otherwise good riddance and do something you love.
    Does dad like his work? That almost covers your monthly expenses right there. Lots of options.
    You have property rights with a DC pension and in some ways is safer than a DB pension. Think SEARS. If it is super safe you might be best to leave it but it appears you guys are good with money so if you can get it that might be best.

      1. I’m guessing term of endearment for children based on the 80’s show Fraggle Rock -

    1. Thank you Gruff403 for your comments and encouragement! ‘Health before wealth’ is a line that will stay with me. I’ve kept pushing myself and realize I need to change my mindset. I guess the heavy lifting is done and I should be giving myself a break. Easier said than done!
      My husband does like his job and thinks he’ll continue working until age 50. To cover the ‘gap’ in his wage and our spending I could get a hobby type job or absolute worst case we use the dividends coming out of our $342K imvestment portfolio (invested in blue chip dividend paying stocks).
      My husband is not keen on selling our house or pulling out the dividends though.

  4. Wanderer,

    A couple notes you may be missing… when she retires her 110k salary goes with her, but his 60k salary remains. Their family tax rate plummets, likely leaving them with $3800/month take-home pay. They will also qualify for dramatic increases to CCB, likely likely hundreds of dollars per month, which will significantly help their monthly budget situation. This may not be getting considered as they likely only qualify for a small amount currently based on income testing. Also, with a stay at home parent, could they cut down to one vehicle? That would save significantly. A stay at home parent will spend far less as well on food, Starbucks, food, unneeded cell plans, etc. These should all be factored in as well.

    1. Thanks Chris for taking the time to comment!
      Yes, the increased CCB payment if I were to have very little salary is something that I recently discovered. I was pleasantly surprised to see that we’d get over $400/mth. That helps narrow our gap if my husband keeps working.
      I guess there are perks to making less money!

  5. My first thought was to ask if her husband likes his job, and would he be willing to work another year or two if she quits right now? That would solve a lot of problems (both financial-wise for the family, and health-wise for her). It would also give them time to ease into retirement, and time for her to work up the house to sell it, and work down the spending. I have great confidence in their ability to manage all this!

    1. Yes those were my thoughts too. We save so much money now that I work part time from home and my spouse is retired, especially on food because we cook all of our own meals instead of eating out or buying premade/frozen meals for convenience but also just having more time to be able to research and make informed purchases and cutting back on buying things altogether to live a more minimalist lifestyle has saved us a lot. No more dumping a ton of money on sales buying cheap crap we don’t need just because it’s a good deal.

  6. It sounds like work stress having a health effect. LockedIn might consider engineering a layoff or just taking a sabbatical to recover. Once her health is regained, she could look for another lower stress position if the finances aren’t quite working out. They have a lot of options. It doesn’t have need to be a binary decision such as both parents retiring at once or sticking it out for a few more years. If it’s the stressful work environment, perhaps, take a needed break. Maybe there’s more of a blockage in that leaving a position means a loss of status more than the monetary since their finances are in good shape. Something to think about and only LockedIn can answer that.

    1. A few people I work with have done this – taken some time off when the stress of the office got to be too much. I’m pretty sure we have insurance through our employer for this (not 100% of your salary, more like 60% I think? Better than nothing!). Might be worth it for LockedIn to see if she has any coverage like this to help offset the cost of a sabbatical.

    2. Interesting. Though, I’ve yet to see someone successfully engineer their own layoff. Once they have the money somehow their lack-of-desperation becomes too obvious.

    3. Thanks PurpleSquirrel for your comment!
      Yes, you’re right in that my thinking seems to be binary on this (great paying job or nothing) when it doesn’t need to be. Just want the monkey off my back!
      When you mention ‘engineering a layoff’ do you mean trying to get yourself fired in order to collect severance? Hmm.. I do have 20 years of service so this could be lucrative. How would someone do this? I’d probably end up feeling guilty even trying it though.

  7. Good case study Wanderer. I think this case illustrates one of the big problems with saving most of your assets in traditional retirement accounts — You might not make it in good health until the funds become “unlocked” (or until the penalties for withdrawing early disappear).

    During my accumulation period, I tried to balance between 401k’s, IRAs and taxable brokerage accounts. I knew I might retire early. This provided plenty of cash before we hit traditional retirement age.

    Right now, we’re not even touching our retirement accounts.

  8. I had a spouse with a job that was too many hours, too many projects and no resource help from the bosses. Health was affected and the cry for retirement was strong. My spouse managed to find another job, same nickel but a complete change in the work/life balance. The end result is a happy spouse with eyes wide and a smile on the face.

    Consider changing jobs, position & responsibilities, part-time or what ever is required to save your health. Know your disability and paid or non paid time off options.

    Your kids have not reached their teenage years yet and I think your spending levels might increase in the future.

    Best of luck.

  9. I don’t know the Canadian system, but in the US you can avoid early withdrawal penalties if you have a sudden disability, so depending on the severity of her health issues, this might be worth exploring. One other issue to consider is taxes. Again, I only know US rega, but we have to pay taxes on money we withdraw from a pre-tax retirement account, which can significantly impact net funds available- just something to think about. I agree that viewing options in a binary fashion is making Locked In feel trapped, when she isn’t. Since they would only need a relatively small income to cover the “gap” between saving and expenses, another alternative to cutting expenses, if that isn’t possible or desired, is to find a lower paying yet lower stress “fun” job that would cover the gap for the next few years. If she has a hobby that would be a good place to start (passion for books? Work in a book store. Art? A gallery. Etc…) I think we often convince ourselves we are trapped when really we just aren’t being creative enough to explore all our options.

  10. I didn’t get a sense whether their house and cars were paid off. Isn’t 5k/month in expenses too high for a family of 4 if everything is paid off?

  11. This was perfect for the nice rainy weather we are having. Haven’t been keeping up lately, cuz site crashes on my ipad 🙁
    Hmm…not sure I understand what the FIRECalc is doing differently than what you used to do, but I like that you looked at different what ifs… i like doing that too… what can i do to leave this desk sooner!
    Good luck to them.

      1. I can get through about a paragraph and then it just says this site has crashed and needs to be reloaded…then it just spins and spins… so basically i can’t scroll past whatever shows up first so it just keeps reloading. That’s at least my experience. Works fine on laptop, don’t have smartphone.

        1. I have the same issue. If I wanna type a comment longer than this one (ironically typed on a smartphone), then it has to be on a laptop. The site keeps crashing when I type the comments from my phone.

          ARB–Angry Retail Banker

  12. I’m having similar issues… So let me ask you… Why not travel the world?

    Leave Canada… Become a non resident and then pull your money out that way. Takes about 2 years of living outside Canada and It’s obviously more complicated than that just that… But that’s pretty much the easiest way you’re getting that money out.

    Take your money and go live in a cheaper South Asian country. Expose your kids to the world and try something new…

    1. AnOldSoldier, you read my mind 😉
      It’s a little tough to be a non-resident from a CRA (tax) perspective I think, you might need to close bank accounts and what not.

    2. AnOldSoldier, can you elaborate? Does this mean that once you’ve left Canada for 2 years the ‘locked’ money becomes ‘unlocked’ regardless of age? I wasn’t aware of this possibility…

      1. You can unlock your LIRA if you become a non resident of Canada. Now this is far more convoluted than people think, you have to have left Canada for over 2 years and have severed your ties here. Which means no real estate, no bank accounts… No cats you’re coming back to visit…Basically no vested interest in coming back here and even then CRA could just decide they don’t believe you and refuse you a certificate that clears you.

        If you get that cert from CRA, then you use that to apply to release your LIRA to whatever your current overseas financial institution is.
        Keep in mind that there are MASSIVE tax implications regarding Canadian tax treaties with whatever country you’re living in, as well as a brutal with holding tax if no treaty exists.

        If you’re bored, I’d suggest contacting the international tax desk at CRA… They’re helpful, but you really have to go armed with your full plan, ,
        The research you’ve done and all your questions.

        There’s a lot more to this, but that’s the basic process. Not for everyone.
        It’s extreme I know… But no less extreme than not being able to access your own money.

        Hope this helps.

  13. Talked to your family doctor. If your health is being affected you can get a medical leave of absence as well.

  14. > OK so here’s where we stand. LockedIn has (potentially) $342K + $274K (real estate proceeds after a 5% commission) = $616K in retirement savings accessible right now.

    Errr – the intro blurb says House is 525K with no debt. What did I miss?

    1. OK so to answer my own question they were planning to buy another house – I’d just assumed they would rent!

  15. Defined benefit pensions are very unfairly taxed. Not sure if the same applies to defined contribution. To commute the value of my DB pension, ~1/2 goes into a locked in retirement account (not accessible until age 55), the other 1/2 is released immediately in cash and is fully taxable. This is dictated by section 8517 of the income tax act. So in effect, one loses their RRSP shelter completely in one sweep.

  16. Great analysis, but one potential problem I’m seeing is the assumed 6% annual growth on the pension… my own Canadian DB pension plan is invested extremely conservatively and grows at only a little more than inflation. It’s frustrating because I’d love to take my annual contributions and employer match and put it into something self-directed, but no dice. 12 years into my own contributions and it’s been dismal growth, so when I decide to move on and potentially move it into a self-directed locked in retirement account the total amount will be very little more than the actual contributions.

    1. Frosty Fire, how are you measuring the value of your DB pension? I’ve reviewed several DB plans and when I calculate the effective value (ie an indexed guaranteed income for life) at retirement, they have been clearly the best investment the individual has made.

    2. I can totally relate to your point Frosty Fire, In our case the Pension scheme (Pillar 2) in Switzerland is very conservative with below inflation interest (0.5%) which make it negative Real Interest rate of -1.5%,
      By the law you can not withdraw your pillar2 except the following circumstances :
      a. Death
      b. Leaving the Country
      c. Reaching the retirement age
      e. Buying properties for residence
      [that is another reason property prices are overvalued in Switzerland]

  17. They have a couple of other options as well! If they don’t want to slash expenses to retire this year, she could….get a different job! No job is worth your mental/physical health, and early retirement is awesome but just not feasible for many people. That doesn’t mean you’re stuck though. Even if a pay cut is required, start brushing off that resume (or whatever it’s called in Canada)! You may find you’re just fine working another 5 years or so if you can reduce your hours/stress.

  18. Just a thought…there are ways and then there are ways to engineer things. If you are serious about leaving it doesn’t hurt to ask to go part time first. Worst that can happen is that they say no, which leaves you no worse off than before, and in fact, if reputation matters to you, may actually help since you can position this as you being open to offers down the road.

    I asked to go part time when I was prepared to quit, they ultimately said no (offered compressed work week, which did nothing since it was the volume of work that was the issue). So I said totally understand, and I’m happy to give you a longer notice period but I am serious that I have hit the wall stress wise and just cannot keep working full time, so I’m giving my notice. At which point, after jaws were picked up off the ground, there was a sudden flurry of activity…and low and behold a part time offer got made. I have since worked that into a new part time position elsewhere within the broader org (a former manager that valued my work ultimately put me in touch with a colleague looking for someone with my skills).

    It all really depends on your situation and reputational capital at work, but I have heard of a number of similar stories since, interestingly all about women. Maybe it’s just small sample size error, but I suspect it may be that valued women have a harder time getting taken seriously until they play the trump it’s been a blast but farewell card.

    Btw, do make an appointment with your pension folks. Can only speak to my ontario defined benefit plan, but was told can either leave it in the plan, or take it as lump sum (btw…interestingly not an either or. I could choose to leave it, then later change to taking the lump). Catch with lump sum is part goes to locked in plan that can’t be accessed before 55 (LIF), part gets given to you as lump sum. Trick to that is 2fold: 1) if you have any RRSP room you can stuff up to your limit in there, and 2) you want to time things to get your lump sum in a tax year where you have no other income (&/or lots of write offs) since it’s considered taxable income. And of course while you’re chatting with them you can get the scoop on how going part time affects your benefits plan!

  19. It sounds like they need to start a side hustle blog venture. My mother retired over 2o years ago and they tried to lock her into an uncomfortable retirement plan before she was BLESSED to have it changed at the last minute without putting in additional paperwork. Nowadays, you gotta get that side hustle going online because anyone can better their healthy by working form home and working toward achieving “side hustle millionaire” status!

  20. I would be interested to hear your thoughts on someone with locked in pension (super in Australia) and being younger, 30 years old

  21. Locked in accounts in some provinces can be tapped before 55 due to “financial hardship rule” – I plan on using this method myself starting next year.

  22. I think you are bang on with the 9K per year, that is what we have spent in the last 2 years. as we continued to add for the younger one. Our total is close to $72K, which will be more than enough, as both kids work in summer, and their programs have mandatory COOP’s, of which my oldest Fraggle, will start a 2 term this Sept. We have told them to expect to pay for one semester out of their own money.

    Not sure about other pension plans, but I know I can get a lump sum from Pension Corp, only if you pull out before 55, and a coworker did just that. Also consider a collateral loan against the pension, if you health will decline significantly, this is always an option to get capital out, but yes, you pay interest on the money.

    No mention of a side hustle? Renting rooms in your house, hosting students, collecting pop cans… (ok, maybe not) growing pot in you back yard… (thanks Justin…)


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