How to Enrich Your Retirement: Get a Degree and Work for Government

Getting a university degree and then working in the public sector will make you richer in retirement, especially if you settle down and live as a couple. Highly educated people working in public administration, education, health care and social assistance will have higher incomes, more generous defined benefit plans, and more money to buy other wealth-enhancing assets, too.

According to an excellent study by Statistics Canada, the average wealth of families with Registered Pension Plans (RPPs) in 2012 was $536,000, while those without RPPs had only $191,000. But families without RPPs would have had $359,000 if they had the same socio-economic characteristics; that is, they were born in Canada, have a university degree, living married or common law, and have higher after-tax incomes and longer job tenure. 

Released in January 2015, the study also notes the enriched retiree who worked in the areas of public administration, education, health care and social assistance, will have a median net worth of $473,400 in retirement. Women pull ahead of men here – more of them have the right kind of pension plan because they tend to be more predominantly employed in these areas.

University-educated workers tend to have more generous defined benefit plans, noted the study. A defined benefit plan will make you richer than contributing to a defined contribution plan, especially if you held on to your job for a long period of time.

Higher pension wealth in defined benefit plans depends primarily on three factors: the number of years of service, the size of employment income and higher levels of tenure.

Hanging in and holding on to your job counts: Of all university degree holders with DB plans, about 96% had plans where the pension formula was based on “average best earnings” or “final average earnings.”

How the pension is calculated matters, too. “The fact that the majority of public sector plan members receive a benefit based on 2% of their earnings, combined with the use of a lower discount rate to value pension wealth in 2012, likely contributed to this increase,” says a footnote to the study.¹

In another study, families with RPP assets were found to hold more of other types of assets including Registered Retirement Saving Plans (RRSPs) and Locked In Retirement Accounts (LIRAs), homes and cars than those who had no RPPs:

• Real estate equity – 82% vs 56%
• Financial investments including RRSPs/LIRAs – 79% vs 55%
• Vehicles – 91% vs 76%

The Money Moral?  Invest in your education, land a job in public education, health care or social work and then stay at your job. You’ll not only end up with a bigger pension, but you’ll own more assets in every other category too.

¹ New Facts on Pension Coverage in Canada, by Marie Drolet and René Morissette, observed workers aged 25 to 54 who are covered by defined benefit registered pension plans (RPPs) as well as those covered by defined contribution RPPs or hybrid plans. It does so by using new data from the Longitudinal and International Study of Adults (LISA), first conducted in 2012.