I'm earning 20 per cent less and happy about it

While Moneyville blogger Krystal Yee plans on doubling her income this year, I’ve already decreased mine by 20 per cent. And I’m happy about it.

At my work, employees can opt into a deferred compensation leave plan. The way it works is the Payroll Department deducts a certain percentage of pay (between 5 per cent to 33.33 per cent of base annual salary) and holds it in a separate account that accrues with every pay cheque. In my case I’ve chosen 20 per cent. After four years, I earn my year off and will be funded at 80 per cent. I can go lower or higher than the 20 per cent and switch the rate on each anniversary of my participation date; however, the deferral period cannot be longer than six years.

Long an admirer of the “Four over Five” system that teachers are well acquainted with, I knew that I couldn’t start the deferred compensation leave program until my husband started working full-time. Now that he is, I started the program in July 2011. If all goes according to plan, my year away will start the day before my 50th birthday. Although we are living with less money, it’s not a full 20 per cent less. Income tax, Canada Pension Plan, Employment Insurance, and other deductions are calculated on my net income after the deferred amount is deducted. The T4-slip for me will reflect the net income after the deferred amount is deducted.

Even though my pay dropped, we’re still paying down our debt. In fact we’re paying a far greater share since July than we have in previous years. Part of the reason is that full-time job of my husband’s, but the other is that we’re paying attention to our spending and write down all purchases in a spreadsheet.

The fellow employees I’ve told about my plans are intrigued and some have started deferred leaves of their own. Others think longingly about unstructured time. A deferred compensation leave at my work can be either six months or a year, and as I said to a colleague today, “when’s the last time you had six months off without taking care of a baby?” The answer - “never.”

There are, however, some downsides to the deferred compensation leave plan:

• I’m earning less which means less for retirement planning; however, payroll still takes the same amount for my pension plan as it did before I started the program.
• If I choose to continue benefits, I’ll have to pay the full cost.
• My employment is guaranteed, but only at the same classification level. The company could, theoretically, switch my duties.

The upside is time. I don’t have grand plans … yet. But a year off? The mind boggles with the possibilities and I’ll be pondering many of them over the next 3 1/2 years.

Also read: Here's how I plan to double my income this year

Contact Peggy Mackenzie at pmackenzie@thestar.ca or follow her on Twitter: @PeggyMackenzie