The Clear Advantages of Investment in Your Group Retirement Program

Jan 27, 2015

Since the financial crisis of 2008, it seems that you can’t pick up a paper, turn on the TV or radio without hearing that, as Canadians, we are not saving enough for retirement. For a majority of Canadians, this is probably true.

There are essentially two ways to make money. The first is by getting up every day and going to work and being paid a fair wage for that work. This leads me to the second method – to grow the amount of money you have, so you can save some of it and eventually stop working. An employer sponsored retirement program is recognized as being an excellent way to prepare for retirement. Here’s why.

Most employer sponsored retirement programs are built around the premise of a contributory “matching” policy, such that your employer will match the contributions to your retirement account. Although most plans offer a dollar for dollar match, even a 50% from your employer offers an incomparable return on your investment compared to other investments. Even if you simply parked your contributions in a GIC within your retirement program, you would be a getting a guaranteed 50% or even 100% return on your contributions after accounting for the employer contribution made on your behalf.

The other reason group retirement programs can be so effective at saving and accumulating funds is because you pay lower investment management fees (IMFs) as a participant in your employer’s plan. With combined purchasing power of other participants on the plan, the fees under a group retirement program are much lower than the traditional management expense ratios (MERs) of funds commonly offered by banks and mutual fund companies.

There is one final advantage not available in any other type of registered plan. Your contribution to the group RRSP is deducted at source from your gross income before tax withholding. What that means is that your contribution is deducted from your gross pay before tax is calculated. For example, if you are contributing $50 bi-weekly from your pay, and assuming you are in the 30% income tax bracket, the impact to your pay cheque is only $35 even though you have invested $50. Instead of getting the usual tax deduction at tax time, you get your tax refund immediately at the time of the contribution.

Only 30% of Canadians have access to an employer sponsored retirement plan. If you are among the lucky ones, make sure you do take advantage of this benefit. It like getting deferred extra compensation you are entitled to and who doesn’t want that?

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