You wouldn’t turn down free money, would you?

After I graduated college and began my my career in engineering, signing up for the Group RRSP Plan offered by my employer was a no brainer. I could afford to contribute to it, and getting free money is always a nice plus. In all seriousness, it would have been stupid of me not to take advantage of it. It’s the easiest, most cost effective way to save for your retirement and future.

But even with that said, employer offered Group Plans aren’t utilized like you’d think. It’s always a head-scratcher to me when people tell me they aren’t on their employers Group Plan. Even more surprising, nobody knows why they aren’t on it. They just aren’t. It seems like when someone hasn’t been apart of a Group Plan offered to them, they become embarrassed. They know they should have been, they look back on the money they could have had, but yet don’t immediately go and sign up. So they compound the loss.

If you’re looking to get started with investing, check out this article. It’s all about getting started.

What is a Group Plan?

Along with health care and insurance benefits, employers can offer Group Plans. Usually being a Registered Retirement Savings Plan (RRSP). Typically how it works is you contribute a percentage of your salary, and your employer will match. Different plans will have different rules, but they are all fairly similar. The amount your employer will match could be based on income, years of employment, or your job position.

Group Plans are a great way for employers to look attractive. Job markets are competitive, maybe more competitive than ever. So being able to offer a Group Plan can make an employer stand out, or even help retain key employees.

How do Group Plans work?

Group Plans are a great way for someone to start investing towards their future. Once you sign up, it’s literally zero effort. Money will be taken off each paycheque before you even get it, and put into an investing account. Since it’s automated, you don’t get a chance to spend it or even miss it. Since it goes into an RRSP, it isn’t taxable income – so it gives you some relief come tax time. And the biggest advantage, the employer match.

If you’re investing in an aggressive portfolio, it should take your money about 10 years to double. Take 72 and divide it by your annual rate of return, and you’re given the number of years it’ll take to double. Also known as: The Rule of 72. Since your contributions are matched, you double your money right off the hop. Basically putting yourself 10 years ahead. Which is huge, especially if it doesn’t seem like you’re contributing a ton of money. Every bit helps when you’re just getting started.

A nice thing about Group Plans is they offer more flexibility than Pension Plans. Pension Plans are strictly for retirement income, and have restrictions in place. Group Plans are geared towards retirement savings, but can be used for other things. A popular one is the Home Buyers Plan, or even for income before retirement if you’re in a pinch. Because you get tax relief when you contribute to an RRSP, you are taxed when you withdraw from one.

Why aren’t people taking advantage of group plans?

It’s a great question. I think it comes down to lack of awareness. When someone knows the advantages of Group Plans it becomes a no-brainer. But when you don’t know, and you put it off, it can seem overwhelming. You might think of the time you’ve wasted, or feel like it’s going to be a ton of work (but it’s not). Really it’s just a lot of silly reasons.

Some people think they can’t afford to contribute. But really, with it being tax-free contributions, you’d only be getting a fraction of what you contribute if you had it paid out. If you contribute $50/paycheque, it might only be $30/paycheque after taxes. Many studies also show that when you save first, you gradually get more used to it. So if you find saving hard in the beginning, it gets easier. You might even find yourself being able to save more and more overtime.

I always see or hear of people doing silly things to nickel and dime. Or even hear people complaining about their income. And during all of this, they are leaving a Group Plan idle costing them thousands of dollars every year. With investing, they longer you wait, the less the reward you actually see down the road.

What should you do?

It’s the advice that I tell everyone. If you have access to a Group Plan, take advantage of it! Whether you’re brand new to a job, or you’ve been there for anytime but having got onboard yet. The best time to start investing is right now. So no matter the situation, a Group Plan is the easiest way to start saving for retirement. Especially when your employer is contributing. Would you rather have to fund all of your retirement? Or would you rather have to only fund half of it? Sign up!

If you have a Group Plan from a previous employer, don’t just leave it alone. I’d really encourage you to try to move it over to a bank or advisor you’re already dealing with. That way you can keep an eye on it and make sure it’s working for you. Your situation will change over time, so it’s important to make sure your investments reflect that. Moving it over under an advisor you trust will help you out, and ensure it’s not forgotten about.

Try to do things that your future self will thank you for. Sure, sometimes in the beginning things are overwhelming and confusing. But taking that first step in the right direction makes everything easier. The first step is usually the hardest.

About the Author

Derek Condon, CFP®

Derek Condon is a Certified Financial Planner and Mortgage Advisor specializing in financial planning, investments, wealth-preserving insurance, mortgages, and others. I help my clients with a variety of goals. From someone who is just starting their investing journey to a retiree managing their wealth. From a first-time home buyer to someone refinancing to get their very best mortgage. And, of course, everywhere in between.