Here’s a plan, when someone wants to give you money, take it. It’s incredible that most Canadians walk past free monies. We say ‘no thanks, I’m good’. The place where we walk right past free monies is often at work. Our employer wants to give us money every two weeks and we take a pass. Of course I’m writing about that Group RRSP Plan with matched contributions. Take all free monies with your Group RRSP.
I had previously posted on Twitter that taking all free monies is the number one rule of financial planning. Preet Banerjee had suggested that choosing rich parents was more important. I’d have to agree. So start there. There might be a lot of free monies with that strategy. If that doesn’t work out, you might hit up your employer.
What are Group RRSPs?
Here’s a good overview with additional links courtesy of or our friends at getsmarteraboutmoney.ca. It’s essentially an automatic RRSP savings plan. You put in $150 every two weeks, your employer puts in $150 every two weeks. Of course that amount will depend on the generousity of your employer. It is usually based on a percentage of your salary. You may be allowed to put in 2% or your salary, and perhaps all the way up to 7% of your salary. 7% is on the generous side.
If your employer is offering 7%, take it. That is free monies on top of your salary.
Your Group RRSP contribution and your employer’s contribution is tax deductible. You’re likely going to get even more free monies back, this time from Canada Revenue.
Free monies + more free monies = 🙂
Yes it is absurd to even think of passing up free monies raining down upon us. Money might not fall out of trees, well unless you work for a tree growing company.
Tangerine offered a very generous matched group plan. I took full advantage. I paid in 7%, Tangerine gave me 7% of my salary. The money was invested every two weeks in a core Tangerine Portfolio. When they launched the Tangerine Dividend Portfolio I jumped on board.
You might not be so lucky to have a wonderful investment option. It will depend on what investment supplier your employer has partnered with. If you are with a larger firm, they should have negotiated some lower fees.
Don’t let high investment fees scare you away.
It’s possible your investment options are mediocre. The fees might be high; hey this is Canada after all. But keep in mind that those free monies totally outweigh any high fees. On any $10,000 held in the funds and if you’re paying 2% in fees moving forward, that’s $200 annual. But $5000 of that $10,000 was free monies. The math can turn more to your favour as your free monies makes more money moving forward.
And take a close look at your investment options. Take a look at the fees and the longer term fund returns history. Hopefully 10 years or more.
I had a look at a friend’s Group Plan options about 5 years ago. We found some index based funds. I suggested a simple couch potato mix. His fees are in the .40% range if memory serves. We over-weighted to US slightly. His returns are wonderful. He loves giving me updates. “Hey, we’re over $450,000”. “Guess what, it’s over $500,000”. “$525,000, w00000!”
We get together once in a while to rebalance the portfolio over a glass or two of Cabernet Sauvignon.
Automatic and paying yourself first.
One of the main benefits of a Group Plan is that it is on auto pilot. You are paying yourself first. The monies go nowhere near that chequing (spending) account. You are making wealth building a habit. It’s just a part of your life, your routine.
Why do so many Canadians take a pass on free monies? Certainly it’s difficult for many, they feel they need every penny to make ends meet. But make every effort to make it happen. Do a personal or family budget. Create that cash flow statement. And remember, you will reduce your taxes owed. It may not cost you a penny of money in your pocket when you factor in taxes.
Even more free monies.
On the tax front, ensure that you are using all available tax credits. That link is for Ontario residents. You can start at the CRA, then move on to your provincial site. Do your research and if in doubt contact an accountant.
There’s free monies in the RESP plan.
You may have stock options available from your employer.
Use cash back cards and points cards that will pay you net monies or points with real value. We make about $700 annual on everyday spending with our Tangerine Cash Back Card.
And Mark Seed of myownadvisor reminds us to not give away monies as well. We can often bank free of fees at Tangerine, Simplii and EQ bank. There’s a longer list of free monies and on ways to not give away your money. Please add your thoughts in the comment section.
Graeme at The Money Geek Blog reminds us that RDSP benefits are underutilized.
And if you’re an employer offer a great Group RRSP plan. That can do wonders for your employees and your business. You might consider the Group offering at Nest Wealth. The program is managed. The investments are low-fee ETF portfolios.
Weekend Reads.
Before Mark Seed went swimming with the Sharks in Belize, he delivered his Weekend Reads post (just in case). A host of great links and reads in there.
On findependencehub – How much is enough? Retirement calculators and rocket science.
SavvyNewCanadians offers up on RESP contribution limits and other insights with respect to that ‘free monies’ plan.
On that TFSA Canadian wealth building staple, milliondollarjourney goes over the contribution limit and more.
And on a subject close to my heart (and portfolio) Mike The Dividend Guy looks at the best Dividend Achievers for 2020. In 2015 I trusted the Vanguard Dividend Achievers fund that also applies financial screens – aka smart beta.
On the dividend front Mathew at All About The Dividends goes over his research and online poll leading to a TFSA purchase.
As a still-recovering former ad guy, I had to share a short history of advertising on A Wealth of Common Sense.
And more than super-cool, here’s Bob Lai on Forbes. Bob tells the story of how his parents retired early, long before anyone had ever heard of the FIRE movement. Bob blogs at Tawcan.
This week on Cut The Crap Investing a guest post on the importance of good credit from Loans Canada. Using your RRSP to fund your TFSA to play retirement portfolio catch up. And my favourite, how to teach kids about money.
Thanks for reading. I’m happy to answer any questions you may have on your Group RRSP plan.
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Dale
Large companies often offer stock purchase plans. Mine offered a 25% top up to a $2,500 limit every year and it was automatically deducted every pay check. As a US blue chip dividend paying stock it was a no brainer. The offer was reduced later to simply covering the exchange rate from Cdn to US when it was about 10%. Still a great offer.
Executives were offered a complex pension optional program beyond the maximum pension contribution to enhance retirement benefits. I maxed out every year for 15 years and my early retirement pension of $40k includes a $6k enhancement. I retired for health reasons so the enhancement was a valuable investment. I recommend any company benefits be reviewed carefully as most include an attractive company contribution. These are often explained when you start employment when you are overwhelmed with all of the new employee processes. Go back to HR when you’ve settled and understand all of the benefits in detail. See your financial advisor if they are too confusing/complex to understand. Attend every pension or benefits information session. Programs can change.
Thanks Geoff for those great insights and for sharing your personal story.
I hope all is well, and glad to hear you took full advantage, and put yourself in a strong position.
Thanks for dropping by the site.
Dale
Thanks for the mention, Dale. No one should ever leave an employer RRSP contribution-match on the table. Excellent post!
Thanks Enoch. And I always find your posts offer great clarity and detail to ‘fill in the blanks’ on various topics. I’m sure Cut The Crap Readers are visiting your site with regularity.
Dale
I’m lucky enough to get 9% unmatched. I of course match it but it’s great to be in the petrochemical industry. For all the negative commentary these companies really do treat their employees well and do a great service for the community. The company I work for has contributed greatly to the local college and local hospital. I’m all for the environment and so is the company but it’s a fine balance. The resource sector provides huge benefits to the economy through jobs and social benefits through taxes. Be informed about where the beneficial tax revenue is coming from.
That’s great to hear Shawn. That is very generous. You don’t have to do much beyond that over the decades. That will at least put you well ahead.
On resources it’s up to all of us to reduce the demand by way of habits and how we live. And we need technology to find the answers.
Dale