Are you taking full advantage of your employer's pension plan?

Are you taking full advantage of your employer's pension plan?



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Enjoy the full re ;your employer's pension plan?

If you have a pension plan partially covered by your employer, you will certainly want to take full advantage of it. On the other hand, many are not necessarily aware of all the advantages offered by this plan (and the employer's contribution), if at all.

 Your job come with a pension plan?   

If you answer “no” or “I don't know”, you should make sure first. Indeed, money may be sleeping on the cushion of your future since you joined the company. Especially if you have overlooked or forgotten the existence of this diet. First easy advice: get informed! 

If you answer “yes”, your objective is to benefit fully, and this, without waiting. To see more clearly, we spoke with Jean-Michel Lavoie, Regional Vice-President, Business Development, Group Retirement Services at Sun Life. 

He shares with us the main advantages to participate in an employer's group retirement plan: “Given the employer's financial contribution, this is additional money, paid each year for retirement. In addition, due to the strength of the group, management fees are significantly lower and access to certain investment classes becomes possible. »

Indeed, fund managers can invest in securities that are not necessarily offered to the general public or even create portfolios that a solo investor would not be able to compose. 

< strong>A significant return  

In fact, solely in terms of management fees on investments, the savings stored thanks to your employer's retirement plan compared to those of your own savings (RRSP, TFSA, etc.) can represent a significant difference both during the accumulation period than during the retirement period. Some studies speak of an increase of up to 25% in the end. 

On the other hand, Jean-Michel Lavoie points out that “for each dollar contributed by the employee, certain employers do 1 for 1 or even 2 for 1. »

This contribution is a real gift! Why? Because employees who deprive themselves of this golden opportunity turn their backs on a guaranteed return of 50% (2 to 1) or 100% (1 to 1), even before taking advantage of stock market leverage or their investments combined with the employer's contribution. 

Who says better? “It's surprising, but many people leave this money on the table,” the vice-president wonders. 

How to benefit from your retirement plan?   

1. “First, study the text of your pension plan, depending on your category of employee, then optimize its potential”, specifies Jean-Michel Lavoie. 

2. If the options sometimes seem numerous, or complex, seek advice from your organization's pension plan officials.

3. The earlier you are registered, from the first days you start working, the more you will maximize the possible contributions for your retirement, to better benefit from it. 

4. Having a retirement goal is often a source of motivation to pay higher contributions, to be more informed and to be more committed. Members with a retirement goal have a 25% higher balance.

Which would you prefer: $354,000 or $708,000?  

In addition to taking advantage of the employer's contribution, we cannot repeat enough the importance of starting to save earlier late.

Let's say that for 30 years you save $5,000 a year – less than $100 a week. By maintaining this discipline, as an example (not guaranteed) of a 5% annual return on this savings, you will have set aside $150,000 in 30 years. 

Thanks to leverage interest, you would actually have a total of $354,000. Of this amount, nearly $200,000 would have been generated with interest earned alone! 

Now, in a situation where your employer would contribute the same amount as yours every year ($5,000), then that total pool would be $708,000. So why not? 

Invest yourself fully  

As a rule, the employer makes various types of mutual funds available to its employees. “Investing well is crucial, because the return could be doubled once you retire,” warns Jean-Michel Lavoie. 

While some employers offer default funds, it is often possible to select the one that suits you best.

How to choose your mutual fund?   

There is no definitive answer, but from the outset, be aware that employers offer funds whose risks are often classified into three categories: conservative, moderate and higher.

On the eve of retirement, caution is in order, in the event of a significant downward stock market correction. At the start of a career, a certain daring with funds considered to be a little riskier could generate higher returns over the years and decades. 

Jean-Michel Lavoie points out that 'Be careful,' is good if your choice is conscious. But some people may be too cautious to begin with, not realizing the long-term impact of choosing certain mutual funds initially. »

Note: you can always change the type of fund along the way, to precisely adjust the risk potential, depending on your age and the date you plan to retire. 

Group retirement savings plan: where to get information?  

Depending the size of your organization, you can simply get information from human resources or your manager. 

Also, many employees have access to an intranet where it is possible to find information and , even, change your contribution online, like at Sun Life. It's just a matter of investing some time in it! 

Are you taking full advantage of your employer's pension plan?

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