A survey conducted by Sun Life Financial found that one in five Canadians who have access to a group RRSP in which the employer provides some sort of a match, do not take full advantage of the benefit. A bit of a head-scratcher from the survey: when asked why, 6% said they preferred to invest on their own instead. It doesn’t sound like a rational response when you consider that the employer match ranged from 25% to 150% of the employee contribution.
Group RRSP programs in which the employer offers to match your contributions are a no-brainer because:
- Free Money: Even if you are funding other financial plans such as paying down the mortgage or saving for your child’s education, it makes sense to contribute to RRSPs to get the maximum match. After all, where else can you get an immediate, guaranteed and risk-free, 25% to 150% return on your investment.
- Periodic and Automatic Investing: With group RRSPs, you typically make a contribution during each pay cycle. Your contribution and the match from the employer is invested in the fund(s) of your choice. By investing regularly and automatically, you avoid many of the emotional pitfalls involved in investing.
- Up-front Tax Refund: Unlike a lump sum RRSP contribution, you don’t have to wait to file your tax return to get a refund on your taxes. With Group RRSPs, any money you contribute is pre-tax and has less of an impact on your cash flow.
- Low-Cost Mutual Funds: I participate in a Group RRSP at work and I can attest to the fact that mutual funds with MERs as low as 0.8% are available. Even if the selection is limited to actively managed funds, low MERs tilt the odds in favour of the investor. Also, many group RRSP programs provide access to mutual funds that are not available to small investors.
Bottom line: When someone offers free money, take all of it!