Free money is hard to come by these days. Thankfully, workplace retirement/savings plans are one of the few places where free money is still available.
Around 50 per cent of working Canadians are offered group retirement saving plans through their employer in various shapes and sizes. The most common plan type is a defined contribution plan, which includes defined contribution pensions plans and registered retirement savings plans. The defined contribution plans have surpassed the more traditional offering of defined benefit plans in the last several years.
Group retirement plans generally require that employees contribute a percentage of their earnings - between two and five per cent - and the employer matches the contribution. Typically this is at 100 per cent match, although the match can differ between companies.
NFP encourages employees to take advantage of these plans for one main reason: free money.
A contribution of three per cent of a mid-range salary, coupled with a 100 per cent match, could make a significant difference in the long run as employees plan for retirement. By waiving membership on these plans, employees are saying no to free money that could be helping them reach retirement income targets and lifestyle goals. These savings can help employees achieve financial independence and allow them to retire early.
Investment fees (IMFs) in group retirement plans are typically much cheaper than retail (bank) fees where members have no power to negotiate their individual fees and there's no group buying power. Even saving one per cent annually in fees is significant when considering the long run. Fees matter and so does free money.
The best time to start contributing, if possible, is Day 1. This ensures a 100 per cent rate of return on your initial investment and the knowledge that money coming out of your pay is going to a positive place right away. The longer an employee waits to join, the less money they will have to work with or enjoy in the end.
Finding new ways to invest and save money is always ideal. One of the easiest ways to start is with your company's workplace retirement/savings plans.