Planning & Advice

Making Sense of Your Group RRSP

March 15, 2016


Making Sense of Your Group RRSP

Planning & Advice

You’ve got a new job! With a new job, comes new perks and  you plan on taking every one you can get. Turns out your employer has set up matching contributions for a group RRSP. For every dollar you save, they’ll match it with another. And who wouldn’t want free money?

They have done a great thing and you should definitely enroll! This is a good opportunity for you to kick-start your retirement plan.

The Group RRSP

Company pensions are going the way of the dodo, with many employers opting for group RRSPs instead. While you’re still getting a helping hand, the onus is on you to save for retirement. This will help you get there significantly faster.

There is a maximum amount your employer will let you save in a group RRSP – usually about 5% of salary. For most Canadians their maximum amount will be well below the annual RRSP limit – even after including your employer’s contributions.

So, you enrol. You do your time at the HR office, sign and submit your forms, and are excited at the prospect of finally starting some kind of savings account for retirement. Who knew saving for retirement could be so much fun?!

Then you get the booklet. It has a list of all mutual funds that you can invest your money in (about 30 – 50 of them), but you have no idea which to pick. Imagine a wine list that only has names, but no descriptions…

There’s a ton of information thrown your way and you’ll have to spend quite a bit of time evaluating what is best for you. If you haven’t invested before, you might have to spend additional time getting your knowledge up to par. There’s a lot to process.

So You Do Nothing. Analysis Paralysis.

The reason this is so complicated is that your employer (who set this whole thing up) cannot provide you advice or recommendations about which investments to pick. That decision has to be your own (for a bunch of legal reasons).

So What Are Your Best Options And How Do You Make The Decision?

There are many ways to select your portfolio, and no one method is always ‘the best,’ but here are a few simple strategies to help you keep your sanity. Keep in mind, these are one-size-fits-all solutions, which may not actually fit your particular situation…

Option 1: Do nothing:

This isn’t really recommended unless you plan on withdrawing your money in a few short years. If you don’t pick funds for your group RRSP, it will usually be invested by default in a low-risk money market fund that will generate a small amount of interest. Often these funds barely generate enough to keep pace with inflation (if you’re lucky), meaning you typically earn no real growth.

Option 2: Select a target date fund:

Target date funds automatically rebalance your investment as you approach retirement, or whatever date you select in the future. They can be based on a rebalancing your asset mix over time to account for your age, decreasing in risk as you approach retirement. In some cases, the fund ends up in cash securities on the “target date.” Depending on your provider, these may or may not be available – but they make for an easy choice.

Option 3: Select a 60/40 Split or Balanced Fund:

Select the basic bunch of stock and bond funds, with approximately 60% in equities (stocks) and 40% in fixed income securities (bonds) and you leave it. Alternatively, you may be able to choose a balanced fund that essentially does the same thing in a single fund. While this is easy, it’s the least strategic.

That’s Great, But I Want A Custom Solution.

Option 4: Talk to an advisor:

Are you paying for a financial advisor? Then it’s time to put them to good use! (If you’re not, be sure to read to the end of this…) Book a meeting with your advisor to go over your Group RRSP and ask them for advice on what funds to pick. Here’s a few things they might consider when selecting a portfolio you:

Your Goals & Risk Tolerance: When do you want to retire? As soon as you have enough money to sustain yourself or at the age of 65? Do you want your money to grow slowly but steadily, or take some risks to maximize growth?

Time You Have to Invest: When do you need the money? If markets go down, will you have time on your side to recover?

MER & Fees: It’s in your best interest to keep this as low as possible while still maintaining a diversified and balanced portfolio.

Your other investments: The fund selections made should complement your other investments that have similar objectives such as your personal RRSP.

Taking these factors into consideration – along with a few others like minimizing volatility, life circumstances, and market conditions – an advisor should be able to look at your list and pick out something that is a good fit for you.

Everyone is happy. The employees’ accounts are growing and the employers have provided a great benefit.

There’s an opportunity here to start saving and get the power of compounding working earlier and for a longer time than if you had to start on your own. The trouble is, most people do not get enough advice to take full advantage of that opportunity.

At WealthBar, for a limited time, we are providing a free financial plan and advice on which funds to select inside your Group RRSP. All you have to do is fill out a 5 minute survey and upload a scan of your Group RRSP Booklet.

The investments for your group plan will be selected by a professional portfolio manager and suitable for your situation. We will also ensure you are saving money in the correct account to reach your long-term financial goals as quickly as possible.

What are you waiting for? Click here to get this done.


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