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moneysense.ca, 6/12/05
Don’t Give Up Free Money
Current issue:
It is amazing that many people are willing to give up a free lunch when it is available. I was chatting with a colleague the other day and was very surprised to learn that he was not enrolled in our Company’s Group RRSP program, which offers a 50% match for contributions to the retirement account. Even more surprising, my colleague contributes the maximum allowed to his personal RRSP and even has a taxable investment portfolio. To convince him to sign up, I asked him how many of his investments guaranteed an immediate, risk-free, 50% return.
It is true that the group RRSP is restricted to a small selection of mutual funds and moving the money to another RRSP account is not allowed, while being an employee of the company. In my opinion, these are a small price to pay for the generous company match.
It is smart to sign-up for a group RRSP and get at least the free match. Happily, my colleague is now participating in the program and twenty years from now, I hope he will thank me!
moneysense.ca, 6/12/05
That’s amazing. A guy at my friend’s company refused the company RRSP program because he said HE didn’t participate in RRSPs himself. His response was “I don’t do RRSPs.” There is another guy I know who works there as well and he also doesn’t contribute RRSPs. His reason was that he will “do it later” and “I’d rather by a house.”
Amazing.
I’m not sure if a RRSP is the best option.
If the tax agency is trying to give you a “deal” you should run away as fast as possible.
Anyways that’s what I read in a classic investing book.
Mainly because I don’t want to retire when I’m 65+. I want to retire earlier and have access to my money at any time I want without paying tax on it.
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That sounds pretty crazy to me. I’m never one to turn down some free money. The best way to look at a company match RRSP like that is the investment would have to lose 50% of its value in order for you to just break even, and you would still have your tax deduction to pull you back ahead, its ludicrous not to join a plan like that. If the investment grows by only 1% you have a 102% increase on your own investment and a tax deduction to boot.
Interesting. I can think of an obvious reason why one would not contribute to a group rrsp though.
1. If the company matching is 25% or lower it may not be worth while. For example, if you are forced to choose from a horrible selection of funds, you may be kicking yourself 25 years from now. Remember the 25% matching only applies to the first year. If you funds return a very dismall result, you could in theory be better off not doing the company matching and doing your own self directed RRSP which contains ETFs, stocks, and misc other investment vehicles.
For the avg person they’re great, but if you think you could do much better on your own and not have to be locked in with mutual funds with high MERs that you don’t believe in, I wouldn’t touch the matching.
On the other hand if the matching allows the employee to be fully self directed (ie allows ETFs, stocks etc) then one would have to be a fool not to partake in such a venture.
Mike: I disagree. For the vast majority of working Canadians the RRSP is a great option. I’ll try to make my point in my next post.
Pablo: Our Company group RRSP has some decent funds. Fees are not bad. Since they are pooled funds, fees range from 0.6-0.8%.
hold on james.
I don’t think a lot of companies have 100% RRSP matching! Mine only has 10%
My former employer matched dollar for dollar up to 6% of my gross.
I also don’t agree with Mike. There’s nothing stopping you from creating a non-RRSP portfolio as well that you access earlier than 65 if you think you can retire before then. And it isn’t some kind of “deal” that they are trying to pull over on us. It’s just tax deferrement, nothing special and it’s nothing to run away from. There are, however, more “make money fast” schemes out there that you should run away from. RRSPs are not one of them.
give me free money