If you are lucky enough to have a company-sponsored pension plan, it’s likely a defined contribution (DC) plan and your employer may offer some amount of matching, meaning they will also be contributing to your retirement savings goal. Matching rates vary by plan and can be as high as 100%. If this is the case, you’ll have an additional and reliable source of income when you retire. Knowing this, you and your Lawyers Financial advisor can adjust the other parts of your retirement savings plan to account for the additional income.
Here are the top three reasons why it makes sense to participate in a quality, company-sponsored pension plan.
Matching amounts to free money
If there was a retail store that sold toonies for the price of a loonie, you would line up to buy those 2-dollar coins at half price all day long. You would be getting a free dollar with every dollar spent. That’s a stunning 100 percent return on investment in one day. If you put a dollar into your RSP and your employer matches it with another dollar, that’s effectively the same thing. Yet, many employees fail to take full advantage of matching opportunities or don’t even know the option exists. Your Lawyers Financial Advisor can help you spot all the opportunities in your company plan.
Fees are quite low and worth the money
When you participate in a group pension plan, you and your fellow employees benefit from significant volume discounts that can lower the cost of investment management. By comparison, the fees to construct your own retirement portfolio, using a similar mix of equity and fixed-income funds could be much higher depending on the investments you choose. And, it’s not likely that you would be able to achieve better results than the team of full-time financial experts who’s only job is to maximize the investment returns on the money you invest in the pension plan.
Increase your cash flow today
Your company pension plan, including any contribution from your employer, is going to fund a portion of your retirement income needs. This may allow you to save less on your own and dedicate more of your current income to other goals. For example, more money could be diverted to paying down debt, increasing mortgage payments to own your home faster, or saving for your child’s education.
What’s right for you?
The advantages of participating in a company-sponsored pension plan are clear: free money, expert portfolio management at a potentially lower cost, and more money in your pocket today. How your pension plan contributions affect your financial plan is a more detailed story. Work with your Lawyers Financial advisor to set a realistic retirement income goal and then adjust your savings rate and cash flow to account for pension income.