Mar
Free Money? No Thank You.
If your boss walked up to you and offered you a raise, would you say no?
That’s exactly what many Canadians are doing every year.
How much money would you give me if I told you I could double it instantly? Probably as much as you could get your hands on. You put 5% of your paycheque into your own personal RRSP, and your company just gives you the same amount… I’m not a math whiz, but I think I know a good deal when I see it!
There isn’t a lot of financial advice one can give that applies as nearly universally as this: if your company is offering you free money, you should take it. For some younger workers, it’s hard to think of the benefits of putting money away today that you won’t use for 30 or 40 years, but believe me when I say that you will be very happy you did. If you are just entering the workforce now, odds are good that you will be retired for nearly as long as you will be working full time. Decisions you make today will have a huge impact on what kind of life you’ll have.
More and more companies have stopped offering their own internally managed pension funds for their employees. They have seen the consequences of massive financial liabilities of their aging workforce; a 2007 report by the UAW showed General Motors had nearly 270,000 retired members collecting pensions and health benefits, and only 74,000 active employees working to generate the money needed to fund those commitments. Some estimates say that every car GM makes has to add $1,600 to the cost just to pay for their current retired employees. People are living, and collecting benefits, longer than ever before, and these “legacy benefits” are becoming a major issue for companies.
In Canada, it is becoming far more common for businesses to offer “defined contributions” to an employee’s RRSP, instead of a “defined benefit” guaranteeing a certain income level in retirement. Not only does this remove the risk of market performance from the employer (“We gave you the money, you picked the investments!”), but in many cases if the employee chooses not to contribute to his own retirement savings, the company doesn’t have to either! Now the employee has lost out twice.
Canadians are being left in charge of far more of their own retirement savings and lifestyle than ever before, and this rejection of the most effective method of planning for retirement is a serious cause for concern. Perhaps it is a lingering belief of “the company/government will take care of me,” perhaps it’s the feeling of needing to hold on to every penny on the paycheque, that makes employees turn down these offered contributions. Some people only listen as far as “you contribute 5% of your salary…” and they don’t think about what they are giving up in return for that little bit of extra cash in their pocket right now.
If you are working for a company that offers RRSP contributions, and for some reason you aren’t taking every penny available, then I implore you: right now, call your boss/manager/HR department or whomever you need to contact, and get it started. If you don’t understand how it works, then ask them to explain, or give us a call. If you run or manage a company that is considering starting an employee contribution plan (or having problems with your current one), then give us a call. It can be set up and managed very easily, and one of our advisors would be happy to show you.
Photo credit: “Money Hand” by Neubie
