Many employees benefit from a pension plan provided by their employer. Here's what you need to know to get the most out of it.
Although group retirement plans offered by employers offer many benefits, a Sun Life survey shows that 25% of affected employees are not taking full advantage of them. “In other words, you’re leaving money on the table,” says Yashar Zarrabian, regional vice president of business development and client relations for Group Retirement at Sun Life.
Another troubling observation: a significant decline in contributions from participants in these retirement plans. “For 30 to 40-year-olds the decline is 7%, for 50-year-olds it is 5%,” he adds.
What explains this reduction? The rise in the cost of living as well as inflation and interest rates. The rapid rise in mortgage interest rates is currently particularly affecting those who are in a phase of accumulation, i.e. those who are on the job market.
Therefore, it is the level of savings that pays the price, as this is where we tend to cut first when we are more financially strapped.
Optimize your diet
If you benefit from a group retirement plan, how can you ensure you get the most benefit from it? Yashar Zarrabian recommends that you first find out more and understand the terms and conditions. “Diets vary and some are more generous than others. First, it must be checked whether and to what extent the employer also pays a contribution. Is it a percentage or is it based on the number of years of service? Are the contributions compulsory or voluntary? So many points to check to put together the right strategy.
This information will help you determine the amount you should contribute to the plan to get the full benefit. “If your employer pays the same amount as you and the contribution is variable – for example from 0 to 5% – a good way to optimize the plan is to make the maximum contribution so that the employer pays contributions equal to your contribution,” he emphasizes.
Benefits you should know
Participation in a group retirement plan has several benefits for the employee. First, the fact that the employer pays a subsidy that helps increase the amounts paid into your plan.
You should also know that group plans generally have lower fees than individual plans, which is a significant advantage.
In addition, the contribution to these plans comes from your gross salary. Therefore, you benefit from an immediate tax return and not at the end of the financial year. “This is beneficial because if you pay $100 into your group plan, it actually only comes out of your pocket $60 thanks to the instant tax savings,” mentions Yashar Zarrabian.
He also adds that since this money is taken directly from the source and does not pass through our hands, we are not tempted to spend it and we get used to living without it.
ADVICE:
• Three elements have a significant impact on your retirement savings: the amount saved, the return and time. This last factor has a significant impact on the capital you have accumulated in retirement.
• The earlier you start saving, the more compound interest will work in your favor. For example, to receive the same amount in retirement, a 40-year-old must put aside twice as much money as someone who started saving at age 30.
• Some group retirement programs offer participants tools to build a financial path that helps them better plan for their goals.