Sometimes in life it’s easy to choose the default option. That may not always be in your best interest….at least when it comes to your group registered retirement savings plan (RRSP).
When you sign up with your employer’s group RRSP program your contributions are placed into a variable RRSP account. That’s the default option. It’s a great place to get started until you meet with financial advisor to select the types of investments you want.
Some people simply leave their money in that default account. Yes, you’ll get the tax benefits and yes, you’re saving money for retirement. But you’re not necessarily earning a lot on your investment, and that’s not as harmless as it seems.
First, consider inflationary erosion. Money is used to purchase goods and services. The cost of goods and services have increased by about 3.7% per year over the last 50 years in Canada (based on the average Consumer Price Index). If your investments are paying you less than that over time, once you factor in inflation, you’re actually losing purchasing power every year.
Second, think about the cost of lost opportunity to earn a higher rate of return on your investment. What could you have made on the money had you invested in something other than the default option? Depending on your tolerance for risk, your savings could have been worth more today.
Third, ask yourself what kind of retirement you want. When do you want to retire? Do you want to travel a lot? It’s important to talk to a financial advisor about your retirement dreams and how your investments can help you reach them.
When you join a group RRSP program you still get to personalize your investments. A financial advisor will talk to you about the type of investing you’re comfortable with and help you choose solutions to match.
Personalize your group RRSP today.