Wealthsimple Work provides employers with a modern financial wellness benefit for employees.
Investing in a group registered retirement savings plan (Group RRSP) shouldn’t be complicated. You shouldn’t have to wade through a ton of financial jargon, or try to navigate a complicated sign-up process, or get overwhelmed by fund selection and contribution amounts. It should be simple to take advantage of your company’s financial wellness benefit. And armed with a little knowledge, it totally can be.
The purpose of this article is to help demystify the group registered retirement savings plan by walking you through the basics and answering a few key questions, such as what is a Group RRSP, what are the key advantages, and how can you make the most of this financial wellness benefit so you can retire faster.
What is a GRSP?
The RRSP is one of the most popular financial accounts used by Canadians to save for retirement. A group registered retirement savings plan (often referred to as a Group RRSP or GRSP) is similar to an individual RRSP in that they have the same tax advantages and follow the same rules. However, there are several key differences. Unlike an RRSP, a GRSP is an employer-sponsored plan that permits employer matching. It also provides automatic contributions directly from your pay cheque, and typically offers lower management fees due to the pooling of assets from everyone in the company. Think group discount.
7 key advantages of a GRSP
If your employer offers a GRSP, you should jump for joy and then immediately sign up because there are so many amazing benefits for you to take advantage of.
Instant tax deductions. Contributions to a GRSP use pre-tax dollars, which means you get the deduction right away. This helps to reduce your taxable pay and, in turn, reduces the taxes coming off of each pay cheque. When using an individual RRSP, you have to wait until tax time to deduct your contributions.
Free money. With a regular RRSP, all contributions come from you. With a GRSP there is the potential for free money if your employer offers RRSP matching. For instance, you might contribute 3% of your salary to your GRSP, and your employer might kick in another 3%. It’s free money!
Easy, automatic contributions. Once set up, GRSP contributions are automatically deposited from your pay cheque. This means you don’t have the chance to spend your investment money — it's gone before you can see it or think about it. It also means you don’t have to continually think about or remember to invest; it just happens.
Lower management fees. A GRSP typically offers lower management fees because assets are pooled, so many providers offer a discount. Or, in the case of Wealthsimple, low fees are part of every client offering — group or individual. That means you get to keep more of every contribution.
More than just retirement. Unlike some other retirement savings plans that only allow you to use your money for retirement purposes, a GRSP is more flexible. You have the option to use the funds for either the Home Buyers Plan (HBP) or the Lifelong Learning Plan (LLP).
Professionally managed. For those that don’t feel confident investing on their own, having a professional managed GRSP can make it easier to start the investment process and stick with it.
No vesting period. GRSPs do not have a vesting period, so you own the money as soon as a contribution is made. You aren’t obligated to stay in a job for a certain period before the money is yours.
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How a GRSP works
Every GRSP will work a little differently, depending on the provider but, there are a few basic steps that each plan may follow.
Get set up. This involves opening a GRSP account, selecting a portfolio, and deciding how much you want to contribute. Your employer will provide guidance for how to complete the setup process.
Watch your money grow. A GRSP provider will either offer a quarterly or annual statement so you can track your investment performance. Some providers (like Wealthsimple) will provide 24/7 access so you don’t have to wait for a quarterly report to see how your investments are performing.
Make changes when necessary. As you enter different life stages (marriage, parenthood, home ownership, approaching retirement), you may want to change the funds you are invested in or, you may want to change your risk level.
Transferring your account. You may want to transfer your funds out of your GRSP account if you are leaving your company. In this situation, it’s best to contact your GRSP provider so they can walk you through the process.
How to make the most of your GRSP
By simply participating in a GRSP, you are already making a smart money decision for your future. However, if you want to step it up a notch and really take advantage of everything the GRSP has to offer, then consider these tips.
Don’t be afraid to ask questions
The ins and out of group retirement savings plans can be confusing. Don’t let a lack of knowledge or understanding deter you from participating in a GRSP. If you don’t understand the fund selection process or you have questions about anything, reach out to your employer or company HR team to gain a better understanding of your plan.
Don’t leave money on the table
First and foremost, if your company offers a GRSP — participate. Second, if your employer offers a matching program, do your best to contribute at least enough to maximize the match (if it’s financially feasible for you). Otherwise you are leaving free money on the table, and no one wants to do that.
Consider how much money you need to retire
Have access to a GRSP? Amazing. Add in employer matching? Even better. But, even with these benefits, it’s important that you take the time to consider how much money you actually need to retire, versus just following employer contribution amounts. If you contribute 3% of your salary and your employer matches at 3%, you’re saving 6% every month. But, is that enough?
A common rule of thumb is to save 10% to 15% of every pay cheque for retirement. If you follow that rule, you may need to up your GRSP contributions if you want to have enough for retirement. Or, you also need to be saving elsewhere (e.g. individual RRSP, TFSA, etc.).
If you have goals of retiring early, you are going to need to increase your savings rate even more. To better understand how much you will need to retire, you can check out Wealthsimple’s retirement calculator.
CPP/EI max-out saving strategy
Every year, you are required to contribute to the Canada Pension Plan (CPP) and Employment Insurance (EI) up to a maximum amount (which you can find here and here). Once you have reached this max, you no longer have to contribute and as a result, you will see an increase to your take-home pay (yay!)
Most people don’t have a plan for this money, so when they see a slight increase in their pay, they just include it in their daily spending. However, if you want to maximize your group retirement savings, you can use this extra, unbudgeted money to boost your GRSP contributions. Just reach out to your payroll department when you’ve maxed out your CPP and EI payments and ask them to increase your GRSP contributions by the same amount. This way, your pay cheque stays consistent throughout the year, but your GRSP contributions get a boost.
How Wealthsimple compares to other providers
At Wealthsimple, we want to make it as easy as possible to invest in your retirement and reach your financial goals. This is why we do things differently than many other GRSP providers. Here are a few things that set us apart:
Easy signup and ongoing access
Getting started with your group RRSP can be done completely online in a matter of minutes. You can make any changes or updates in a few taps using Wealthsimples mobile app and desktop platform.
Whether you need help signing up or you have a question about how your investments are performing after a few months, you can book a call with an advisor at any time. All Wealthsimple money experts are fiduciary, which means they are legally required to act in your best interest. Unfortunately, this is not always the case, so always ask before getting and acting on advice from an advisor.
Unless a financial professional is classified as a fiduciary, they are not legally required to put your needs ahead of their own (kind of crazy, right?) This means they might be motivated to guide you towards a financial product to earn a higher commission, not because it’s what’s best for you. This is not to say all non-fiduciary financial professionals act this way but, it can happen.
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To maximize your savings, it’s important to keep your fees as low as possible. While other providers charge 1.5% to 2.5% in fees, Wealthsimple keeps fees in the range of 0.4% to 0.5%. It might not seem like a big difference but, over time, it adds up.
With Wealthsimple, you can invest in the companies that share your values. Put your money in our socially responsible investment (SRI) portfolio, which builds in exchange-traded funds (ETFs) that are screened for environmental and social impact. Or, build wealth with Wealthsimples smart portfolio that directs your money into companies and investments that comply with Islamic law.
Simple selection process
Wealthsimple has created step-by-step instructions to help you select the portfolio that best fits your needs.
Passive investment approach
Wealthsimple GRSPs use a passive investing approach as opposed to an active approach, which impacts both fees (i.e. helps us keep them nice and low) and performance. Research has proven that passive investing is the most reliable way to grow your money over the long term.
What is passive investing and how to think about it
A passive investing strategy involves investing in index ETFs rather than picking individual stocks (i.e. active investing). Passive investing aims to track the market instead of trying to beat the market (i.e. active investing), which is really difficult to do. In fact, research shows that less than 4.5% of actively managed funds outperformed the S&P/TSX Composite in the last five years (as of December 2021).
Passive investment funds also tend to have lower fees than active ones (i.e. mutual funds), since you’re not paying for someone to make those active trades on your behalf.
Here are three tips for how to think about passive investment performance:
1. Set your time horizon and risk tolerance
The longer you invest, the better. This is because, despite the daily or monthly fluctuations in the stock market, the market tends to increase over time. If you think you’re going to need your money in the short term and want to reduce your risk of loss, then you can consider more conservative portfolios. If time is on your side and you don’t anticipate needing your money for decades, then you might consider a portfolio with a higher risk tolerance.
2. Set expectations
Investing is a bumpy ride. Some years, the stock market is up and, other years it’s down. This is totally normal, but it's important that you mentally prepare for this financial rollercoaster. In general, your returns over time should be proportional to the risk you take. If you invest all of your money in a growth portfolio, then expect more volatility. If you opt for a more conservative portfolio, then you can expect less overall volatility.
Just know that it’s not entirely uncommon to lose 10 to 20% (or more) in a single year when the markets are down. For instance, in 2008 the markets took a 37% hit but, over time, they recovered. This is why a long-term strategy works. If you took a short-term strategy, freaked out, and pulled all of your investments in 2008, you would have suffered a major loss. But, if you were able to let things ride out then, over time, you can recoup your loss and eventually start to make more money.
3. Evaluate performance vs expectations
If you buy into a passive investment approach, then the best thing you can do is act more passively. This means you can reduce the number of times you check in on your investments — there’s no need to monitor your portfolio on a daily or weekly basis. Instead, plan to check in quarterly, or even bi-annually. This way, you still know what’s going on with the overall performance of your portfolio but, you aren’t emotionally affected by the daily ups and downs.
By only checking in a few times per year, you also have more data available to properly evaluate your portfolio's performance. Finally, when you do your check-in’s, be sure to take a more macro approach and look at performance in the context of history and what is happening in global markets.
Get excited about GRSPs
GRSPs might not be the steamiest subject, but we hope this article has made them just a little more exciting. Or at least easier.What’s important is that you don’t let an opportunity like participating in your company’s GRSP program pass you by. If your employer offers it, be the first to sign up. If your employer has yet to offer a GRSP, show them how proactive you are and encourage them to check out Wealthsimple’s Group RRSP.
Katie oversees all things content for the Wealthsimple Work team, creating resources that helps employers big and small encourage financial wellness within their own teams.
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