When you start out with a new employer, you often have a choice about whether or not to join a pension or savings plan. You may even have the choice of two or more different plans. In many cases, they are an important part of the total payment your employer gives you. Yet many people don’t give them much thought.
What do I need to know before I join a pension or savings plan?
1. What type of workplace savings plan is it? The most common types are:
- Defined benefit pension plans
- Defined contribution pension plans
- Group Registered Retirement Savings Plans (Group RRSP).
You will need someone to explain the features of the plan before you decide whether to join. You should also receive a booklet about the plan and how it works. Most often, the information will be provided by the plan administrator, who is usually your employer. Make sure you find out:
- How much the plan will save for you, or how much the plan will pay you when you retire
- If you can contribute money to the plan
- If you get to choose investments for your savings.
2. Is this plan a good deal for me? If you had a choice of plans, what type of plan would you rather have? There's no easy answer. For example:
- A good defined contribution plan or Group RRSP can work well if your investments do well. But there's no guarantee. For example, if the stock market drops just before you retire and the value of your investments fall, it could lower your retirement income.
- A defined benefit plan can offer more peace of mind and security. But you won’t get the full benefit unless you put in enough years to earn your full pension, or something close to it. Without a full pension, you may not have enough money to live comfortably after retirement.
In the end, any pension plan where your employer saves money for you, or matches part of what you save, is a good deal. It’s like getting free money. The main thing is to find out as much as you can before you join a company or sign up for any plan.
Remember: A good pension or savings plan can be a great help for your future.
When you are job hunting, be sure to ask if the company offers a plan and what options you will have.