Group retirement plan frequently asked questions

If you have any questions about your group plan or retirement planning that are not answered here, contact us and we'll be happy to answer them.

What is compound interest and how does it work for me?

People think they have many years left to save for retirement and cannot afford to start saving now. But even if you have just started working, putting a small monthly amount into a registered plan can add up to a large amount later on.

The earlier you start contributing, the less you will need to contribute on a regular basis to achieve the same level of retirement income.
Overview of graph demonstrating compound interest by comparing saving $150 a month for 15 years versus 30 years at an average rate of return of 8%.   After 30 years, the amount of savings totals around $225,000, whereas the amount of savings for 15 years is just above $50,000.  This comparison shows that you can have $171,648 more in savings by starting to save now, instead of waiting 15 years.
Letting time work for you is one of the most important reasons for investing in your retirement now. The key is that the income on your investments within your retirement plan continue to earn even more income when left to grow. This is often called the magic of compound interest, or “earning interest on your interest”. The longer your savings compound, the more you accumulate.

How can I guard against inflation?

An item that costs you $100 today will cost you $242 in 30 years, if inflation remains steady at 3% per year. However, the power of compound interest works for you to offset the effects of inflation. Inflation is another reason to start your retirement savings plan sooner rather than later.
Overview of line graph demonstrating the impact of inflation by comparing different rates against one hundred dollars over a period of 30 years.  An annual rate of inflation at 3% will climb to $150 after 15 years and $242 after 30 years.  An annual rate of inflation at 4% will reach $200 after 15 years and $324 after 30 years. An annual rate of inflation at 5% will reach $250 after 15 years and $432 after 30 years.

Why should I invest in a group plan rather than my own?

While all group plans are different, most offer tangible benefits such as contribution matching, which can really give you a head start on your retirement plan. Contribution matching is when your employer matches all or a portion of the funds that you put into your retirement plan. This is a major advantage over personal plans.

What is dollar-cost averaging?

In the long run, this investment strategy reduces the risk of buying high and selling low by averaging the unit’s value over time. You buy fewer units when the unit values are high and more units when the unit values are low. The following shows how you end up with a different number of units purchased each month for the same $100 contribution. Over time, this strategy is one of the best defences against volatile investment markets.

Month

Unit Value

Contribution

Units Purchased

Total Units

Jan

$100

$100

1.0

1.0

Feb

$90

$100

1.11

2.11

Mar

$110

$100

0.91

3.02