# Group RRSP at Work - Should I participate?



## JP* (Aug 11, 2015)

Bio:

Age 35
Gross Income: $51k
Spouse Income Gross: $64k
Two young dependents

RESP: $6400
TFSA: $4500
Spouse has contributed to a pension plan for 10years and still going.

Liabilities:
Car Payment Remaining: $10680.74 financed at .09%
LOC: $28k
Credit Cards: $8k
Mortgage Payment: $958 per month

We racked up the credit card debt over the past year. Currently in pay back mode with goal of being out of credit card debt this time next year.

For the RRSP plan the employer will match 3% of our contribution that comes off of our paycheque.
The administration fee will be 1.5-2% of the annual return. 

Should I participate in this plan?

Should I instead contribute to the RESP? 12+ years until it is likely needed

Should I put it towards the CC and LOC?

Should I do a little bit of everything?


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## rsyl (Aug 15, 2014)

Yes contribute, it's free money!

Also try to get the max grant money on the RESP. After that you have options.


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## Beaver101 (Nov 14, 2011)

^ Group RRSP participation, only if he has money left over each month to pay off the mortgage, CC, LOC and car (if not zero financing) first after the RESP.


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## JP* (Aug 11, 2015)

Car is financed at .09%


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## jerryhung (Mar 28, 2011)

That is high MER
3% match - 2% MER fee isn't much .... 

I'd do it only if you pay off/top up others first, especially CC debt


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## 0xCC (Jan 5, 2012)

I think the employer match percentage and the MER are on two different amounts.

I think the way this works is if JP* has an income of $10,000/year he would be able to contribute 3% of that (or $300) and the employer would kick in 3% to match. So the $300 contributions becomes $600 total.

Then the MER is applied to that $600 for a total fee of 2% of $600 or $12.

JP* - are there any provisions in the plan for making withdrawals? A lot of plans allow you to make withdrawals but with some restrictions like only being able to do it once a year or only being able to withdraw the employee contribution and not the employer contributions.


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## Beaver101 (Nov 14, 2011)

^ You mean "transfer"? Any withdrawals will be subject to tax withheld.


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## carverman (Nov 8, 2010)

JP* said:


> Bio:
> 
> Age 35
> Gross Income: $51k
> ...


You earn a $115K gross between the two of you. Even at 35% tax rates, $51K (still leaves about 35K) and $64k @35% = 42K (combined = $77k net.) You should be singing "we're in the money!"

Why do you have $8k of credit card debt? That's at least a minimum of 10% interest compounded per month
and if you pay only the minimum payment, it will take you several years to pay it off. 

Maybe I should contact Gail Vaz-Oxelade to pay you a visit...she needs to set both of you straight earning that much, 
yet owing that much?
How did you ring up $28,000 + $8,000 of debt? + car payments...Too many vacation junkets or what? 
That is $36K owing on a combined income of about 77K net...crazy!!! 

Who's paying the debt load? One or both of you? Only one should be paying the debt, the other should be saving money in things like RRSP and RESP..otherwise you will find yourselves 10 years down the road owing more than today.


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## 0xCC (Jan 5, 2012)

Beaver101 said:


> ^ You mean "transfer"? Any withdrawals will be subject to tax withheld.


Yes, I meant transfer. In my mind I was thinking "withdraw to another RRSP acocunt".


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## JP* (Aug 11, 2015)

There are penalties on withdrawals or transfers - the corporate match is withheld for 12months before any new contributions are matched. $25 withdrawal fee.

Racked up debt via wedding; mat leave; veterinary bills; car repairs ( I bought used and should have spent the money on new) and necessary house repairs. They all came at the same time. No vacations or travel unfortunately.

I agree that we should have more money available than we do and that debt servicing is eating our money. 

2015 was our highest net year and hopefully the trend continues. Previously we net around 60k.


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## Beaver101 (Nov 14, 2011)

carverman said:


> You earn a $115K gross between the two of you. Even at 35% tax rates, $51K (still leaves about 35K) and $64k @35% = 42K (combined = $77k net.) You should be singing "we're in the money!"
> 
> Why do you have $8k of credit card debt? That's at least a minimum of 10% interest compounded per month
> and if you pay only the minimum payment, it will take you several years to pay it off.
> ...


 ... that's a little harsh. He may be paying off his/her student loan(s) or maybe house renos .... and since when did you become GVO's assistant although you do sound like GVO abit here? :wink:


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## JP* (Aug 11, 2015)

Beaver101 said:


> ... that's a little harsh. He may be paying off his/her student loan(s) or maybe house renos .... and since when did you become GVO's assistant although you do sound like GVO abit here? :wink:


Sign me up for the GVO challenges. 

In reality though the debt repayment is the biggest hurdle.


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## Eclectic12 (Oct 20, 2010)

0xCC said:


> I think the employer match percentage and the MER are on two different amounts ...
> So the $300 contributions becomes $600 total.
> Then the MER is applied to that $600 for a total fee of 2% of $600 or $12 ...


That's the way the one Group RRSP that I participated in worked.

No employer matching and no penalties for transfers meant that as soon as I had enough $$$ to make a brokerage self-directed RRSP work, I moved everything out to my own.


Cheers


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## Beaver101 (Nov 14, 2011)

JP* said:


> Sign me up for the GVO challenges.
> 
> In reality though the debt repayment is the biggest hurdle.


 ... are you sure? 

I'm unaware of Ms. GVO's presence onboard this forum but we definitely have a free alternative - just wait for Mr. Carverman's recommendations. (Hint(warning?): Not sure if you like KDs). :wink:


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## JP* (Aug 11, 2015)

KDs = Kraft Dinner?

Not a KD fan. 

Does Carverman give out cash prizes for doing something that we all know I should be doing as a responsible adult?

Back to the group plan....should I just focus on the debt repayment now or should I join the group RRSP? Right now anything available after the bills are paid is going to the debt. My spouse does contribute to a pension plan.


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## nobleea (Oct 11, 2013)

Participating in the plan is going to cost you something like $25 per paycheque. That's not really that significant. And then the company gives you free money. The MER should not be a deterrent. We have high MER's in our group RRSP (3% match to start, increases to 5%) yet my personal rate of return for portfolio is around 8%, after fees, and that's over a 15yr time period.

You don't notice the money building up at first because it's a small amount, but then 10yr in, you realize it's a sizeable amount and it's all been happening in the background. Don't touch it, let it do it's thing.

On your incomes, you shouldn't have a problem clearing out the debt. Kids can get a part time job to pay for university, but it'll be harder for you to get a part time job in your retirement.
Clear out the TFSA and use it to pay down debt. That's a great return on your money.


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## carverman (Nov 8, 2010)

Beaver101 said:


> ... that's a little harsh. He may be paying off his/her student loan(s) or maybe house renos .... and since when *did you become GVO's assistant although you do sound like GVO abit here*? :wink:


Jes sayin" he didn't mention anything about student loans. House renos..why spend the money on renos when you have to borrow from a LOC? Unless the roof is caving in, or there is something seriously wrong with the house, resist just going out and improving for aesthetics just because you want to. 

They are *almost* over their heads in debt load.
However, they can still climb out of most of the debt, but they need to have some discipline and have to:

1. Set a monthly budget for everything...cut up all the credit cards except one and use that for emergencies.

2: Stop putting all that spending with credit cards..the more cards you have and use,the longer it will take you
to be debt free. have just *1* and pay the balance in full when it is due. I do this all the time and
'the MC bank hate me..In all these years I've had that "1" card, they haven't been able to charge me a penny
of interest. ..and I'm on two gov't pensions and a Nortel pension that is in thee process being wound up!

3. Keep the car payments as low as possible. Take a friend along that knows used cars, and buy a 6 year old car 
that is low mileage ...and negotiate like hell on that too to get the lowest price possible. 
Resist getting locked in for 5 to 7 years on a new car.
Cars are depreciating items and not even considered assets and take a fair chunk out of your 
disposable income.

Carve-call-1-800-GVO1 ---"money-money-money" 
I like that show! She is a bit chunky these days but has a lot of good ideas to help out for those who have no hope of getting out of the money pits.


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## OhGreatGuru (May 24, 2009)

I'm ambivalent. And apparently so is OP. Because of the matching contribution form employer the RRSP is work investing in, in spite the high MER. But is it the best use of money when he's still trying to retire debt?

Working out the weekly or monthly cost, deducting the tax savings you will make, might help make the decision. Because then you can say - can we afford this in our budget right now? If you can, it has the benefit of becoming a forced savings plan, because it is money that you are no longer tempted to spend.

3% of $50K would be $1500. If your marginal rate is 35%, the net cost comes down to $975. That's about $82/month.


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## Soils4Peace (Mar 14, 2010)

First, while meeting other minimum payments on loans, pay down credit card debt. Second, take the free money. Third, pay LOC (I assume it's about 5%). Fourth, build an emergency fund. The car payment and mortgage are low interest, so you can just make your payments on them. Therefore...

1. Pay down credit card debt. 
2. Match your employers RRSP contribution.
3. Top up the RESP.
4. Pay down LOC.
5. Build a TFSA large enough to make an emergency fund.


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## carverman (Nov 8, 2010)

nobleea said:


> You don't notice the money building up at first because it's a small amount, but then 10yr in, you realize it's a sizeable amount and it's all been happening in the background. Don't touch it, let it do it's thing.


I remember something similar in the Nortel Employee investment plan. 
We (I) would put in a small amount from my paycheck every 2 weeks.
The company put in a matching amount up to 3% from what I remember in stock, which then you could withdraw any time you needed money from your investment plan. The stock value grew (until of course something bad happened,) but I made out pretty good on that plan over 10 years. 



> On your incomes, you shouldn't have a problem clearing out the debt. Kids can get a part time job to pay for university, but it'll be harder for you to get a part time job in your retirement.
> Clear out the TFSA and use it to pay down debt. That's a great return on your money.


Good suggestions all around. 

IF they manage to get on GVO's TV program, they can get (up to $5000) for following her suggestions.

In any case, I agree that using part or all of the TFSA, (which earns diddly squat in interest these days), to pay down LOC debt is the way to go. They don't need to take it all out, but when the cash in there earns less than 1.5% and the LOC is about 5% interest....

well you do the math..use..("pay off my debt sooner"..in the RBC calculator below) LOC (unsecured) at 5.x % on $27,000 is $125.75 per month Interest only.

If you make their minimum payment interest + $10 principle...you are paying over $1509 per year in interest and $120 on the principle ($28,000)

Now the harsh reality of getting into this kind of debt.. Gail V-O where are you to elaborate on this? 

over 10 years if you continue with just the minimum principle payment and the demand on interest payment,
and lets not forget that you are getting older every year as you go along..

$15,900 that could have gone into the group RRSp or kids RESP .

on $120 per year of principle repayment x 10 years...$1200..but where did that almost $16,000 in interest payments go? into the bank's pocket, not yours :disillusionment:

Now the heart stopping harsh reality...over 30 years (360 payments) ...$15,900 in interest per year = $4*77,030.00 in pure interest alone.*
How much of the original principle have you paid off"?....$120 per year over 30 years (360 [email protected]$10)= $3600 only.

In 30 years,the OP and his spouse will be in the retirement age..but if they don't start saving and get rid of some of those credit
cards..they will be STILL using some of any employer pension and perhaps gov't pensions to service that debt load!

http://www.rbcroyalbank.com/personalloans/payment/


carver sez: Eat KD..it won't kill you, and if you add veggies to it, it is a balanced meal..
you got yer pasta, butter, cheese, milk, add some broccoli..and voila...


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## ThinkingCapital (Feb 16, 2016)

I'd say participate. It's free money and forced savings. You won't even notice the money missing.


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## pacman (Sep 6, 2009)

It's free money. This is a "no brainer". Take it.


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## NorthKC (Apr 1, 2013)

Never turn down free money. While you might not be able to contribute the fully amount, every little bit helps.


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## djkelly (Feb 18, 2016)

No matter how good the free money deal is you've got to kill that CC debt first before you can invest in anything. The interest rate is just too insane to let it live on another day.

Heck, because the CC interest rate is higher than what you're probably getting in your TFSA I'd be taking money out of there ASAP to wipe out the debt. 

Ditto if your LOC interest rate is higher than what you're getting on the positive side of your TFSA, which in the current market probably isn't much.

Once you're debt is obliterated I'd jump on the RRSP group match. Free money is free money. It's just that right now you're paying more on your debt than you'd be getting for for free through the employer match.


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## 0xCC (Jan 5, 2012)

As others have noted (and you should also be able to calculate yourself) the difference in your take-home income after you start making the contributions will be fairly small (others have mentioned around $80/month). The difference on a per-paycheque basis should be your contribution amount * (1-marginal tax rate) but it might seem a little bit better than that because of EI and CPP deductions (I think, maybe...).

In any case the arguments about paying off the debt before making the contributions don't hold much water when your take-home pay and therefore your ability to pay off the debt won't change that much if you decide to start making contributions.


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## nobleea (Oct 11, 2013)

djkelly said:


> Free money is free money. It's just that right now you're paying more on your debt than you'd be getting for for free through the employer match.


That's not true. Not participating in the group match and putting the money against the CC earns him/her 18% return or whatever the CC rate is. Participating in the group match earns him/her 100% return even if they just put it in a money market fund. This is true of every amount up to 3% of their income.

Use the TFSA to pay down the CC, then hit the rest of the balance hard with everything you have. Sign up for the group match RRSP now and don't touch the money.


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## Beaver101 (Nov 14, 2011)

nobleea said:


> That's not true. Not participating in the group match and putting the money against the CC earns him/her 18% return or whatever the CC rate is. *Participating in the group match earns him/her 100% return even if they just put it in a money market fund. This is true of every amount up to 3% of their income.
> 
> *Use the TFSA to pay down the CC, then hit the rest of the balance hard with everything you have. Sign up for the group match RRSP now and don't touch the money.


... not entire true also - excluding the MER consideration, the 3% matching is taxable.

Agree with the rest though - paying down the CC using the TFSA gets an instant 18 - 30% return.


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## Beaver101 (Nov 14, 2011)

carverman said:


> Jes sayin" he didn't mention anything about student loans. House renos..why spend the money on renos when you have to borrow from a LOC? Unless the roof is caving in, or there is something seriously wrong with the house, resist just going out and improving for aesthetics just because you want to.
> 
> They are *almost* over their heads in debt load.
> However, they can still climb out of most of the debt, but they need to have some discipline and have to:
> ...


 ... ? (nasty). Hey, nobody is perfect (except for those who says so). At least she's effective!


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## Eclectic12 (Oct 20, 2010)

OhGreatGuru said:


> I'm ambivalent. And apparently so is OP. Because of the matching contribution form employer the RRSP is work investing in, in spite the high MER. But is it the best use of money when he's still trying to retire debt?
> 
> Working out the weekly or monthly cost, deducting the tax savings you will make, might help make the decision ...


One thing to be careful of is that several employer GRRSP plans I participated in would skip the withholding tax for the contributions. This meant that instead of a lump sum refund the following year, one's pay cheque bumped up during the year. 

So while numbers may say a tax refund of a yearly amount ... one may have to be disciplined to make sure the money is sent to it's assigned use, off of each pay. Otherwise, one could end up spending it on something completely different.


Regardless, as I understand it the OP can signup for a set amount so a small amount could be used to see how the cash flow ends up working without drastically changing the overall picture.




djkelly said:


> No matter how good the free money deal is you've got to kill that CC debt first before you can invest in anything. The interest rate is just too insane to let it live on another day.


If there truly is a huge CC rate ... then GRRSP or no GRRSP, I would think that the top priority is to get the CC debt transferred to the LoC. Regardless of the decision about participating, dropping the interest rate from the usual CC rate of 19%+ down to probably around 6 to 9% should not wait. 

(I would have to check the thread more closely to be sure but I don't recall numbers for the CC or LoC interest or any suggestions to cut the CC interest rate by paying it off from the LoC).




djkelly said:


> Heck, because the CC interest rate is higher than what you're probably getting in your TFSA I'd be taking money out of there ASAP to wipe out the debt.
> Ditto if your LOC interest rate is higher than what you're getting on the positive side of your TFSA, which in the current market probably isn't much.


My LoC rate is 6% where what I've bought recently is paying 8% to 14% for dividends so a lot depends on what is in the TFSA. Of course one's knowledge of investing and experience as well as what types of assets the TFSA allows one to hold will be important.




nobleea said:


> djkelly said:
> 
> 
> > Once you're debt is obliterated I'd jump on the RRSP group match. Free money is free money. It's just that right now you're paying more on your debt than you'd be getting for for free through the employer match.
> ...


Plus the employer match is only available for the calendar year ... after that, as I understand it, it is gone.

Why not do a small amount and adjust as time goes by?

The CC interest even if it is big is a red herring IMO. With that much income between the two, there should be lots of opportunity to move a 19%+ CC rate to something more along the lines of 8%. Of course, the question is ... what are the CC and LoC rates? If the LoC is really a HeLoc, then the rates might be even better.


Cheers


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## Eclectic12 (Oct 20, 2010)

Beaver101 said:


> ... not entire true also - excluding the MER consideration, the 3% matching is taxable.


Good point about the MER ... thought the taxable will be YMMV.




Beaver101 said:


> ... Agree with the rest though - paying down the CC using the TFSA gets an instant 18 - 30% return.


If the CC rate is high ... I don't get why people are suggesting to keep the interest charges racking up so quickly by paying bits and pieces of it. Paying off the entire CC deb using the LoC or similar should slow the interest charges dramatically. 

There is a large income here so this should not be difficult. IMO, this should be done first - assuming the CC interest rates are higher than the LoC or what one can arrange.


Cheers


*PS*

I suspect killing the CC debt for a lower interest debt should free enough cash to at least participate a bit in the GRRSP without affecting the repayment schedule.

The down side of skipping employer GRRSP matching is when the year expires, it is gone forever. One's RRSP contribution is still around so maybe one can catch up later but that is not guaranteed.


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## JP* (Aug 11, 2015)

Sold my BNS position from the TFSA to put against the CC. I was up 11% Nothing huge but still a gain.

Thanks everyone for the advice.

I will continue paying down the CC and look at transferring to a new CC if my rate can't be lowered.

I will put $50 a month into the GRRSP as a beginning point.

I will post an update once the CC is paid down.


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## Eclectic12 (Oct 20, 2010)

^^^^

CC's with low interest rates are few and far between, where some of the low rates are teasers that disappear.

Even if your LoC is already at it's max, it should be a short conversation to say "I'm already paying the CC company ... give me a better rate & you have my business". If the bank is affiliated with the CC company, it may not work but where the LoC vendor sees it as taking dependable, low risk of default business from a competitor, they should be happy to do it. They already set you up with an LoC so adjusting the maximum is a tiny cost.

It sounds like the CC debt is being paid on time for a while so you should be able to counter any concern by the LoC vendor with the past history of making payments.


Then too, check out what other LoC vendors are offering ... if there aren't any costs to setting up a new one at a lower rate - whatever drops in the interest rate mean the same cash will pay off the debt the interest is being charged on faster.

As I say ... if there is differential that is significant - moving to a cheaper interest cost has a lot of benefits for the same cash flow.

Cheers


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## carverman (Nov 8, 2010)

Eclectic12 said:


> ^^^^
> 
> CC's with low interest rates are few and far between, where some of the low rates are teasers that disappear.


All the credit card Zero balance transfers are teasers and the lower rates disappear after a while..they are hoping that in switching
more spending will be done on the card and the balance can't be paid off immediately.
'
heres' one..but it depends on your credit..if you are already stretched to the limit, the application could be rejected.
MBNA CC. 


> Platinum Plus® MasterCard® credit card - 0% for 12
> Interest Rate
> 19.99%
> Balance Transfer Rate
> ...


and a couple more..
http://www.greedyrates.ca/blog/best-0-balance-transfer-credit-card-offers-canada/#.VyJ00vkrLyM


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## Eclectic12 (Oct 20, 2010)

^^^^

Not all of the low rates disappear - though there can be an annual fee. NB has one with a $35 annual fee, minimum rate of 8.9% that is prime + 4%, CWB seems to have one with MNBA with no annual fee with a 9.99% for purchases, 24.99% for cash advances and 9.99% for balance transfers and access cheques.

But yes ... by far, the lion's share with anything under the 15% mark are usually limited time rates.


Cheers


*PS*

I would bet that with the OP's combined incomes ... an LoC or similar should be even cheaper.


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## jerryhung (Mar 28, 2011)

MBNA 0% Balance Transfer (with 1% fee) is the way to pay off your HIGH rate debts quickly  as others said, INSTANT EASY savings


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## Eclectic12 (Oct 20, 2010)

^^^^

I am not sure of the details so it is hard to tell if this may be similar or better than an LoC or other lower interest rate option.


The key point is that any shifting or changing from CC to LoC that lowers the high interest rates is going to speed with repayment, without any additional cash required.

Joining the Group RRSP can be considered a second action as possible second action.



Cheers


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## Beaver101 (Nov 14, 2011)

Eclectic12 said:


> ^^^^
> 
> I am not sure of the details so it is hard to tell if this may be similar or better than an LoC or other lower interest rate option.
> 
> ...


 ... +1


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