Investing

Should we do employer matched RRSP contributions?

  • Last Updated:
  • Aug 30th, 2019 4:50 pm
[OP]
Jr. Member
May 24, 2014
193 posts
98 upvotes
Dartmouth, NS

Should we do employer matched RRSP contributions?

We are a one income family of 5, have a mortgage since 2016 with another 2 years left on the locked-in 5 year term of 2.89% interest, and another 22 years left on our 25 year amortization. This year, we will have paid roughly $3,500 on interest on our mortgage. We also have about $3,600 left on a $15,000 loan we had (we needed it to finish repairs on the foreclosure we purchased). We're in Halifax area of Nova Scotia.

What I'm trying to figure out is if we should take advantage of my husband's employer matching contributions for an RRSP. As it stands, we only have a $7,800 LIRA that was from a profit sharing plan from my husband's previous place of employment (we can't touch it; I wish we had some way to use it to pay off debt!). We did have about $4,600 in an RRSP, but used that for the Home Buyer's Plan to help purchase our house. So we have pretty much near nothing in retirement savings (my husband is 40). We have about $2,400 in a TFSA that we've been saving for an emergency fund ($50 a month). Our plan was to pay off the house has fast as possible once we get the loan paid off. It has been proving a real challenge.

My husband's employer is offering to match contributions, up to 2% of my husband's salary, up to a maximum of $1,800. So this means that if we contribute about $36 per paycheque, the employer will contribute $36 per paycheque. All in all, it's about $1,900 a year. About $950 a year of "free money." I was playing with the Canada Revenue paycheque calculator, and my husband would save about $10 in tax deductions per paycheque... so like $260 a year.

Is it even worth pursuing? I am seeing this RRSP deduction as another "bill," which would be almost $80 a month on average for us. I already have a post on how I achieved having a cell "bill" for $5 a month, so I'm trying to think as long term as possible and be thrifty. We don't have cable tv, have a reseller for internet, don't eat out, etc. It seems to me the $80 a month can be put to better use, such as paying off debt.

What do you all think? Am I overthinking all of this? According to Dave Ramsey's baby steps, we're still at step 2 and shouldn't even be thinking about saving for retirement right now.
19 replies
Deal Addict
May 22, 2003
3775 posts
1562 upvotes
Vancouver
If you're able to afford the small extra payments I would definitely take advantage of this.
[OP]
Jr. Member
May 24, 2014
193 posts
98 upvotes
Dartmouth, NS
notenoughsleep wrote:
Aug 27th, 2019 2:27 pm
If you're able to afford the small extra payments I would definitely take advantage of this.
That's the issue. I have been telling myself that we really need to start putting aside $100 a month for buying another vehicle or two (we own a 2005 Corolla and 2005 Sienna that keep having to have the rocker panels and exhaust done every inspection) because at some point we have to retire those vehicles. And we're installing a wood stove (DIY) so we can try and save on our obscene electric bill (electric heat in Nova Scotia is ridiculously expensive), and holy expensive chimney pipe, Batman! Going to buy that tomorrow, and it's $595 (and that's getting a good deal at $86.29 per 36" chimney pipe by pitting Home Depot and Kent against each other with the price match of an already sale price. All in all, the used stove and all the new pipe and hearth will be nearly $1,700.

I use YNAB for budgeting, and I just don't see where another $80 a month is going to come from. I mean, I guess I can make it happen, but then it will make us pay off our debt slower, which, in the end, are we saving anything (ie, the "free money" from the employer) by all the interest we're paying with our debt (mortgage)?
Deal Addict
Jan 3, 2013
1999 posts
268 upvotes
Sidney
You 100% need to take advantage of this. It's 100% instant return, not even including the tax benefit. Even if you financed it with a credit card (don't), you'd STILL come out ahead.
Member
Sep 2, 2009
385 posts
219 upvotes
Ottawa
threehappypenguins wrote:
Aug 27th, 2019 2:17 pm
My husband's employer is offering to match contributions, up to 2% of my husband's salary, up to a maximum of $1,800. So this means that if we contribute about $36 per paycheque, the employer will contribute $36 per paycheque. All in all, it's about $1,900 a year. About $950 a year of "free money." I was playing with the Canada Revenue paycheque calculator, and my husband would save about $10 in tax deductions per paycheque... so like $260 a year.
I can't speak to your financial situation. I will frame it another way: if I were to give you $2 every time you gave me $1, would you do it?

It is not so much a bill to pay as it is pre-paying for the future.
Deal Addict
Feb 26, 2017
1124 posts
834 upvotes
Agreed join the plan. Its a 100% return on what you put in, which is something you won't get anywhere else. In contrast paying off your mortgage in extra installment mortgage is saving you 2.89% in interest.
Member
Sep 2, 2009
385 posts
219 upvotes
Ottawa
threehappypenguins wrote:
Aug 27th, 2019 2:36 pm
[...]then it will make us pay off our debt slower, which, in the end, are we saving anything (ie, the "free money" from the employer) by all the interest we're paying with our debt (mortgage)?
The mortgage will be paid off slower, but the mortgage is likely <4%? The RRSP match is 100% instantly, and then a small return at tax time of the contribution (the overall value of the RRSP minus mortgage will be greater than just putting everything on the mortgage). This return can be used for the mortgage, debt, more RRSP, RESP, etc...
Deal Addict
Jan 3, 2013
1999 posts
268 upvotes
Sidney
Not picking on the OP at all... But this thread is so indicative of the lack of understanding (and education) of money. We are always taught "debt is bad, save save save" without a true knowledge of how money actually works (and can work for you). Even the tax savings ALONE is a higher return on investment than paying down the mortgage.

Add in 100% insta-return from the employer and threads like this shouldn't even really exist.
[OP]
Jr. Member
May 24, 2014
193 posts
98 upvotes
Dartmouth, NS
favelle75 wrote:
Aug 27th, 2019 2:55 pm
Not picking on the OP at all... But this thread is so indicative of the lack of understanding (and education) of money. We are always taught "debt is bad, save save save" without a true knowledge of how money actually works (and can work for you). Even the tax savings ALONE is a higher return on investment than paying down the mortgage.

Add in 100% insta-return from the employer and threads like this shouldn't even really exist.
We're fairly low income, and there isn't much tax savings for us. That's why I'm asking here. I wasn't sure, because it's only about $36 a paycheque we'd be gaining from the employer, and I was having trouble doing the math to see if there is an advantage to not doing it.

Also, I'm getting nervous about when it comes time for another term for our mortgage. I'm afraid of our interest rates jumping way up high.
Member
Feb 29, 2008
277 posts
73 upvotes
GTA
one thing I miss working for the big banks is employee stock options. I always maxed those out.
you should definitely take advantage of this
Deal Addict
Jan 3, 2013
1999 posts
268 upvotes
Sidney
threehappypenguins wrote:
Aug 27th, 2019 3:05 pm
We're fairly low income, and there isn't much tax savings for us. That's why I'm asking here. I wasn't sure, because it's only about $36 a paycheque we'd be gaining from the employer, and I was having trouble doing the math to see if there is an advantage to not doing it.

Also, I'm getting nervous about when it comes time for another term for our mortgage. I'm afraid of our interest rates jumping way up high.
Fair enough about the rates.. You're not alone on that worry.

Even if you're at only $20k per year income, the deductible from a $36/month RRSP contribution is greater than the savings from paying down your mortgage by an extra $36/month.
Newbie
Jun 17, 2018
23 posts
12 upvotes
threehappypenguins wrote:
Aug 27th, 2019 3:05 pm
We're fairly low income, and there isn't much tax savings for us.
Even if the tax savings were nil (ie current marginal tax rate is same as forecasted marginal tax in retirement), contributing to RRSP for the match would still be a very good idea.
Deal Addict
Oct 4, 2009
2419 posts
1163 upvotes
Montreal
How much is the interest on your loan? As others have pointed out this is an immediate 100% return on that small sum of money off each paycheque.
Deal Expert
Aug 2, 2001
15940 posts
6125 upvotes
You cannot afford to skip out on this.

They are doubling your money, no investment is ever going to be as good as this.
Deal Fanatic
Jul 1, 2007
8204 posts
1106 upvotes
Any chance the employer offers this same matching plan in TFSA or non-registered form? It's not common, but some do, bigger companies anyway.

Then it would be easy to just do the contributions, get the match, then take your contributions out. Let the company matched portion grow.
Money Smarts Blog wrote:
Nov 29th, 2010 11:18 am
I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.

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