Trade tensions between Canada and the United States are bound to impact Canadians’ ability to save for retirement.
This is due to:
- Increased market volatility, leading to instability in investment portfolios.
- Depreciation of the Canadian dollar, which will reduce one’s purchasing power when buying foreign investment funds.
- Higher inflation, which will not only increase the cost of living but also erode the true value of retirement savings.
These financial complications may give Canadian businesses pause when implementing or reviewing a group retirement savings plan. But providing a group retirement savings option in times of economic uncertainty can greatly contribute to an employer’s ability to attract and retain top talent.
This is because Canadians — who are feeling weighed down by financial concerns — increasingly expect their employers to help them save for retirement.
3 reasons why now is the right time to invest in retirement savings
Canadian businesses need to carefully evaluate their own financial position during economic uncertainty — including assessing their ability to sustain employer contributions to a group retirement savings plan.
If doing so appears to be financially feasible, both you and your employees could benefit from making retirement savings investments during a tough economy.
1. Market volatility can benefit retirement savings plans
A volatile market can cause investment fund prices to temporarily drop. This allows Canadians saving for retirement to invest at a lower price and then potentially make significant gains when the market recovers.
How market opportunities benefit Canadian group retirement savings sponsors
When markets are down, the employer-matching contributions stretch further as more units can be purchased for the same money. It’s like buying something on sale. This, in turn, helps Canadian businesses maximize their investment in their employees’ futures.
2. Dollar-cost averaging: A proven strategy to grow retirement savings
By investing a set amount of money at regular intervals — such as via payroll deductions through a group retirement savings plan — Canadians pay a lower average cost per unit in the long run.
Sometimes the unit will cost more. Sometimes it will cost less. It all depends on the market, which fluctuates. But investing consistently helps even this out in favour of the investor.
How dollar-cost averaging benefits Canadian group retirement saving sponsors
The consistent contribution structure of a group retirement savings plan also benefits Canadian employers. It encourages consistent employee participation (versus emotional and sporadic investing), and helps employers effectively manage their matching contributions.
3. Saving now offers tax benefits today and in the future
Group retirement savings plans offer Canadians both short-term and long-term tax benefits.
- Their contributions reduce their annual taxable income.
- Their retirement investments grow tax-deferred, allowing compounding interest to work faster.
- They are not taxed for annual dividends, interest or capital gains within a registered plan.
- Their withdrawal at retirement is often taxed at a lower rate if retirement income is lower.
Tax advantages for Canadian group retirement saving sponsors
Canadian businesses can deduct their employer contributions to a group retirement savings plan from their taxable income as a business expense.
How Acera Benefits can help Canadians save for retirement during economic uncertainty
The unknown financial impact of the trade war between Canada and the United States doesn’t need to stop Canadian businesses from offering a group retirement savings plan.
Acera Benefits is here to support Canadian businesses navigate the complexity of investing in uncertain times.
Our customized plan design ensures group retirement savings plans are tailored to an employer’s specific needs and financial situation.
We also support employee education, and our partners offer online tools to assist employees in making decisions about their personal investment goals.
To learn more, please contact Acera Benefits to speak with a member of our group retirement services team.