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By Nancy Carr
Canadian Press
Thursday, January 29, 2004
TORONTO -- Even though she had embarked on a career as a teacher and knew she'd have a healthy pension if she stayed an educator, Sarah Kurita started saving money in an RRSP five years ago.
She started accumulating money in her registered retirement savings plan so she'd have some tax-deferred savings to use when she and her husband bought a home in 2001.
Adrian Mastracci, investment counsel and president of Vancouver based ‘fee-only’ KCM Wealth Management, says, “He's concerned that a lot of workers with company pensions don't know enough about their retirement benefits.”
But after she repays what she borrowed from the plan, her RRSP will make a welcome addition to her teaching pension later in life.
"We have 15 years to pay it back, then we'll just let it sit until we can draw from it," said Kurita, 32, currently on maternity leave with her eight-month-old daughter.
Whether her pension will be adequate to retire on - along with that of her husband, a hospital biomedical illustrator - depends on a number of factors.
"It depends on how much time I choose to take off with kids, because I'm not contributing while I'm on maternity leave," said Kurita, who also gets income from renting out an apartment in her home.
"In addition to which, I might continue a part-time status while I have kids at a young age and then, of course, my contribution is that much less."
Patricia Lovett-Reid, senior vice-president at TD Waterhouse Canada, agreed it's smart for all working Canadians, whether or not they have a company pension, to save in an RRSP.
And she would encourage Kurita to contribute to hers more often, rather than just letting it sit and grow.
"Quite often what will happen is people will say, 'I'm contributing to a pension plan and I'm going to get government benefits,' " said Lovett-Reid, pointing out that half of working Canadians have a company pension of some sort.
"Well, even if you combine the two, often that number represents about 70 per cent of what you need in retirement. So there is still a necessity to put money in an RRSP or outside of an RRSP."
As workers with company pensions know, the amount they can contribute to an RRSP is limited, and depends on what kind of a pension they have through their work.
Lovett-Reid said that although people with company pension plans can't put the full 18 per cent of earned income into an RRSP, they shouldn't ignore the savings tool altogether.
The amount they can contribute is 18 per cent of their earned income, minus their pension adjustment, which is indicated on the annual T4 form provided by the employer to the employee and the Canada Customs and Revenue Agency.
A person who earns $60,000 a year and has a company pension might have a pension adjustment of $3,200, allowing a contribution of $7,600 to an RRSP, Lovett-Reid suggested.
"It's a significant amount of money."
As a rule of thumb, the better a worker's pension benefits will be, the larger the pension adjustment is, reducing the allowable RRSP contribution.
But independent financial planner Adrian Mastracci of KCM Wealth Management agreed with Lovett-Reid that a company pension can "create a false sense of security."
"The clients that I have spend more than just the company pension plan, and most get some sort of (Canadian Pension Plan) and (Old Age Security), and most spend a little more than that," Mastracci said from his office in Vancouver.
"So having assets like an RRSP and other things, income-producing real estate, always helps."
He said he's concerned that a lot of workers with company pensions don't know enough about their retirement benefits.
"They probably haven't really looked at it too deeply," he said.
"Every year or so they may get the sheet of paper saying, 'When you retire in the year 2015 you will get X amount.' I think retirement planning is a little more than that."
To learn more about a company pension - how much it will pay, how much room it leaves for RRSP contributions and any other issues - workers should enquire with their workplace pension administrator.
Lovett-Reid suggests workers take into account whether their pensions have defined benefits or defined contributions when they invest in an RRSP.
"If you're in a defined benefit plan, for example, that will specify the pension the employee is going to receive on retirement, that would be considered to be less risky," said Lovett-Reid, adding that those workers could take on more risk in their RRSPs.
With a defined contribution pension, however, an employee knows how much is being contributed by the individual and the employer, but not how much will be paid in retirement benefits.
"Therefore the money you put into an RRSP you may have to be a little more conservative with, because you don't know what you're going to get from your pension."
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