Adjusting my Defined Contribution Plan

Golf - RetirementAs I have been hinting to from time to time in my posts, I have a defined contribution plan which is really good at accelerating my retirement 🙂 The plan has a matching contribution based on the performance of the company to a minimum of 50%. That means I can get at least 50% of my RRSP contribution through the office and at times the match is even 100%. Due to this benefit, I never miss on those contribution and it’s a priority over my other investments, even my dividend investments.

What is a Defined Contribution Plan?

It’s not a pension plan and there are no income guarantees from it. It is simply an RRSP account whereby your employer can contribute to it based on some guidelines set forth by the company – usually a percentage of your salary. One caveat is that you need to have contribution room in your RRSP as the employer contribution takes away from your RRSP limit and you don’t get the tax credit for it.

Examples, assume that you contribute $10,000 to your RRSP through the program and at year end, the company matches at 100% and contributes another $10,000. You have a total of $20,000 contributed in your RRSP for that year but you only get a tax credit on YOUR contribution of $10,000. Usually, there is a vesting period before you are allowed to keep the employer contribution and for us it was 2 years.

Adjustment to my Defined Contribution Plan

Unfortunately, dividend investing is not an option with the plan. Only mutual funds are offered and since the inception of the program I invested safely in fixed income with some exposure to equities. However, the plan recently added some extra investment options that made me re-adjust my contribution. The newly offered mutual funds are in fact index funds. I was quite glad for the index funds as I believe it is a sound strategy if I can’t execute a dividend investing strategy. I have absolutely no love for actively managed mutual funds as they go no where and that’s why my investments were geared towards fixed income.

My defined contribution “couch potato” plan is now the following:

  • 15% Fixed Income
  • 15% Canadian Bonds
  • 30% U.S. S&P Index
  • 40% Canadian S&P/TSX Index
As you can see, I am applying an index investing strategy and it`s important to assess your investing options in all the accounts you have. I am in the process of adjusting my kids` RESP account as well and it too requires some thinking due to the limited investment timeline we have with an RESP.
Readers: Do you have multiple investing strategies?

Image: Sura Nualpradid /

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