Newspaper article The Canadian Press

Strategic Planning Can Make Defined Contribution Plans Reap Rewards: Advisers

Newspaper article The Canadian Press

Strategic Planning Can Make Defined Contribution Plans Reap Rewards: Advisers

Article excerpt

Defined benefits: planning your future


TORONTO - More Canadians are entering into defined contribution pension plans as employers leave the responsibility of investing to their employees. While that might seem like a terrifying burden, a calculated strategy can help deliver better returns.

Financial advisers say a balance of courage and discipline is the best route to put the focus on long-term investing rather than short-term worries.

Often, that can be the biggest challenge to overcome.

"What we have found is that many employees, especially when they don't have anybody to talk to for financial planning advice, tend to be overly conservative with how they have their monies invested," said David Ablett, director of tax and retirement planning with Investors Group.

For many Canadians, that's the usual financial advice: put aside as much cash as you can, spend with caution and invest smartly. It's just that sometimes the smartest investments don't mesh with the "save, save, save" mantra.

The jerk movements of stock markets and commodities tend to leave the less-experienced investors acting on their emotions, or their fears, rather than putting their investments into the context of where they should be headed during the next few decades.

The best way to approach a defined contribution plan requires taking a step back from the situation to gain perspective.

While defined contribution plans put the onus on individual investors, the investment structure also provides gives them the opportunity to participate in determining their future, rather than leaving it to an pension fund manager hired by their employer.

A defined plan also eliminates the risk of an employee losing their pension, or having it severely reduced, if the employer goes bankrupt or forces them into early retirement.

On the flip side, investors who neglect to plan their financial future could take a major hit from ignoring their defined contributions. To maximize the potential of this structure, be prepared to make it part of the annual assessment of your finances, experts say.

"You should be determining how much money you're contributing to the plan each year, how much your employer is going to contribute on your behalf, and then do a project based on salary increases," Ablett said. …

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