Sarah Twomey | Desjardins Group
John and Jane have always been career minded, even while they attended university. He was always into IT, so he worked in computer stores which then led to programming gigs in a few big companies before he decided to launch his own consultancy firm. In each of his positions, he took advantage of employer pension plans, employee stock purchasing programs and other employer-sponsored savings plans.
Jane did too. She started out as a cashier at a large grocery store and then worked towards the financial industry job she has now. And like John, Jane participated in every employer-sponsored savings programs that was available. To her it really was a matter of save it and forget it.
And that's exactly what they both did: they completely forgot about their accumulated savings that were parked in dormant accounts. It all came to light just after they moved into their new house. When John was unpacking boxes in his new office, he came across a folder full of statements addressed to Jane and a few addressed to him. Jane's statements were for a defined contribution pension from her first job at the grocery store. It had been over fifteen years since she left the place and the balance was close to $10,000. John's reports indicated that he had $5,000 worth of stock from his last job. He forgot about the stock because he had set up the account to reinvest the dividends. All of a sudden John and Jane were $15,000 richer. Could they have more money at their old employers just quietly growing in dormant accounts? They made an appointment with their financial advisor, Gina, to find out how they could handle this unique problem.
Gina, we just found $15,000 in saving that have been sitting dormant. Can you help us figure out what to do about this?
Sure. This isn't very surprising and you're not alone. Usually the average number of years an employee can spend in one company is less than seven years. So there's a potential that you could be at four or five companies throughout your career. And like you've just discovered, that could mean you may have several RSPs, pensions, employee stock plans or other savings accounts associated with those old jobs. If you provide me with a list of your old employers, I can give each a call to see if you have any other outstanding accounts. Once we know the lay of the land, we can start consolidating.
Can you tell us more about the consolidation process?
I will analyze all the different accounts and divide them into two different kinds of accounts: straight savings and retirement savings. If you both invested in employee stock purchasing, we can see if we can transfer the stock into an investment account. Or else, we can sell it and deposit the proceeds in a Registered Education Savings Plan (RESP) account for example so that you can have a rainy-day fund. Then the RSP and pension accounts can be rolled into an account for each of you and the pensions will become LIRAs (Locked-In Retirement Accounts). The advantages of consolidating are:
- You will have a better picture of your entire net worth which helps with your financial planning.
- Now you might be further ahead towards reaching your retirement savings goals.
- Tax planning made easy. When you retire, you'll know exactly what your income will be which will allow you to predict what you will owe in taxes.