Goodbye 2020! Like many, we are looking forward to the New Year, new beginnings and brighter skies in 2021. This is also the time of year we often set goals for the year ahead. In keeping with this theme, we wanted to provide a financial planning checklist. In no particular order:
1. What is your savings strategy? Are you saving enough to achieve your goals? If your income has changed, have you adjusted your savings accordingly? Which is better for you: RSP or TFSA? Should you be making use of a spousal RSP? Are you maximizing "free money" such as top-ups some employers offer on group RSPs and stock matching programs? RESPs are another great strategy where government ads 20% in grants towards your (grand)child's education.
2. Investment Performance & Fees: 2020 may bring a mixed bag in terms of investment results and we feel there is no better time to review how your investments have performed against your goals. Group plans through work are often overlooked. Understanding the fees you are paying along with other services you are receiving - estate planning, tax minimization and retirement planning to name a few.
3. Reduce your income taxes: For this article, we will keep brief. We believe there are three key strategies for income taxes:
Defer: Contribute to tax sheltered plan (RSP, RESP, RDSP)
Deduct: Investment fees, union dues, interest, RSPs and make use of credits like medical, pension, old age, etc.
Divide: Income splitting, contribute to a spousal RSP or use Trusts and family loans.
Tax professionals can help ensure you are making the most of all strategies, including any COVID-related tax breaks.
4. Review your debts: Given low interest rates, there might be an opportunity to consolidate debts or renew your mortgage early at reduced rates. Most real estate values have increased making refinancing easier. This can potentially save thousands in interest a year or free up hundreds of dollars a month in cash flow that can accelerate debt reduction or be redirected to other goals.
5. Are you protecting what matters most? A 2019 report from policyadvisors.com reported a staggering 90% of Canadians are underinsured. Should something happen to you, will you and your family be financially ok? We recommend reviewing your life, disability (if working), and critical illness insurance coverage at a minimum. In addition, don't forget to review property insurances like residential, rental, recreational and automotive.
6. Review your Will: When was it last updated? Who is your executor, do they still have capacity or desire, where do they live, and do you have an alternate? Out of province executors can lead to complications. We suggest sharing an overview of your wishes with your family but not necessarily all the details and specifics. For example: who your executor is and location of the Will. With blended families often being the norm these days, we feel estate planning requires extra attention and care.
7. Power of Attorney (POA): While a Will cares for your wishes once you are gone, a POA typically empowers someone to act on your behalf while you are alive but no longer able. We recommend exploring advanced care directives which lays out your health care wishes.
These topics can be complex and, as always, we strongly encourage seeking the advice of a trusted professional to help with your personal circumstance. Our recommendation is make a list of priorities with a deadline to action.
Happy New Year and best wishes in 2021!
Written by Keith
Until next time…Invest Well. Live Well.