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Spring 2024 Financial Planning Report

Table of Contents

Why Goals-Based Investing Matters

The concept of “goals-based investing” has been appearing in the media, and it’s often touted as something new. Perhaps it’s new to some investors, especially anyone who invests on their own, but those with an advisor already follow the principles of goals-based investing.
Investing that’s not goals-based typically measures success by comparing a portfolio’s performance to benchmarks or market returns. Performance still matters with goals-based investing, but success is determined by achieving a goal.

The Process

You identify your goals and specify your individual investment objectives. Each goal has an asset allocation based on its time horizon and your risk tolerance. Progress is monitored periodically so you can stay on track toward achieving each investment goal. Note that it’s not only investment performance that’s monitored but also changes in any goal that may affect your financial objective.

Here’s an example to illustrate why meeting a goal can matter more than market performance. Say an investor approaching retirement is following the strategy of building a fixed-income reserve to help fund their initial years of retirement. This individual has no need to compare how their reserve fares against market ups or downs. Their goal is to keep their planned retirement date even if the markets tumble.

Benefits of Goals-Based Investing

Goals-based investing offers several benefits, both financial and psychological. The goals are more attainable because each one has its own investment strategy and is monitored along the way. You’re less likely to react to short-term market fluctuations, being tempted to either sell or buy, because you’re focused on the longer term. Also, when markets are volatile or falling, you’re less likely to worry – knowing that your long-term investment objectives have been set to account for periods of market volatility over time. Whenever you want to track how your investments are aligned with your goals, please get in touch.

Do you have questions for any of these topics? ​

Contact our team for additional financial recommendations.

How to Use Your TFSA in Retirement

Just as a Tax-Free Savings Account (TFSA) meets a variety of needs during your working years, it can be equally versatile during retirement.

Providing Tax-Free Income

Drawing income without paying tax is already a win, but tax-free income also lends itself to various retirement income strategies.

Perhaps there are years when a retiree needs more income, and they’re at the upper threshold of a tax bracket. Drawing income from taxable sources would result in paying more tax on that amount, but they could withdraw TFSA funds without climbing to the next bracket.

Say that someone wants to defer their Canada Pension Plan (CPP)/Québec Pension Plan (QPP) and Old Age Security (OAS) benefits to age 70 to gain a larger benefit amount in the long run. The retiree can withdraw tax-free TFSA funds to help cover their cost of living during the years before they take their government benefits.

Some retirees might be in a position where their taxable income amount would result in a clawback of OAS benefits. They can avoid or minimize the clawback by making TFSA withdrawals, as these funds aren’t included as income for tax purposes.

Continuing to Invest

If you earn income during retirement from part-time work, a business, consulting or a rental property, you can continue to contribute to your TFSA – up to your allowable limit.

Some retirees have years when their minimum required Registered Retirement Income Fund (RRIF) withdrawal leaves them with more income than they need.

By contributing a portion of that withdrawal to their TFSA, the amount can grow tax-free.

Another way to grow a TFSA is by gradually transferring funds from a non-registered account. The non-registered assets are taxable whether they’re sold or transferred in-kind, but they would be subject to tax in the future anyway. With this strategy, you pay any tax owing now and benefit from future tax-free growth and withdrawals.

Leaving Assets to Heirs

Part of estate planning is managing or accounting for the tax payable on estate assets, but with TFSAs, planning for taxation is not an issue.

If you want to leave TFSA assets to your spouse, you can name them as a successor holder or beneficiary. Usually, successor holder is the better choice because your spouse simply takes over the existing TFSA – it’s a simple transaction. If a spouse is named beneficiary, there are rules to follow, a form to submit and potential tax consequences.

If you leave TFSA assets to a child or another heir, you designate them as a beneficiary, and they’ll receive the proceeds tax-free.

A TFSA can also be used to help offset tax payable on estate assets by naming the estate as beneficiary. Also, if you wish to donate TFSA assets to a charity, the donation tax credit can be used to help offset an estate’s tax liability.

Please Note

In Québec, a beneficiary or successor holder can only be named on the TFSA form for insurance investment products, such as guaranteed investment funds or segregated funds. Otherwise, the TFSA beneficiary is to be named in the will.

Safeguard Your Assets With a Trusted Contact Person

Just over two years ago, the Canadian Securities Administrators (CSA) introduced the concept of a “trusted contact person,” which has now been adopted across the country.

An investor may give their advisor the name of a family member, close friend or trustworthy professional. The CSA recommends choosing a different person than the individual you appointed for your power of attorney or mandate. Suppose the advisor is ever concerned that the investor is becoming less able to make sound financial decisions or may be vulnerable to fraud or financial exploitation. In that case, the advisor can contact the trusted person to address these concerns.

If you haven’t yet named someone or wish to replace your trusted contact person, please feel free to contact us. Keep in mind that this measure was not only introduced to protect seniors who may be developing dementia. Younger individuals can suffer cognitive impairment from an illness or injury, and people of any age can be exploited financially.

Finding a Balance Between Spending and Saving

When it comes to spending versus saving, there is no exact balance that’s right for everyone. Each of us has our own money personality, perhaps one we’re born with, acquired by following – or rejecting – our parents’ habits, or developed on our own over the years.

Two Danger Zones

While there’s no exact balance, there are two potential danger zones. If someone is primarily a spender, they risk missing out on their long-term savings goals or taking on too much debt by living beyond their means. Someone who’s a diehard saver may suffer a different kind of missing out – saving for the future at the expense of enjoying life now.

Anyone close to either danger zone needs to recognize and acknowledge their situation. Awareness is key. You can always change your habits to arrive at a balance to provide for the future while living for today.

Finding the Balance for Couples

Anyone might think that a spender and saver living under the same roof spells trouble. But such a couple has the potential to find a healthy balance between spending and saving. It just requires understanding, communication and compromise.

Interestingly, two spouses who are both savers or both spenders could have the greater challenge. Although their money personalities match, the savers need to make sure they won’t one day regret missing out on life’s pleasures. The spenders must be watchful that they don’t sacrifice their lifestyle in retirement for the lifestyle they enjoy now.

When We Can Help

Sometimes you may face a situation where you wonder whether spending a large sum will affect your financial situation. Will a long trip to Europe mean you need to start budgeting? Will purchasing a vacation property force you to retire later? You can contact us when these situations arise. We can help you determine whether spending now will affect your current financial life or long-term goals.

A powerful partnership to help reach your goals

To find out how you can benefit from working with an experienced Wealth Planning Team, Contact us