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Winter 2023 Financial Planning Report

Table of contents

Achieving multiple financial objectives

It’s human nature to generalize our goals. “I’ve got to start exercising” is a common one. But a key to achieving a goal is to first identify one specific step. For example, starting to exercise becomes taking a brisk walk every day.

The same idea applies to financial goals. Say a parent’s general goal is to get on top of their Registered Education Savings Plan (RESP) contributions. They’ve always made contributions just before December 31 to trigger the Canada Education Savings Grant (CESG). Now the parent identifies a specific step to break the last-minute habit. They will contact their financial institution to set up automatic monthly contributions to mutual funds in their RESP.

Make a resolution

If you have a financial goal you want to work toward, think of an attainable first step to take. You may even want to make your step a financial New Year’s resolution – the good kind, one you will keep.

Let’s say a couple’s overall goal is to start that emergency fund they’ve always been thinking about. Their specific step could be for each spouse to invest a manageable amount from each paycheque in a money market mutual fund in their Tax-Free Savings Account (TFSA).

Or say that someone wants to catch up on their Registered Retirement Savings Plan (RRSP) contribution room. A first step could be to contribute their annual bonus to mutual funds in their RRSP. They could do the same when their RRSP refund arrives.

Involve us

Please feel free to talk to us about the goal you wish to accomplish. First of all, telling someone about a step you want to take can motivate you to commit to the task. Also, we can offer advice and guidance to help you along the way.

Do you have questions for any of these topics? ​

Contact our team for additional financial recommendations.

Are your and your spouse’s investment personalities a match?

You would think it’s always ideal for both spouses to have the same investment personality – and often it is. But sometimes similar approaches may spell trouble, and opposite investment personalities can be beneficial.

When investment personalities conflict

Say that a couple is investing with the goal to fund their retirement. One spouse prefers to invest conservatively and not have to worry about the markets, accepting the need to save and invest more. The other spouse is comfortable with investing aggressively, feeling confident that a portfolio heavily favouring equities will provide higher returns over time.

There are two different ways their conflicting approaches can actually benefit each spouse. The first is by finding a compromise, which would be to develop a relatively balanced portfolio. There would be little or no cash equivalents or speculative investments. This way, the conservatively minded spouse benefits from greater exposure to market opportunities, and the aggressively minded spouse won’t put hard-earned savings at unnecessary risk.

Another route is simply for each spouse to invest independently according to their own risk tolerance. This way each has the satisfaction of staying true to their own investment personality. As a couple, their portfolios in combination achieve a healthy balance between capital preservation and long-term growth potential.

When investment approaches are alike

Usually, a couple may consider themselves fortunate when they have the same investment personality. But sometimes the similarity calls for caution.

Say that both spouses are ultra-conservative investors. Since their investments earn relatively moderate returns, they’re saving and investing more to meet long-term objectives. This couple may need to watch that their budgeting doesn’t come at the expense of enjoying life now.

A couple in which both spouses are aggressive investors needs to make sure they don’t go too far. A portfolio that’s too high-risk could jeopardize their retirement plan or other financial goals.

Financial Briefs

When to defer an RRSP deduction

The Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) allow a couple to balance out their pension amounts, to a degree. A portion of the higher-income spouse’s CPP/QPP pension is shifted to the lower-income spouse’s pension.

Known as “pension sharing,” it’s most effective when a couple has been living together for a long period. The government uses that period in determining the amount of pension dollars that can be shared.

Here’s an example of a couple who lived together during all the years they contributed to the CPP or QPP. Originally, Elyse received a $900 monthly benefit and her spouse, Robert, received a monthly benefit of $300. With pension sharing, the sum of $1,200 is equally split, so each spouse receives a $600 monthly benefit. They now save tax as a couple by having less pension income taxed at a higher rate and more taxed at a lower rate.

You don’t have to claim a Registered Retirement Savings Plan (RRSP) tax deduction in the same year you made the contribution. The deduction, in whole or in part, can be deferred to any future year.

The deduction amount is based on your marginal tax rate – the higher your marginal rate, the greater your deduction. So it can pay to defer claiming your RRSP deduction if you expect to have a greater income and higher marginal tax rate in the future.

This strategy can be especially beneficial if you’re gifting funds to a child or grandchild who’s a student or just starting out. Say they have RRSP contribution room but aren’t financially able to make contributions. You provide the funds for them to contribute, but they defer claiming the deduction until a year when it will result in significant tax savings.

Make the most of charitable donations

It’s an easy habit to slip into. When filing your tax return, report just your own charitable donations made only during the tax year. But you might have a better choice.

When you report charitable donations, you receive a federal charitable donation tax credit of 15% on the first $200 of donations and 29% on donations over $200. But you have choices in how you report your donations. You can combine your tax receipts with your spouse’s receipts or carry donations forward to any of the next five years – or even do both. Pooling your donations gives you a larger sum that exceeds the $200 threshold, which receives a tax credit at the 29% level.

This strategy is worthwhile whenever the pooled amount is over $200, and it becomes even more effective when you factor in the provincial donation tax credit. Either spouse can claim the credit, but typically more tax is saved when the higher-income spouse makes the claim.

Sharing CPP/QPP benefits to save tax

The Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) allow a couple to balance out their pension amounts, to a degree. A portion of the higher-income spouse’s CPP/QPP pension is shifted to the lower-income spouse’s pension.

Known as “pension sharing,” it’s most effective when a couple has been living together for a long period. The government uses that period in determining the amount of pension dollars that can be shared.

Here’s an example of a couple who lived together during all the years they contributed to the CPP or QPP. Originally, Elyse received a $900 monthly benefit and her spouse, Robert, received a monthly benefit of $300. With pension sharing, the sum of $1,200 is equally split, so each spouse receives a $600 monthly benefit. They now save tax as a couple by having less pension income taxed at a higher rate and more taxed at a lower rate.

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