If you are fortunate enough to have kept your job throughout the pandemic and even received a bonus for 2020, count yourself lucky.
After a year of being told all the things you can’t do, the impulse to take your bonus on a spending spree would be completely understandable.
Yet before you whip out your credit card, take a moment to consider embracing your good fortune as an opportunity to top up your registered retirement savings plan (RRSP).
Contributing your bonus to your RRSP will help supercharge your retirement savings, setting the stage for much bigger rewards in the years ahead. And just as importantly, it will help you create something positive out of such a horrible year.
The 60-second RRSP refresher
What is it?
An RRSP is a powerful investment tool that delays the timing of when you pay income tax. This may not sound significant, but the impact on your finances can be huge.
How does it work?
Directing your bonus to your RRSP allows you to invest pre-tax income, separating it from your taxable income before the government takes a big bite out of it. As the investments within your RRSP account grow over the years, any dividends, interest, and capital gains that they accumulate are not taxed.
How does this help me?
By starting with a larger pre-tax amount and avoiding tax deductions as it grows, your RRSP has the potential to grow much larger compared with investments made over the same period that are not tax-protected.
Reap the rewards of a tax-protected investment
The graph below illustrates the difference between contributing a bonus of $10,000 towards your RRSP vs. getting your bonus in cash (taxed at 47%). In both cases, we assume a growth rate of 5% per year.
As the graph shows, putting your bonus into your RRSP can help you reap significant rewards over the long term.
Follow the rules or pay a price
To take advantage of the great benefits offered by RRSPs, you need to play by the rules. This means staying within the contribution limits.
For the 2021 RRSP season, individuals are allowed to contribute up to 18% of their income or $27,830 – whichever is lower.
Keep in mind:
Some factors can reduce your contribution limit (e.g. contributions made to your employer’s pension fund)
Some factors can increase your contribution limit (e.g. unused contribution room from a previous year)
You can find your contribution room for 2021 on your latest notice of assessment from CRA. If you can’t find your NOA, you can call your accountant and/or CRA.
In general, withdrawing funds from your RRSP before you retire will result in a considerable penalty, so this is something to avoid unless absolutely or strategically necessary.
There are exceptions when early withdrawals are allowed – such as to pay for education or buy a house – but these withdrawals must meet specific criteria. To ensure you don’t accidentally break the rules, it’s always a good idea to consult your financial advisor before withdrawing.
Don’t miss the deadline
Timing is also critical when it comes to your RRSP. To be counted by CRA as an RRSP contribution for the 2020 tax year, it must be made by 1 March 2021. If you miss this deadline, you’re out of luck.
This means that if you want to put your 2020 bonus to work in your RRSP, you need to take action now:
Speak with your financial advisor about how to use your bonus to maximize the value of your RRSP
Determine your RRSP contribution room
Check with your employer for any internal deadlines for directing your bonus towards your RRSP (this may be earlier than the CRA deadline)
Today’s opportunity, tomorrow’s windfall
If you’re a working professional with a high income, maxing out your RRSP contribution is almost always the right decision. And if you are among the lucky ones to come away from 2020 with a bonus, now is your chance to move forward with some lasting good from a year to forget.
If you would like help optimizing your RRSP or would like to discuss other complementary strategies within an overall financial plan, Rubach Wealth can help. We invite you to contact us at info@rubachwealth or 647.808.7700 to discuss how acting now can give you so much more to be thankful for in the future.
Tips for a Successful RRSP Season in 2021
With RRSP season here once again, now is the time to give some extra thought to your retirement.
Arguably, retirement planning can be stressful – especially as you draw closer to your retirement day – and the uncertainty of the past year certainly hasn’t helped. Outliving your savings is, rest assured, a lot more stressful. If you want to enjoy your retirement years in comfort, what should you be doing now?
MAXIMIZING YOUR RRSP CONTRIBUTIONS
Contributing to a registered retirement savings plan (RRSP), and ideally maxing out your annual contribution limit, is one of the fundamentals of sound retirement planning.
If you’ve been doing this diligently over the years, well done! However, it’s also important to review the investments in your RRSP to ensure they continue to align with your investment objectives and risk tolerance.
Here’s an overview of key information and some helpful tips to ensure you have a successful RRSP season in 2021.
- Contribution deadline: March 1, 2021
- 2021 contribution limit: 18% of earned income (less any pension adjustment) to a maximum of $27,830
MAKING THE MOST OF YOUR RRSP
How to maximize the value of your RRSP will depend on your specific needs and situation. However, here are some general tips to consider.
- Consider recent market developments. Historically, annual returns on equities following downturn years have yielded higher than average returns. Whatever you do, don’t try to time the market. Given the upheaval seen in financial markets in 2020, you may want to discuss with us an RRSP strategy that makes sense based on your needs.
- Use an RRSP catch-up loan. An RRSP catch-up loan can help you utilize any unused RRSP contribution room. Depending on your personal income tax situation, this may result in a tax refund that could be used to help pay down the RRSP loan. This is not a strategy for everyone. Let’s talk before you do it!
- Invest your tax refund or bonus. If you’re banking on getting a tax refund this year or expecting a bonus from work, what are your plans for this money? Rather than spending it on nice-to-have things, consider putting some or all of it into your RRSP. You may have to forego a bit of fun in the short term, but it can help give your retirement lifestyle a big boost in the long term. We can show you what that looks like for you.
- Plan for taxes. As you put money into your RRSP, always remember that what you’re doing is deferring taxes today, not avoiding them forever. When you start withdrawing RRSP funds during retirement, you’ll have to pay tax on this money. The key to remember (and the big benefit of an RRSP) is that the tax rate will be based on your tax bracket at the time of withdrawal rather than your current tax bracket. In theory, you will be at a lower marginal tax rate… but what if you’re still at the highest? By simply looking at your RRSP account statements and not thinking of future taxes, you may think you will have access to more money than what you will actually have.
TAKING ACTION FOR A SUCCESSFUL RRSP SEASON
If the events of 2020 have left you stressed out and mentally exhausted, we get it. Yet an open conversation with your financial advisor to check in on your retirement plans might be just what you need to shift your focus to brighter days ahead.
Investing a small amount of time into retirement planning now to ensure you get the most out of this RRSP season will pay dividends many times over in terms of peace of mind and financial stability going forward.
Have you already maxed out your RRSP contribution room? This is a good problem to have! If you’re now looking for other investment alternatives to help you shelter additional growth from taxes, we can help.
Whatever your situation, we invite you to contact us at info@rubachwealth or 647.808.7700 to discuss your options. The RRSP deadline is approaching, so now is the time to act.
No one gets married planning on an unhappy ending, yet the reality is that approximately 40 percent of marriages in Canada end in divorce.
For small business owners, this can pose a challenge: how can you protect your business if you end up getting divorced?
Despite how common it is, many small business owners are unprepared for the possibility of a divorce. Whatever your current situation, here are some things to keep in mind to help mitigate the impact of a divorce on your business.
Protect your business early
If you own a business, there’s a good chance it’s your most important and most valuable asset. And like any big asset, it should be protected.
A divorce can have a major impact on a business if it’s included in a settlement. The overall divorce process can also make it difficult for you to focus on the day-to-day running of your business.
The importance of protecting your small business before initiating (or even considering) divorce cannot be overstated – and the earlier, the better.
Ideally, protective measures should be in place well before marriage. Once divorce is on the table, if your business isn’t protected, it’s probably on the table, too.
The most common way to protect your business is with a prenuptial agreement, often called a prenup.
A prenup is a binding contract signed by each partner before their wedding outlining what happens to all assets, property, and income in the event of divorce, separation, or death.
A prenup is the fastest, easiest, and least expensive way to protect your small business in the event of a divorce. If one or both partners in your marriage are small business owners (either together or with different businesses), the complexity is multiplied, so a prenup is strongly advised.
Shareholder, partnership, LLC, and buy/sell agreements offer different types of protective measures. Each of these agreements can include provisions that protect the interests of the business owners – including you and any co-owners – if one of you ends up getting a divorce.
For example, your agreement can require that unmarried shareholders implement a prenup if they plan to marry. Your agreement can also require a waiver from an owner’s fiancé that removes them from any future interest in the business.
Another option is to impose restrictions on the transfer of shares. For example, your agreement can prohibit the transfer of shares without approval from other partners or shareholders.
Alternatively, the other owners(s) can be given the right to purchase the shares or interest of any divorcing parties, which gives the existing owners the option to maintain control of the business.
Mitigate risk with holistic financial planning
Whether you’re running a business or building a loving, enduring marriage, real life is hard work, and it doesn’t always go as planned. With divorce, being a fact of life for many Canadian couples, planning for this possibility is an important step for any small business owner.
At Rubach Wealth, we help business owners plan for an uncertain future and mitigate risk as part of a holistic approach to wealth management. This means looking at your life in its entirety and bringing everyone to the table – including lawyers, accountants, and investment specialists – to help you make the best decisions given your unique needs.
Divorce is not an easy topic to address. However, by having frank conversations and asking tough questions now, we can help you minimize the financial harm that sometimes accompanies the heartbreak of a divorce.
If you have questions about protecting your small business in the event of a divorce, please contact us at 647.349.7070 or email@example.com. for a confidential conversation.
Whatever your goals, dreams and challenges, financial literacy is a critical factor influencing what you can achieve in life.
Why? Because financial literacy can help you make smart decisions today that will shape your life and the opportunities you enjoy for decades to come.
As November is Financial Literacy Month, this is a good opportunity to highlight the meaning of financial literacy and show how it can positively impact your life.
Empowering your financial life
Being financially literate doesn’t mean you have to become an expert in financial matters.
However, it does mean getting to know the basics so you can ask relevant questions and have meaningful conversations with financial professionals.
Ultimately, becoming familiar with financial topics is about empowerment and being an active participant in the shaping of your financial future.
Financial literacy 101
Learning some of the fundamentals of personal financial management can go a long way in demystifying this important topic.
The following are some of the building blocks of financial literacy:
- Managing your debt. Personal debt in Canada is at a record high, which is particularly concerning for younger Canadians who are growing up to see cheap debt as a way of life.
- Financial literacy means understanding the impact of debt on your finances – including your credit score – and how different strategies can help you pay it off more quickly and at a lower overall cost.
- Growing your wealth. Working hard in a job or running a business is only one part of the equation – there are many other factors that will influence the growth of your wealth during your lifetime.
- Financial literacy means understanding how your income is taxed, learning how best to balance spending and saving, and identifying opportunities for growing your wealth through wise investment choices.
- Protecting yourself and your family. The past year has clearly shown that life can throw unexpected curveballs, highlighting the importance of proactively safeguarding your financial well-being.
- Financial literacy means understanding the role of life insurance as a powerful investment tool, the importance of disability and critical illness insurance for protecting your financial well-being, and the value of locking in lower insurance premiums when you are younger and healthier.
- Working toward goals. A career can be incredibly rewarding in itself, yet it can also be a means to achieving any number of life goals.
- Financial literacy means understanding the steps you can take now and throughout your career to help you achieve major goals, such as buying a house, starting a family, retiring early or engaging in philanthropy.
Adopting a holistic approach
Adopting a holistic approach to your finances means ensuring that all decisions and strategies are thoughtfully aligned with your current situation and future goals.
A base level of financial literacy – together with support from a trusted advisor – will help you put in place a comprehensive financial plan that covers all the bases and can evolve throughout your lifetime.
In addition to giving you greater peace of mind regarding your financial security, it will also leave you free to focus more time and energy on your family, your career and other important areas of your life.
Securing your financial future
Whatever your worries today and hopes for the future, boosting your financial literacy will empower you to move forward with greater confidence.
If you’d like to discuss your financial situation with a trusted advisor who can provide thoughtful guidance, please contact Rubach Wealth to schedule a call.
To discuss how greater understanding of your finances can get you on the right track to a better financial future, contact us contact us at firstname.lastname@example.org or at 647.349.7070.
It’s probably fair to say that most Canadians will be happy to bid farewell to 2020, and there are still three months to go until the end of the year.
The pandemic has taken a heavy toll, from the loss of lives and jobs to the disruption of schooling and retirement. Financially, countless individuals and families across the country have been negatively impacted.
While it’s easy to focus on the negative, we believe there are lessons to be learned from the pandemic that will help us emerge stronger in the years ahead. Here are four of them.
Lesson 1: An emergency fund is essential
This year, countless Canadians have lost jobs, struggled with collapsing businesses or faced sharp declines in their investment returns. For many, this has resulted in a major cash crunch and enormous financial stress.
The current pandemic may be a once-in-a-100-years event, yet we can be confident that other crises will emerge during our lifetime. That’s why a key takeaway from this pandemic is the importance of establishing a financial safety net.
Whatever your financial situation, setting aside enough money to cover at least 3–6 months of your living expenses is not just a good idea – it’s essential.
Lesson 2: We can all reduce wasteful spending
Amid the financial fallout from the pandemic, many Canadians have been reviewing their spending with a more critical eye. With incomes squeezed or disappearing for many, it’s no surprise that people have been looking for ways to trim their monthly expenditures.
From rarely used subscriptions to frequent dining out, it’s up to each of us to decide what we consider essential versus frivolous. Yet for most of us there are opportunities to reduce unnecessary spending.
You work hard for your money, so you owe it to yourself to ensure you’re not wasting it needlessly.
Lesson 3: A portfolio loses value more easily than it gains
The global spread of COVID-19 rocked stock markets in early 2020, with the TSX Composite Index plunging by 21.6% in the first quarter of 2020 compared with end-2019. Although the sharp drop has been followed by a relatively rapid rebound, the index is still short of its February 2020 peak.
For investors, this fluctuation during the pandemic has provided an important reminder for investors: if your portfolio drops by 20%, it will take more than a 20% rise to return to the level it was at before. Why? Because a 20% drop in a $1,000 investment takes you to $800, but a 20% rebound takes you only up to $960.
The lesson here is that it can take longer to rise than to fall. So if you’ll need money in the short term to buy a house or for retirement income, your portfolio should generally favour low-volatility investments.
Lesson 4: Regular portfolio rebalancing should be a priority
Aligning your portfolio with your risk profile is an investment best practice, but it shouldn’t be a one-off event. Without regular portfolio rebalancing, a portfolio that was meant to be 70% equities may have risen to 90% in the pre-pandemic bull market.
The problem here is that when stock markets plunged earlier this year, this portfolio would have been exposed to much higher volatility and risk at 90% equities versus the intended 70%. With regular rebalancing, the portfolio would have locked in gains gradually during the bull market and faced the crash with only 70% equity exposure.
Rebalancing your portfolio regularly can mean forgoing some potential gains when markets are strong, but it also means you’ll be at a more comfortable risk level when tough times hit.
Translating lessons into action
The pandemic has shown us how difficult it is to plan for all eventualities. Yet is has also reminded us of the value of financial planning best practices.
To discuss how to apply these lessons to your situation and get on track to a better financial future, contact us contact us at email@example.com or at 647.349.7070.
Eliminating hunger and poverty. Curing diseases. Building a just society. These are just some of the big, audacious goals that charities are trying to tackle within Canada and around the world. These goals are lofty enough, then you throw in a global pandemic and this proposition becomes exponentially more difficult. Charities across the sector are reporting revenues down markedly, with significant layoffs in progress – and more on the horizon. The size and scope of these shifts is beyond anything that we have seen before, far exceeding what we saw in the 2008/2009 financial downturn and with such broad effects even the most diversified revenue bases are seriously affected.
But much like gazing up from the base of a mountain and imagining the climb to its peak, achieving these goals can seem like impossible tasks. And indeed, they can be if we focus only on our own capabilities or push ahead without a strategy for giving.
Across the country, charities are modifying existing programs, developing new ones, and implementing measures to help prevent the spread of the virus – all in dramatically changed working environments.
However, when communities work together with a clear, well-informed plan, we can not only scale mountains, we can push them aside and achieve a positive impact that shapes the world for the better.
Driving change with intentional giving
As an individual, you may wonder how giving $100 or $200 to a charity can possibly make a difference. But imagine what we can achieve across Canada by working together as a team.
If all of us who can donate a few hundred dollars per year on average – perhaps 1% of our annual income – that’s billions of dollars to put toward solving important social challenges and achieving real impact.
What’s needed to make this happen? Intentionality.
Canadians are happy to donate here and there when someone comes knocking on behalf of a charity, but often not much thought or planning goes into our giving. As a result, our dollars can end up having less impact than we’d hope, or we end up giving less than we can.
Fortunately, we can overcome this by adopting a more intentional approach to giving and working together as Canadians to more effectively drive change.
Overcoming barriers to giving
Of course, the reality is that Canadians already contribute generously to charitable causes. However, together we have the potential to do even more to build up our social infrastructure and achieve those big, audacious goals. Two things that can help us boost our collective impact are clarity and confidence.
- In the Thirty Years of Giving in Canada report, 69% of donors said they did not give more because they could not afford to do so. It is undoubtedly true that many Canadians already give as much as they can. But there are also many for whom uncertainty about their finances is the true barrier.
If you feel uncertain about your ability to give more, a trusted advisor can help you gain a clearer picture by assessing your current financial situation and helping you map out a financial roadmap. With more clarity on what you can afford to give, you’ll be in a better position to achieve significant impact.
- The Thirty Years of Giving in Canada report found that 29% of donors cite concerns about inefficient or ineffective use of money as a barrier preventing them from giving more. A degree of skepticism is certainly warranted: sadly, the occasional news of a charity scam, or an event such as the WE charity scandal, can cast an unfair shadow over the entire sector dedicated to the society’s well-being.
Rather than limiting your giving due to pessimism, however, you can also seek out options for giving with greater confidence. For example, accreditation initiatives such as Imagine Canada’s Standards Program can highlight organizations that are committed to high standards of governance and accountability. When you are more confident that your money will be put to good use, you’re more likely to give more.
Joining forces to shape the world
Companies and individuals give to causes that are worthy. Philanthropy has grown each year, the new year more than the one before. But in difficult times, people dig deeper and give more to the organizations they care most about.
Achieving transformative social change requires us to dream big and join forces. None of us can eliminate hunger and poverty, cure diseases, and build a just society on our own. But working together with a clear, intentional plan, we can move mountains and create a better Canada for the benefit of everyone.
Elke Rubach is President of Rubach Wealth, a Toronto-based firm that helps established professionals and business owners support the people and causes they care about through comprehensive wealth and retirement planning. Contact Elke at 647.349.7070 or by email at firstname.lastname@example.org.
Bruce MacDonald is President & CEO of Imagine Canada, a national non-profit organization that creates programs and resources to strengthen charities, promote corporate giving, and support the charitable sector. Contact Bruce at email@example.com