2022 has been another year for the record books. The war in Ukraine continues. Energy and food costs skyrocketed. Financial markets got hammered. Interest rates increased to decade highs. Inflation was at levels not seen in decades. And so much more. Now 2022, is nearly behind us and 2023 is creeping up. What will 2023 bring?
Will 2023 be a year of further turmoil? What about layoffs and job losses? Will we finally tip into a recession? Or, will we have the soft landing governments are wishing for with inflation easing and geopolitical issues being resolved? Only time will tell, but if I had to guess, I don’t think 2023 will be all rainbows and butterflies.
Although we can’t control the uncertainties of the future, there are some things we can control. In this blog post, we want to ensure that you are doing whatever you can to ensure that 2023 is as good a year as possible from a financial perspective. In this blog post, we put together a list of all things that should be on your to-do list for 2023. For more information on any of the topics, click on the headings to be redirected to one of our more in-depth blog posts on the subject.
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With the new year approaching there are some notable changes coming to the Canadian financial landscape. The first one worth mentioning is the increase in the TFSA contribution room. For the last four years, the annual contribution room allotted to Canadians 18 or older was $6,000. In 2023, that is increasing to $6,500.
The Canadian government has also established a new savings account; The Tax-Free First Home Savings Account. This account is specifically designed to help with the affordability issue of housing in Canada. It still remains to be seen if this will help solve the issue or make a noticeable impact on those struggling to purchase a house, but at least they are trying. For more information on our initial thoughts on the FHSA, check out Tax-Free First Home Savings Account. There has been new information regarding the account since that article was published.
The Canadian government also recently made changes to the amount of OAS that Canadian retirees receive. In July of 2022, they made it so those who are 75 and older receive a 10% increase in the amount they receive. Currently, if you are 65-74, you will receive $685.50. Those, 75 and older receive $754.05. These amounts will be indexed up for the new year.
Now, onto the checklist…
The first thing on your financial checklist should be loading up your TFSAs. On Jan. 1st, 2023 we were granted an additional $6,500 of new contribution room. Enjoy the gift, embrace the gift. Load yours up today. Below is a table depicting the maximum amount you can contribute based on your year of birth:
Quick Tip: Make sure that your spouse is listed as the Successor Holder, NOT just the beneficiary. It’s simple to change and saves a huge headache and potential income tax complication if you are to predecease.
For more information on TFSAs check out the following:
- You Should be Maxing Out Your TFSA
- TFSA Vs. RRSP: Where should your Money Go?
- Using a TFSA Vs. Buying A Rental Property
We will continue saying this until all of our readers have one. A POA and Will are an absolute necessity for anyone over the age of 18. A health care directive is also important. Spend the money so your loved ones can pay your bills. Seriously.
Check out The Estate Planning Beginners Guide.
Financial checklist item number three revolves around RESPs. Each year the government provides each RESP beneficiary with a matching grant of 20% on contributions up to $2,500. Make it your goal this year to put away $2,500 for their future, and receive a 20% ($500) grant.
Furthermore, maybe you didn’t contribute when your kids were younger. Luckily, if there is unused grant money, you can contribute up to $5,000 per beneficiary in a year to receive the 20% grant. Remember this only applies if there are unused grants.
Additionally, make sure that the beneficiaries are set up correctly, and always make sure that you open a family RESP instead of an individual one. This provides more flexibility if one child decides not to go to school or doesn’t use up their full allotment.
Check out Inflation and the Cost of Education
Knowing what to do with your money is important. If we don’t have a solid plan, we are more likely to blow the dough. Close to 40% of Canadians surveyed feel their financial futures are not in control. Seeking the professional advice of a trusted advisor can help mitigate the stress and anxiety around your financial future.
An international HSBC study, The Future of Retirement, in 2011 showed that those with financial plans accumulated nearly 250% more retirement savings than those without a financial plan. Furthermore, almost 44% of those who have a financial plan in place save more money each year for retirement. Get one. You won’t regret it.
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If you haven’t done so already, contribute to your RRSP by March 1 to enjoy the tax deductions on your 2022 tax returns. We suggest RRSP contributions for anyone with taxable earnings of $100,000 or more. Lower incomes may still benefit from RRSP contributions but you should seek advice on its efficiency.
The maximum that can be contributed for the 2022 tax year is $29,210.
Want to level up? Make RRSP contributions (18% of your 2022 taxable income) and use the tax return money to load up the additional $6500 of TFSA room you were given for 2023.
For more on RRSPs check out the following:
If you are celebrating your 71st Birthday in 2023, remember that you need to convert all your RRSPs/LIRAs to RRIFs/LIFs by year-end. If you aren’t turning 71 this year, stay on course, and keep filling those saving vehicles.
Once you have converted RRSPs/LIRAs to RIFs/LIFs there is a minimum/maximum that must be withdrawn. That minimum withdrawal is mandatory the year following the conversion. Both RIFs/LIFs have minimums, however, only LIFs have a maximum withdrawal.
The minimum and maximum withdrawals are a function of your age and the value of the account. Different provinces also have slightly different minimums and maximums.
The simple formula that gives you a good estimate of the minimum that you will have to withdraw is:
100 / (90 – age) = % of account that must be withdrawn.
For instance, if you have $100,000 in a RIF and you are 72, the minimum you must withdraw is 5.56% (100 / (90 – 72)), or $5,560. The exact amount is 5.4%, but this simplified formula does give you a pretty good idea.
Maybe you don’t need the extra income that you are forced to withdraw. A great option, in this case, is to use that additional income to max out your TFSA.
Want to retire early? You can apply for CPP as early as age 60, and OAS as early as age 65. You should contact your financial planner to help coach you through making the decision that’s right for you.
For more information on CPP and OAS check out:
- This is When You Should Start CPP
- Canadian Retirement Benefits: CPP
- Canadian Retirement Benefits: OAS
- How Will Inflation Affect Your Retirement Income?
A financial checklist wouldn’t be complete if we didn’t mention budgets. We always recommend that people take the time to do an annual review of their finances. This is something that we incorporate with our financial planning clients because we truly believe in its power.
Thinking about your 2022 financial goals, and evaluating how you did, is a great way to set goals for 2023. Celebrate the victories and look at areas that could use improvement. Review your long-term financial goals and goals you have for the next year. Breaking these “goals” into bite-size pieces will help keep you focused and motivated.
Is an inquiry that occurs when a lender that has an existing relationship with you, checks your credit report as a soft background check. Credit card companies do this most often when they want to offer you increased credit limits. Soft inquiries can occur with or without your permission, but don’t worry – they won’t affect your credit score.
If you would like to check your credit score, the two most reputable sources are Equifax and Transunion. Both of these sources do have a cost. There are also free services out there, most notably, CreditKarma. As stated above, checking your own credit score won’t hurt it because it is a soft inquiry.
File Your Taxes
Don’t forget to file your taxes by April 30th. Being negligent in your tax filing can result in two outcomes, neither of which are particularly enjoyable.
1) If you owe the government additional tax money, but do not file, you will be charged interest on the sum owed.
2) If you are supposed to get a tax return, but don’t file, you are giving the government a tax-free loan of the sum they owe you!
Either way, be prudent and get those tax returns filed. Before April 30th.
We hope this list allowed you to think about some of the financial actions that should be included in your 2023 financial checklist. Can you think of anything we forgot? – Comment below. Need help achieving one or multiple things on the list? Contact us.
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Disclaimer: This Forbes Wealth Blog is for informational purposes only and does not constitute financial, legal, or tax advice of any kind. Please consult your legal, accounting, tax, investment, banking, and life insurance professionals to get precise advice relating to your particular situation before acting upon any strategy