Three strategies to optimize your wealth when markets are volatile

Even when markets are volatile, there are things you can do to gain greater control over your financial future, build long-term wealth and organize your affairs for your loved ones.

1. Build and protect wealth the tax-smart way.

Maximize your RRSP/RRIF: Your Registered Retirement Savings Plan (RRSP) and Registered Retirement Income Fund (RRIF) offer well-known tax advantages. These include tax-deductible RRSP contributions and tax-deferred growth of your investments within your RRSP/RRIF. But Canadians generally don’t take full advantage. According to Statistics Canada, just 22.3% of Canadians filing taxes contributed to their RRSPs in 2020.¹

Catch up if you can: Unused RRSP contribution room carries forward and can be used in future years. If you have unused contribution room, and surplus assets currently exposed to your higher tax rate, consider topping up your RRSP now. That way, you can start taking advantage of tax-deferred investment growth sooner. You can also catch up over time by setting up regular, pre-authorized contributions, which can be easier to budget.

Let your RRSP grow: Consider waiting to convert your RRSP into a RRIF until the deadline (December 31 of the year in which you turn 71). Then, consider taking only the minimum annual required RRIF payment. This will leave more of your RRSP/RRIF assets to grow on a tax-deferred basis.

Generate tax-efficient investment income: Different types of investment income are taxed in different ways – when earned within a regular, non-registered account for an individual.

• Interest income (including accrued interest) is fully taxable at your marginal rate each year.
• Eligible dividends paid by certain Canadian corporations receive a dividend tax credit.
• Only 50% of any net realized capital gains are taxable at your marginal rate.

But within a registered account, like your RRSP/RRIF, all investment income is treated equally: it’s only taxable at your marginal rate when withdrawn. As a result, it can make sense to consider allocating more of your investments that pay interest income to your registered accounts, where they can grow free of annual taxation.

Bear in mind that taxes are just one consideration, in addition to factors such as your risk profile and investment objectives, when allocating investments between your registered and non-registered accounts.

Build tax-free wealth: With your Tax-Free Savings Account (TFSA), you can earn tax-free investment income and make tax-free withdrawals for any reason. Yet most Canadians still aren’t making the most of this extremely flexible, wealth-building tool: only 9% of Canadians have maximized their TFSA contributions.²

If you haven’t maximized your TFSA contributions, and you have surplus assets exposed to taxes, consider catching up. All Canadian residents aged 18+ automatically receive TFSA contribution room every year, and it accumulates even if you don’t use it. As of January 1, 2023, you can contribute another $6,500 to your TFSA (for a total of $88,000 if you’ve been a Canadian resident aged 18+ since 2009).

If you have any questions about tax-smart investing, contact us.

2. Revisit your financial plan.

One of the smartest things you can do at any time to improve your financial situation is to create a financial plan. But it’s a great time to update your financial plan when markets are volatile. That’s because it can give you greater confidence that you are on track to achieving your goals despite the markets – or identify strategies to help you get back on track. In fact, it’s a good idea to periodically update your financial plan to reflect changes in the markets or economy, as well as changes in your personal or family situation, that may affect your goals.

Your financial plan helps you:

Ask us for more information about creating or updating your financial plan.

3. Update your overall estate plan.

There’s never a bad time to consider how you can organize your estate to help build your legacy and transfer wealth to the next generation, efficiently and tax-effectively. Yet according to a recent RBC Royal Trust survey, fewer than half of Canadians even have a Will – the basic building block of any estate plan. If it’s been a while since you updated your estate plan, here are a few things to consider:

Does your Will reflect your current situation? Generally, your Will should be reviewed and updated at least once every five years, and whenever there’s a major life event, like a change in marital status, new child or grandchild, or loss of a loved one.

Have you appointed the right executor of your Will? Acting as the executor of a Will involves completing dozens of tasks – many of them legal obligations – from probating the Will to providing bequests to filing final tax returns. When naming your executor, consider naming someone who is likely to outlive you, lives nearby, and has the time and ability to carry out these tasks. Depending on your situation, you may wish to consider a professional executor.

Have you named someone to make decisions about your finances should you be unable to make those decisions yourself? People are living longer – and living longer while dealing with age-related health issues like dementia. That’s why it’s important to appoint someone as your Power of Attorney (or Mandatary in Quebec) to make decisions for you, if you can’t.

Have you considered your elder care needs? Plan ahead for your future care needs and how you can live independently in your own home for as long as possible.

Have you prepared the next generation for their inheritances? Having conversations with your beneficiaries in advance, and building their financial literacy, helps get them ready for their future responsibilities.

To learn more, please contact us.