The power of two: a couple’s guide to financial planning
From navigating food preferences and personal space, to which side of the bed you’ll sleep on.
Learning how to harmoniously blend individual likes, dislikes, and habits is part and parcel of being in a relationship. Some might even say it’s the easy part. It’s only when you start broaching serious topics, such as finances, when life as a couple can begin to feel a little more complicated. Because as soon as money enters the equation, there suddenly seems to be a whole lot more to figure out.
Debt, savings, and taxes—to the more aspirational aspects of money involving each other’s dreams and goals for the future.
Deciding how to merge two financial worlds can be one of the biggest challenges couples can face.
If you’re an education member, there are also unique considerations that will influence your combined financial picture (such as where you are on the pay grid and whether you’re full-time, part-time, or occasional staff).
That’s why it’s important to have ‘the money talk’ early on.
Beyond the educator-specific aspects, talking about financial matters also fosters the much-needed ability to compromise.
This is especially important, considering money anxieties are usually among the leading causes of contention for couples. This doesn’t mean you can’t have varying opinions, priorities, and goals, or shouldn’t hold separate accounts—on the contrary. It’s more about providing each other with full transparency to avoid any unpleasant surprises down the road.
Hence why partners that financially plan together, stick together, because they tend to:
- Enjoy better overall communication with each other
- Learn how to compromise (and find a better balance between needs vs. wants)
- Benefit from reduced relationship stress (since money will be one major area of alignment)
- Reach financial dreams, goals, and milestones faster
All that to say financial communication is key for couples.
Since we live in an era when people are coupling-up at different stages in life, we’ve put together a few financial planning pointers based on where your relationship fits within the age spectrum:
In your 20s: establishing a strong foundation
Goals: paying off student loans/debt and starting to save for future plans.
Action steps:
- Track spending habits using free online resources, like our handy budget calculator
- Create a joint budget for shared expenses (e.g., rent, groceries, utilities)
- Once spending habits are clearly defined and a firm budget is established, commit to paying off student loans and other forms of debt within a set timeframe
- Start a combined household emergency fund to cover 3 to 6 months of living expenses
- Individually contribute to a Tax-Free Savings Account to build tax-free growth for future goals
Educators tip: In your 20s you have time on your side, so maximize that time by boosting your financial literacy using The Learning Centre for educator-specific information and resources on a wide range of topics. Also, be sure to sign up for Educators eNews to stay in the know about our latest offers and workshops.
Investment tip: The sooner you start investing, the more working years you’ll have to take advantage of compound interest—and you don’t need a lot of money to begin with. Even if you’re at the lower end of the pay grid, the whole point is to get into the good habit of saving. That’s where pre-authorized contributions (PAC) can be a good way to make that habit stick for the long-term. At this stage, you’ll most likely want to direct those contributions towards strategic investments to support specific goals, such as a First Home Savings Account (FHSA) if those goals include buying a home in the near future.
In your 30s: moving up the pay grid and growing your family
Goals: saving to have children and/or for a down payment on a home.
Action steps:
- Adjust your joint budget for life changes (having children, taking on a mortgage, etc.)
- Open a Registered Education Savings Plan (RESP) if planning to have kids and be sure to take advantage of the full Canada Education Savings Grant (CESG)
- Be mindful of maximizing Registered Retirement Savings Plan (RRSP) contributions
- If you’re an education member, keep in mind your RRSP contribution room is tied to your pension benefit—the more valuable that benefit becomes, the less RRSP contribution room you’ll have
- This is also a good time to start thinking about estate planning (e.g., wills, insurance, etc.) to protect each other’s interests and assets, especially as you start building your collective finances
- For those of you with home ownership goals, don’t forget to leverage the Home Buyers’ Plan (HBP), where you and your partner can withdraw up to $60,000 each, tax-free, to put towards your first-time home purchase (note that any amount withdrawn from your RRSP for the HBP must be paid back in full within 15 years to avoid tax penalties)
Educators tip: As you begin moving up the pay grid, consider maximizing that extra cash flow by putting it towards your savings goals and/or paying off debt balances faster.
Tax tip: Charitable donations and medical expenses can be pooled and claimed on the return of the partner that gets the biggest tax benefit.
In your 40s: peak earning, peak possibilities
Goals: looking ahead to retirement, paying off mortgage, funding post-secondary education for children.
Action steps:
- Revisit your household budget and update accordingly for any changes to your financial situation
- Max out TFSA and RESP contributions annually (and continue to be mindful of your RRSP contributions if you’re an education member)
- As you start inching closer towards your 85 factor, aim to save additional income to get ahead of any potential pension income gaps in your after-school years (we can help you put together a retirement projection to determine just how much over and above your pension you need to save)
- Revisit/update your estate plan to ensure any new assets/beneficiaries/changes are included
Educators tip: This is the ideal time in your life to take advantage of a deferred salary leave. That’s because you will have had sufficient time to financially plan ahead as a couple. For example, in the case of a 4 over 5, you’d receive 80% of your salary during a 5-year period, since 20% of your income during the first four years would go towards paying for your leave during the fifth.
In your 50s: retirement/reaching your 85 factor is on the horizon
Goals: Be debt-free, protect capital, and finalize retirement plan.
Action steps:
- Avoid taking on any new large debt (like a second mortgage or car loan)
- The closer you get to retirement, consider shifting from high-risk investments to something more moderate (to balance growth with the preservation of capital)
- You’ll also want to review your estate plan to make sure it reflects not only your current time of life, but also proactively plans for your pension years as you get older (e.g., potential long-term care needs and ensuring your power of attorney documents are up-to-date)
- Connect with us to help you put your financial plan together for retirement
Educators tip: Take advantage of the various retirement workshops available to you, including those conducted by the Ontario Teachers’ Pension Plan (OTPP), the Ontario Teachers Federation (OTF), and Educators Financial Group. These workshops cover all kinds of valuable insights and, together with our team of financial specialists, can help you to better understand your pension so you can walk into retirement with a plan.
In your 60s and beyond: making the most of your golden years together
Goals: Take inventory of assets, maximize your pension, maintain lifestyle, stay on top of estate planning.
Action steps:
- Start simplifying investment accounts (i.e., consolidate multiple RRSPs and/or TFSAs)
- Gift assets strategically by using the TFSA gifting rule or RESP top-ups for grandchildren
- Convert RRSPs to RRIFs by age 71 and begin minimum withdrawals
- Review long-term care plans, especially if one of you is in poorer health
- Revisit your estate plan—update wills, powers of attorney, and beneficiaries/successors (keeping in mind that a beneficiary can be anyone you designate to receive your assets upon your death, while a successor can only be a spouse or common-law partner)
Educators tip: Since most education members retire before age 65, OTPP will provide you with a bridge benefit to supplement your retirement income over and above your lifetime pension amount until you turn 65 (when you’re eligible to receive an unreduced Canada Pension Plan benefit).
Tax tip: For the spouse that’s in a higher marginal tax bracket in retirement, pension income splitting allows that person to allocate up to 50% of their eligible pension income to their lower-earning partner, potentially reducing the household tax liability in the process. Hence the importance and value of seeking out educator-specific advice at every stage in your career.
Your financial journey is ultimately one that will change multiple times over the course of your life.
While the road might be bumpy at times, when all is said and done, the couple that plans together, thrives together. Wherever that path takes you, count on us for the educator-specific advice you need, every step of the way.
