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With the RRSP deadline around the corner, and tax deadline quickly approaching, here are key things you should know about financial planning and taxes.

There are many building blocks to a successful financial plan, and it can be hard to create — and stick to — each block. For many, the choice between stocks and bonds and the arrangement of pensions and taxes can be daunting.

Personalized and professional financial advice can help you manage your unique needs, challenges and resources to create a workable strategy.

Lisa Raponi, Certified Financial Planner professional, has helped members of the education community manage their financial wellness for over half of her 22-year career.

Lisa believes that sound financial health begins with six fundamentals: budgeting and saving, investment planning, insurance and risk management, retirement, taxes, and estate planning.

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Considering the RRSP contribution deadline is on February 29 and the tax deadline is shortly after on April 30, let’s start with taxes.

Taxes, taxes and taxes

You can face tax burdens when you save and withdraw out of a Registered Retirement Savings Plan (RRSP). But a financial advisor can provide different strategies to help reduce these burdens.

“Most education members can only put $2,000 to $2,600 into their RRSP each year. This is a great way to save taxes today so make sure you are making those deposits on or before February 29, 2024, for the 2023 tax period,” Lisa says. “For those who have limits that are more than that, I recommend speaking to one of our advisors as there may be reasons to not use up all of your RRSP room — to shelter your retirement gratuity for one. And don’t forget: an RRSP has to be wound up in the year you turn 71, after which, you’ll need to start drawing from it regularly.”

This requirement can create issues for the education community whose income generally increases throughout retirement. Deferring RRSP income into their later years often results in more taxation.

“I have a lot of conversations with clients around tax planning,” says Lisa. “We explore options to take from RRSPs in the most tax-efficient manner.”

Budgeting, savings and emergency funds

“Being part of the education community offers some unique benefits, that often have important financial considerations,” Lisa says.

For example, you can usually take an unpaid or deferred leave to adjust to life’s circumstances. But these absences have financial impacts and require you to save.

“If you’re used to a certain budget, and you explore these leave opportunities, you have to budget for that,” Lisa says.

Emergency funds, usually set up in case of job loss, temporary job interruptions and unplanned expenses, also remain vital to educators despite their perceived job stability. One potential issue is when educators are reassigned to other areas.

Lisa notes that school boards like Toronto range as far as Scarborough to Etobicoke and North York to downtown. So, if someone who has lived and worked in Scarborough all their life moves to Etobicoke, an emergency fund can mitigate the cost of travelling the extra distance.

Investment planning

Lisa recalls clients whose past financial planners advised them to take on risky investments because of their robust pensions.

But Lisa believes that investment risk depends on the individual — not the career.

“If you’re comfortable with risk, we’ll build you a portfolio suited to that risk tolerance,” says Lisa. “But if you’re not comfortable, we’re going to build you a portfolio that lets you sleep at night.”

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Insurance and risk management

Although we don’t sell insurance, we make sure that our clients understand its importance.

“We focus on education,” Lisa says. “We say listen, let’s look at your debt levels, let’s look at your income replacement needs, so that when a client does go talk to the insurance professionals, at least they have a bit of information to provide to the insurer.”

Lisa points clients to Ontario Teachers Insurance Plan (OTIP) for home, travel, life and auto insurance.

Retirement and pensions

“Pension plans can provide a guaranteed level of income for the rest of your life,” says Lisa.

But Lisa still suggests that educators save outside of their pension. A solid nest egg allows retirees to do fun activities in their golden years.

“Your pension may cover your bills at home, but it may not necessarily cover trips abroad,” Lisa says.

And though your pension sounds like a gift, it’s important to remember that you pay into the pension plan.

“Right now, contributions are almost 12 per cent of their pay depending on their income threshold, so they should be proud of the pension that they pay into,” Lisa says.

Estates and wealth transfers**

For Lisa’s clients, estate planning involves minimizing taxes at death. She additionally helps with other estate essentials like discussing probate or naming a beneficiary.

An RRSP account can pass tax-free to a spouse upon death. But when the money is given to anyone else, it could result in half of it going to taxes.

That’s why Lisa always offers a strategic discussion on which accounts to use for estate planning from a tax perspective.

“These are the conversations at length that we have with clients on an ongoing basis,” says Lisa. “They may be lengthy, but they are also very valuable and can save you thousands of dollars.”

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