Damien Burleigh, CFP®, CLU® - Analyst, Client Needs

2022 has been a year of ups and downs to say the least. Elevated inflation numbers and rising interest rates have resulted in a challenging investment environment and Canadians are reviewing their strategy and their ability to reach their financial goals. As we look towards the end of 2022 and into the New Year, we recommend reviewing your current financial situation with the help of your Edward Jones advisor and this year-end checklist.

1.Reflect on your priorities, your progress (and your budget)

The first step is to review your current situation and determine where you are on your financial journey. Did you receive a pay increase this year? If so, did you also increase the amount you are saving? Have you had to make any adjustments to your budget throughout the past year due to rising prices, or larger interest payments? What impact might this have on your future? Now is a good time to review your budget to ensure that your spending is in line with your priorities and is helping you make progress towards your goals.

2.Prepare for emergencies

If the last few years have taught us anything, it is to expect the unexpected. Our recommendation is to have three to six months of living expenses available for emergencies. If you are not there yet, start building this important foundation. Start with at least one month of living expenses and build from there. In addition, review your insurance with your advisor to help ensure your coverage meets your needs, and contact your lawyer to create or update your will and powers of attorney to help ensure they align with your goals too.

3.Maximize contributions

If you haven’t maxed out your contributions to your Registered Retirement Savings Plans (RRSPs), consider making additional contributions for 2022 if you can. While the deadline for 2022 contributions is March 1, 2023, making the contribution now helps maximize the period of tax-deferred growth.

The new year will also mean new Tax-Free Savings Account (TFSA) contribution room, so be sure to plan to take advantage of the additional tax-free growth opportunity as early in the year as possible.

If you are saving for a family member’s education and have not maximized your Canada Education Savings Grant (CESG) for 2022, contribute up to $2,500 per child to a Registered Education Savings Plan (RESP) before December 31st. If you missed CESG in past years, you may be able to make catch-up contributions as well, depending on the age of the beneficiary.

4.RRIF reminder

If you turned 71 in 2022, your RRSP matures on December 31 this year. You can convert your RRSP to a Registered Retirement Income Fund (RRIF) before the end of the year, purchase an annuity, or even withdraw your entire RRSP as taxable income. Discuss these options with your advisor before deciding. If you are 72 or older and have a RRIF, review your withdrawal schedule with your advisor to make sure it’s in line with your cash flow needs.

5.Talk taxes with your tax professional

Depending on your tax situation, harvesting losses from your investments may help you save tax in the current year, go back and get tax paid back in a previous year, or create losses to carry forward to a future year.

If you have a prescribed rate spousal loan, it is important to note that the annual interest payment for 2022 must be made by January 30, 2023. Otherwise, attribution rules may apply and the income splitting advantage offered by this strategy could be lost.

Educational Assistance Payments (EAP) from an RESP are withdrawals that consist of growth and/or earnings from assets invested in the RESP, as well as any Canada Education Savings Grants (CESG) and Canada Learning Bond (CLB) received. Since EAPs are taxed in the hands of the beneficiary, it could make sense to make an EAP payment to your child before the end of 2022 if they are expecting to earn a higher income in 2023. Note that there are restrictions on the amount of EAP that can be paid out in the first 13 weeks of a qualifying educational program.

If you are a business owner and accessed the Canadian Emergency Business Account (CEBA) program during the pandemic, the loan repayment deadline has been extended to December 31, 2023. It’s important to discuss these topics with your tax professional to determine if any steps should be taken before the end of the year.

6.Perform a portfolio check-up:

Given increased market volatility and rising interest rates this year, your portfolio could need some adjustments to help ensure it is still aligned with your financial goals. This would include:

  • A self-assessment: Your investment portfolio should be designed for your specific goals and your comfort with risk. If your goals have changed, perhaps your portfolio needs to as well. Review your comfort with risk, as it can be easy to take on more risk when markets are calm and shy away from risk when stocks fluctuate or decline. Aligning your goals and comfort with risk can help ensure you have the appropriate allocation that is necessary to help achieve your long-term goals, without taking so much risk that you are uncomfortable with your strategy when volatility increases.
  • Regain your balance: Fluctuations in the market can cause your portfolio to drift from your intended allocations. Remember, your portfolio was designed with your goals in mind, and rebalancing back to your target mix can help in two ways:
    1. Keeping your portfolio on track with your long-term strategy, and
    2. Adding to the investments that have lagged and may be more attractively priced while trimming back on the areas that have outperformed.

If your investments are held in a non-registered account, be sure to discuss potential tax implications of rebalancing with your advisor, particularly if you are selling from one investment to reinvest in another, or purchasing a mutual fund or ETF that has annual distributions late in the year.

Reinforce your portfolio’s foundation: Given current market volatility, enhancing your diversification can help position you for shifting conditions ahead. This would include exposure to a broad range of asset classes in both equites and fixed income. Diversification does not ensure a profit or protect against loss in a declining market.

Talk to your Edward Jones advisor today about important steps you can take before the end of the year.