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It doesn’t seem that long ago when a couple with children was considered the traditional Canadian family. But in Canada today, couples with children account for only about one in four households¹. The new normal is a variety of living arrangements – and each requires its own financial approach. Here’s a glimpse of various household types, highlighting one financial approach especially important for each.
As education costs rise, education savings become more critical for parents. Start contributing early to a Registered Education Savings Plan (RESP) or you could miss out on “free money” from the Canada Education Savings Grant (CESG), up to $7,200 per child. Starting early also gives your contributions and grant money more time to grow and compound. And consider a Tax-Free Savings Account (TFSA) or trust to bolster your RESP.
Couples should devote time to finessing a financial plan – for example, establishing relevant tax strategies. A Spousal Registered Retirement Savings Plan allows couples to shift substantial future income to the spouse expected to have fewer investment and retirement assets down the road. With a spousal loan, investment income attracts less tax. If you own a business, you may be able to hire your spouse and shift income to a lower tax bracket. In certain situations, transferring Canadian dividend income from one spouse to the other reduces overall tax.
If you’re in a new family and have children from your first marriage, estate planning becomes a key issue. You may plan to make your spouse the main beneficiary of your estate, but want to leave your children a significant inheritance. One solution is a spousal trust holding investments that provide your spouse with lifetime income, after which your children receive trust assets. Another solution is making your children beneficiaries of a permanent life insurance policy on your life.
When you’re raising a child or children on your own, insurance protection is vital. You need adequate life insurance to support your children until adulthood should you pass away unexpectedly. It’s also a good idea to have disability insurance or critical illness insurance or both. You want to ensure your children are provided for if a disability or critical illness prevents you from working.
When you’re single, an emergency fund takes on greater importance. If you experience a financial setback, like losing your job, there’s no second income to provide a safety net. A TFSA can be ideal to hold emergency funds, or use a non-registered account if your TFSA is dedicated to other investment goals.
Some couples take in an aging parent who can’t live independently or a young adult child who’s returning home while looking for desirable employment. This unplanned situation may cause a change in your financial plan. You may need to delay a plan to downsize or start budgeting so the unexpected expenses don’t affect your savings for retirement.
Financial planning today is far from one size fits all – as evident in these glimpses of household types. Customtailored approaches involve education savings, investments, budgeting, insurance, taxation, retirement and estate planning. And the more we know about your life, the better we can develop a unique financial plan.
So please keep us informed, especially when changes occur. We’ll make sure the financial side of your life is in tune with the way you live.¹ Statistics Canada, Private households by household type, 2011 Census