The top 5 financial details you need to take care of ASAP
(Reading time: 5:30)
As an education member, it’s easy to get comfortable when it comes to your finances.
After all, you’ve got a pension plan in place, which means an RRSP and other retirement savings strategies might not be a top priority for you (if you have been saving on top of your pension plan, you’re at the top of the class in our books).
Depending on where you are on the pay grid, perhaps you’re also not too worried about having enough to cover emergencies in case something big breaks down—such as an appliance, your car, or your water pipes bursting.
Plus what about your ‘dream’ or ‘fun fund’ to cover all the things you want to do outside of the school year—like trekking around Europe in the summer or a 12-month around the world adventure during a ‘4 over 5’?
You’ve got all of your financial needs, goals, and emergencies covered, right?
If you don’t, that’s okay—as these top 5 financial details will ensure that your retirement finances are comfortably on track:
#1: Assess your overall financial report card (a.k.a your ‘financial situation’).
You’re quite familiar with report cards (you’re an educator after all). So you should excel when it comes to grading your very own financial situation. This means taking stock of all debt currently on your plate, as well as any savings.
Look at your retirement planning.
Are you relying only on OTPP or OMERS? Or are you an educational worker without a defined benefit pension? Depending on where you fit on the pension spectrum, you’ll need to start putting a financial plan in place to fill any potential income gap in retirement. One way to maximize your cash flow in retirement is to ensure that your mortgage is on track to being paid off before you retire.
This is why conducting a regular review of your finances is important, as it forces you to take an itemized look as to where every hard earned dollar is going (after pension contributions, union dues, and government taxes, of course).
Assessing your financial report card should be done at least once a year in order to:
- Review your overall progress so you can prioritize the items you need to take action on and identify areas where money could be better spent or saved.
- Revise your existing financial plan in case there are any changes to your personal/family situation (e.g. marriage/separation/divorce, having/thinking of having kids, moved up the pay grid, taking a leave, needing to budget for pension buyback, etc.).
- Ensure your portfolio is performing according to your expectations/financial goals, and make adjustments accordingly.
#2: Put a retirement savings plan (beyond your pension) in place.
Even if you’re still years away from reaching your 85 or 90 factor, don’t let that prevent you from being proactive when it comes to putting other retirement savings strategies in place. Particularly since, according to the OTPP, there are currently 146 retired educators in Ontario over the age of 100. With the potential for a longer lifespan, there’s a chance you’ll have to cover elder care facility costs at some point for yourself and/or your spouse, and those costs aren’t cheap.
To put things into perspective, here are the average monthly costs in Ontario for elder care facilities based on level of care (courtesy of Comfort Life):
- Independent living (active retirement living facilities): $3,038/month per person
- Assisted living (retirement homes/lodges): $3,433/month per person
- Memory care (dementia/Alzheimer’s): $1,620-$2,167/month per person
Now let’s say, for example, that you made $80,000 in your five best years as an educator. That means you could expect an annual pension income of $51,000 (according to the OTPP’s trusty pension calculator). Then the day comes in your retirement when you need to move into an elder care residence. At today’s costs, independent living would eat $36,456 a year out of that pension; assisted living, $41,196; and a memory care facility, up to $26,004. Which brings us back to the question of retirement planning. Will your pension be enough? Quite possibly. However, it wouldn’t hurt to build additional retirement savings now to buy you extra peace of mind when you’ll need it most.
#3: Re-evaluate your tax situation to ensure you’re taking advantage of all tax credits.
According to the Canada Revenue Agency (CRA), the bulk of Canadians aren’t claiming all of the tax credits they qualify for. Since the CRA allows corrections and omissions for a 10-year period, it might be worth the time involved to go over your last decade of returns—just in case the government owes you a nice chunk of back pay.
Here are some eligible tax credits that happen to be very specific to education members:
- Teacher and early childhood care educator school supply tax credit: Starting with 2016 and going forward, eligible teachers and early childhood educators can claim 15% of up to $1,000 in eligible school supply expenses, for a maximum tax credit of $150 a year. While you cannot claim this credit for tax years prior to 2016, you can bank it for subsequent years. For example, if you haven’t yet claimed this tax credit, you could get back up to $600 if you spent the maximum $1,000 in eligible school supply expenses each year over the last four years.
- Union dues: You’ve paid your union dues… now ‘get paid’ for paying them! Membership dues for unions can be deducted on income tax returns.
- Part-time travel costs: Are you a part-time teacher or support staff worker doing double duty at more than one school? Well, part-time educators, if you work two or more jobs you can deduct a portion of the costs of getting from one job to the other.
- At home classroom costs: If you have an official side business tutoring out of your home (‘official’ as in your tutoring services are registered as any other home business would be), you can claim everything from your rent/mortgage interest to utilities, property taxes, as well as repairs and maintenance costs. (FYI: if your home tutoring space is 15% of the total square footage of your home, you can deduct 15% of your home tutoring expenses from your taxable income).
You’ll find more information on what you can – and can’t – claim on your taxes, in The Learning Centre.
#4: Get your affairs in order.
Ben Franklin once said, “Nothing is certain in this world but death and taxes.” Since you’ve already paid more than your fair share of taxes in life, do you really want to give the government a penny more after you’re gone? That’s where an estate plan comes in. Because if you don’t write down your wishes beforehand, the government will decide for you and charge some of your assets to do it. As always, when it comes estate planning or any other type of financial planning, be sure to check with your Financial Advisor for more details.
Learn from our money-saving experts on some estate planning essentials.
# 5: Ensure your children/grandchildren are financially set for post-secondary education.
The latest numbers from Statistics Canada show that the national tuition average for one year of undergraduate studies is $6,838. And what’s more, the average undergraduate tuition for 2018/19 increased 3.3% from the year before. What will tuition cost when your little one is ready to go? You do the math.
So if you haven’t already done so, get a jump on that Registered Education Savings Plan (RESP). Especially since the government will kick in up to a lifetime maximum of $7,200 per child in the form of the Canadian Education Savings Grant (CESG).
Why you need to be contributing to an RESP (and what it’s costing your kids if you’re not).
Need advice on taking care of any of the financial details above? Call on us, we’re very detail oriented.
Plus, we have a unique financial understanding of what it means to be an education member. From how to structure your budget depending on where you are on the pay grid, right down to how much you can expect in pension income—it’s the kind of advice we like to call ‘educator-specific’ and that you won’t find it anywhere else.
Have one of our financial specialists contact you ASAP about finally taking care of the financial details that are most important to you.
Sources:
www.comfortlife.ca/retirement-communities/assisted-living-costs-ontario
https://www150.statcan.gc.ca/n1/daily-quotidien/170906/dq170906b-eng.htm
https://www150.statcan.gc.ca/n1/pub/12-581-x/2018000/edu-eng.htm
https://www150.statcan.gc.ca/n1/daily-quotidien/180905/dq180905b-eng.htm
