Your 2020 year-end financial checklist: reflecting, reviewing and recovering

Published Nov 2, 2020
  A couple sits on their couch and watches their two young children play in the living room.

2020 has been a year none of us will soon forget. As you look ahead to a hopefully less eventful 2021, it’s a great time to step back, review your progress and your goals, and consider the steps you might need to take before Dec. 31.

Reflect on the year, your progress and your priorities

Take some time to reflect on the year, your goals and your priorities. Maybe some of these have changed due to events of the past year. Have you had any major life changes, such as relationship status, dependents or a job change? Maybe you realized you'd feel more secure with a larger emergency fund or that supporting a charitable cause has become more important to you. The first step to any financial checklist is figuring out where you want to go, so take some time to reflect on what's most important to you. Then, have a conversation with your financial advisor to discuss any changes you want to make. Here are some other actions to consider as the end of the year approaches.

Prepare for your recovery

  • Review your budget
    Many people’s expenses fell this year with reduced travel and fewer activities, and some saw income fall as well. Review your budget to see if you can make small, permanent cuts. Ensure you have a plan for when your expenses pick back up. If you can free up money in your budget, you may be able to make quicker progress toward your financial goals.

Ensure you (and your loved ones) have stability

  • Build or replenish your emergency fund. 
    If you had to draw down your emergency fund, create a plan for replenishing it as soon as possible. This may take priority over other goals for now, as it will create more financial stability by allowing you to cover unexpected expenses and/or a loss of income.
  • Do an insurance check-up. 
    For many people, the pandemic has highlighted that their affairs aren’t quite in order, encouraging them to ensure they have adequate life insurance coverage. Other insurance to review includes disability, critical illness, and long-term care insurance.

Maximize your progress

  • Maximize contributions. 
    If you haven’t maxed out your contributions to your Registered Retirement Savings Plans (RRSPs), consider making additional contributions for 2020 if you can. While the deadline for 2020 contributions is March 1, 2021, making the contribution now helps maximize the period for tax-deferred growth. If your employer offers a match for 2020, you’ll want to make sure you take the opportunity to enjoy the 100% return on those funds. If they’re not offering matching this year, consider increasing your contribution to make up for what they would normally contribute. The new year will also mean new Tax-Free Savings Account (TFSA) contribution room (and replenishment of contribution room related to 2020 withdrawals) so be sure to plan to take advantage of the additional tax-free growth opportunity as early in the year as possible.
  • Accelerating access to spousal RRSPs. 
    If you’re nearing retirement and considering making a spousal RRSP contribution, making the contribution before December 31st as opposed to January or February will allow you to avoid the additional year of waiting time to get around the 3-year attribution rules.
  • Get the most from your Registered Education Savings Plan (RESP) contributions. 
    If you’ve not maximized your RESP contributions in past years, you can make catch-up contributions. The rules allow you to access Canada Education Savings Grants (CESGs) for one previous year at a time. Consider splitting the contributions over two years (December and January) to maximize CESG grants.
  • Rebalance. 
    If it’s been more than a year since you reviewed your existing account(s), review your asset allocation with your financial advisor and rebalance if the mix of investments has moved too far away from your original targets.

Talk taxes with your tax professional

  • Discuss strategies in a year with lower required minimum Registered Retirement Income Fund (RRIF) withdrawls. 
    If you’re normally subject to minimum withdrawals, there was some relief this year since they were reduced by 25%. That said, you may want to consult with your financial advisor and tax professional to determine if a distribution from a taxable account still makes sense. If you’re in a lower tax bracket this year than you expect to be in future years, you may benefit from taking advantage of lower rates. If you don’t need the distribution to cover expenses, you might explore whether putting the proceeds into your TFSA makes sense.
  • Harvest losses or gains. 
    Realizing losses in investments can potentially reduce how much you owe in taxes. Alternatively, if you’re in a lower tax bracket this year, it may be a good time to realize gains. Either way, you’ll want to understand your tax situation and ensure your investments remain in an appropriate balance to keep you on track to achieve your goals. It’s best to work with your financial advisor and tax professional to determine if either of these is an appropriate strategy for you.
  • Plan for interest payments on prescribed rate loans. 
    If your family is using a prescribed rate loan strategy for income splitting, remember that interest must be paid by January 30th of 2021. If this deadline is missed, the attribution rules will apply for 2020 and all subsequent years until the loan is repaid.
  • Maximize your charitable gifts and accompanying tax credits. 
    Donations must be received by the charity by December 31st in order to receive the charitable donation receipt for that taxation year. Talk with your financial advisor about how your impact can be maximized using gifts of publicly traded shares, stock options, or life insurance policies.

Review your legal documents

  • Create or update your estate plan. 
    If you don’t have an estate plan in place, start now. Just as the pandemic had many people checking their life insurance, it also resulted in more people finally finishing their estate documents. If you already have an estate plan and have since had a major life change or haven’t reviewed it in the past few years, review it with your legal professional and address any necessary changes.
  • Review your beneficiaries. 
    Whether you had life changes in 2020 or not, beneficiaries can get out of date, so it is always good to review them to ensure they align with your wishes. Your financial advisor can review the beneficiaries for your retirement accounts with you.

Entering 2021 with confidence

This past year has certainly provided a lot of twists and turns, and it’s likely highlighted the importance of not only having a strategy, but your ability to be flexible and adjust along the way. Your financial advisor can help you through these twists and turns. Discuss this checklist with your financial advisor to help ensure you are ready to ring in the new year.

Important Information:

Edward Jones, its employees and financial advisors are not estate planners and cannot provide tax or legal advice. You should consult your estate-planning attorney or qualified tax advisor regarding your situation.