Why now is the perfect time for a financial wellness re-set

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There comes a point during any lengthy period of adversity when the most immediate challenges begin to subside and we get a chance to step back, re-assess the situation and take stock of all that’s just unfolded. Like the fourth wave of a major global pandemic, for example. This economic, public health, financial and social crisis, though far from over, is beginning to wane—at least in most Canadian provinces. Our attention has been slowly shifting from survival mode to a renewed focus on personal and financial wellness.

This calming of the COVID-19 storm presents an opportunity to take a very different approach to wealth and financial planning. Much like the shift to hybrid work arrangements have taught us that it’s not always necessary to be physically present in an office to do a great job, the pandemic has highlighted new possibilities to redefine what financial well-being means for you. That requires looking at your personal and professional finances through a very different lens.

Building a financial plan now is about more than just leveraging traditional money-management tactics—maximizing RRSP and TFSA contributions, creating tax-deferred liabilities, paying down your mortgage faster. For most Canadians, those could still be important steps to achieving long-term financial wellness. But for higher net-worth or business-owning families, it’s about working with a personal CFO who can take a more comprehensive approach and quarterback the process—that person could be your financial planner or wealth manager, your accountant, or perhaps another trusted advisor such as a lawyer—carefully analyze your needs and develop a fully customized strategy designed to mitigate risk and deliver financial certainty.

Because yes, it is possible to bring predictability to your finances, even in one of the worst periods of uncertainty in living memory. Certainty will deliver the obvious: increased net worth. But it will also translate into more time to build lasting memories with family, enjoy the finer things and live life to the fullest. With that in mind, it’s time to start planning to make the most of your financial wellness re-set. Here are three areas to focus your attention:

Financial well-being

It’s not just about the performance metrics on your latest portfolio statement. Wealth certainly contributes to financial well-being, but now it’s about assessing whether your financial plans reflect your family’s values and objectives. What does wealth mean to you in this new context, and how can it work to better serve your needs? Money should be a driver of happiness, however you and your loved ones define it.

COVID-19 has left many wealthier Canadians even better off thanks to strong stock market performance and other factors. Do your old plans align with your family’s current financial reality? The pandemic has also reminded us of the need to maintain a robust three to six-month emergency fund and access to liquidity in the case of a catastrophic event—even for families in the wealth upper tier. Do you have an emergency fund? Because if you do, it can go a long way to alleviating the stress from a sudden financial shock.

Others might find joy in philanthropy. For those that have the means, establishing a private foundation or donor advised fund can be an effective way to structure their giving and also glean tax benefits, in certain cases.

Wealth, tax and insurance planning

With the federal election just around the corner, virtually every political party is tabling ideas to increase taxes in some form. Jagmeet Singh’s New Democratic Party, for example, is proposing to raise corporate taxes and tax capital gains at 75 per cent, up from the current 50 per cent. Both the Liberals and Conservatives are promising to crack down on tax avoidance and evasion. That could translate into greater enforcement, scrutiny and potentially a further tightening of tax rules. It’s time to work with your personal or corporate financial team and be prepared in case the next government (which is likely to be a minority) shifts Canada’ tax goalposts in the coming months.

The outcome of the election aside, low interest rates have for months opened the door to tax-planning strategies such as the use of estate freezes and prescribed rate loans to minimize the tax burden for wealthier families. Now is also the time to plan ahead and consider developing a liquidity strategy to cover potential tax liabilities in the event of a business exit (as we’ve noted previously, COVID-19-related stresses have prompted many executives and entrepreneurs to consider early retirement) or some other financial windfall. That strategy could include borrowing against a home, selling assets or using life insurance to fund the tax. In addition, business owners who don’t earn T4 income and can’t invest in RRSPs, might consider using whole life insurance policies to help tax shelter their wealth. It can be an effective strategy to generate future income in a tax-efficient manner, while potentially transferring wealth to the next generation with little or no tax. The tax-planning opportunities are virtually limitless.

On that note, is your personal and corporate insurance up to date? Are there ways that you might optimize your portfolio to obtain more effective coverage for you and your family? We always recommend looking at insurance as a foundation for financial planning. Once the basics are in place (such as life, health or key person insurance) and you’re protected against catastrophic events, then the time is right to look at more sophisticated wealth-planning strategies.

On the wealth management side, as noted above, there’s a very good chance you have more wealth now than prior to the pandemic. Interest rates are so low that you may have been able to refinance mortgages or other loans, while various asset classes—from real estate to equities—have surged in value. Look to your wealth or portfolio manager for strategic guidance and direction. Asset diversification could be in the cards, including investments in real estate, alternative vehicles and private equity. ESG (environmental, social and corporate governance) investing is another option, offering a way to maximize the potential community impact of your wealth, while also contributing to your financial well-being by seeing your money invested in businesses that align with your core values.

Retirement and Estate planning

As part of this re-set, it’s time to cut the word ‘retirement’ out of planning conversations, at least in terms of how it’s traditionally discussed. We’re living longer, more active lives than previous generations. It’s now about managing your life transition from a work career to whatever comes next. We’ve watched many Bridgewell clients sell their business or retire from C-suite positions and go on to do other things—often consulting or providing their expertise to a non-profit organization. Retirement is simply another phase of life, not some unceremonious endpoint.

Because retirement planning can produce a great deal of anxiety—especially for executives or entrepreneurs worried about how they might fill their time—traditional retirement strategies need to change. Retirement savings should be about building wealth to meet your lifestyle needs, while smart financial forecasting should be focused on stress-testing your current and projected wealth to ensure the money won’t run out if you (hopefully) live a very long life. That also means being proactive and weighing the potential benefits of the various retirement investment and savings vehicles available. There may be more options than you think. Recent changes to the rules around Independent Pension Plans, for example, have made those vehicles far more appealing to some higher-income earners. There are many others.

It’s also important to look at wealth in a multi-generational way. Who are you building a portfolio for—the next generation, the one after that? Those sorts of legacy-building questions will help define your estate planning strategy and determine whether you consider tactics such as gifting money to children or grandchildren to create growth in tax-sheltered assets like principal residences.

Lastly, take a lesson from the panic that swept over many retirees and their families as COVID-19 struck. Some realized that their wills and powers of attorney were out of date or non-existent. They scrambled to update these critical documents, some from hospital ICU wards. Making such important decisions in a crisis situation can lead to errors, omissions, oversights and long-term family in-fighting. Take the time to get your affairs in order now to avoid pitfalls later.

In the meantime, keep an eye on the bigger picture. Planning at this level is about securing long-term financial well-being for you and yours. It’s a process that shouldn’t be delayed and is one that should be taken seriously.

The Bridgewell Team

Contact a member of the Bridgewell team now to discuss your personal wealth and financial planning needs.

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