Lucas*, 33, single and without dependents, is an audiovisual entrepreneur who is recovering financially from the difficult episode of the pandemic in the events market.
The salary he pays himself and the dividends from his SME total $64,000 ($51,000 after tax). This allows him to support a reasonable lifestyle as well as good saving habits.
“I learned how to save when I was young thanks to the savings bank program at school. But above all from my parents who constantly told me that money shouldn’t “burn our fingers” and that it’s important to save young people,” says Lucas in discussion with The Press.
“Savings have always been a concern for me, in the sense that you always have to be able to put money aside just in case. It allowed me to accumulate good sums in TFSA [compte d’épargne libre d’impôt] and RRSP [régime enregistré d’épargne-retraite] which have paid off well,” adds Lucas.
“But when I compare myself to cases in the ‘Lifestyle’ section, for example, I wonder if, at my age, I have reached a good financial and fiscal balance between savings needs and financing. lifestyle projects. »
Financial assets :
– in a registered retirement savings plan (RRSP): $62,000
– in a tax-free savings account (TFSA): $165,000
– in SME shares: approximately $40,000
– in residential property: $350,000
– in a used vehicle: approximately $15,000
– mortgage balance: $117,000
Annual revenue :
– $64,000 gross ($51,000 after tax)
– salaried employment: $60,000
– dividends from SME shares: $4,000
Main annualized disbursements:
– related to the residence: $19,000
– lifestyle related: $26,000
– related to taxation: $13,000
– related to savings/investment (RRSP, TFSA): approximately $6,000
Budget-wise, Lucas is doing relatively well with a total lifestyle (residential and personal expenses) that leaves him with a savings capacity of around $6,000 per year, based on his net after-tax income.
As for Lucas’ financial balance sheet, it contains assets for a total value of approximately $632,000, including $267,000 in financial assets (RRSP and TFSA invested in the stock market, value of SME shares) and $365,000 in assets non-financial (residence, vehicle). By deducting the liability related to the balance of $117,000 on his mortgage loan, Lucas ends up with a net asset value of around $515,000.
Not bad at 33, all the same! Still, Lucas seeks advice — and validation! — on its choice of financial priorities so far.
He is also looking for advice on optimizing his financial planning and his tax situation with a view to a dual objective: to have sufficient leeway for projects planned in the next few years — residential upgrades, vehicle replacement, travel — but without compromising long-term retirement savings needs.
Among other things, wonders Lucas, should he prioritize bailing out unused RRSP contributions (about $16,600) instead of continuing his full annual TFSA contribution?
Lucas’ situation was submitted for analysis and advice to Alexandre Beaulieu, who is a financial planner and financial security advisor at the firm DMA Gestion de Patrimoine, based in Brossard, on the South Shore. DMA is also attached to the Investia Financial Services Inc. group.
From the outset, Alexandre Beaulieu notes that Lucas can be reassured to be in “excellent financial health” for a person of his age and his status in personal and professional life.
“We often hear that we should avoid comparing ourselves to others since all situations are different. Nevertheless, it can be reassuring to compare ourselves to our peers to know where we are compared to the average person in a similar situation,” says Mr. Beaulieu.
In this regard, he anonymously submitted the main elements of Lucas’ situation to a software tool on a website, moncomparateurfinancier.com, which is recognized in the financial advisor community.
The conclusion ? “Using the comparator, we find that the average net asset value for a man aged 25 to 34, living alone and without children, with an after-tax income between $35,000 and $50,000, is around $81,000,” says Alexandre Beaulieu.
“In Lucas’ case, with a net asset value in the half-million dollar range, his financial situation is already well above the average for people of comparable age and status. »
That said, what is the answer to Lucas’ question about optimizing his savings priority between TFSA and RRSP?
“The answer to this question of priority between the RRSP and the TFSA is largely based on future accessibility to cash, as well as on the optimization of current and future taxation,” recalls Alexandre Beaulieu.
With the TFSA, it should be considered that in addition to offering the advantage of investing and growing assets tax-free, this registered account also offers flexibility in terms of contributions and withdrawals. for future projects.
Alexandre Beaulieu, financial planner and financial security advisor at DMA Gestion de Patrimoine
“In Lucas’ case, his TFSA already contains a good amount of assets — about $165,000 — as a result of his diligent contributions and the good performance of his investments. In fact, if Lucas continues to contribute $6,000 a year, while earning an annualized return of around 6%, his TFSA could approach $1.6 million in assets at his 65e anniversary,” says Alexandre Beaulieu.
In this context, he recommends that Lucas pay more attention to taxation in order to manage the rest of his savings priorities.
“Assuming that Lucas’ taxable income will continue to increase over the course of his career, it would be more appropriate from a tax point of view for him to prioritize the bailout of his RRSP,” points out Alexandre Beaulieu.
“Depending on his current income, I see that it would be very interesting for Lucas to maximize his RRSP when his effective tax rate is between 42% and 50% for a single person without children with an income of 64 $000. This effective tax rate is also much higher than the 37% rate that the basic tax tables might suggest. »
First, Alexandre Beaulieu suggests that Lucas prioritize bailing out his RRSP from his savings capacity of around $6,000 per year.
Secondly, in order to optimize Lucas’ current taxation, Alexandre Beaulieu points out that it “would be very interesting if he made a withdrawal of $3,500 from his TFSA at the end of the year in order to increase his current RRSP contribution”. .
“With this cash transfer at the end of the fiscal year, Lucas will be able to recover this amount of TFSA contribution at the beginning of the following year. In the meantime, he will also have benefited from a tax refund amplified by his enhanced contribution to his RRSP, explains Alexandre Beaulieu.
“Lucas will then be able to reinvest the amount of this tax refund in his TFSA, thereby reducing the impact of the withdrawal made at the end of the tax year on the growth of his TFSA assets. »
* Although the cases highlighted in this section are real, the first names used are fictitious.
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