Preparation is key
by Pam Mundell, CFP, CLU, CHS
As a female financial advisor who believes strongly in education and knowledge, I tend to attract female clients: women looking for advice and guidance from another woman. When I meet women who attend my financial planning for women workshops they will mention this.
I’m not suggesting that advice for a woman is or should be any different than advice for a man. But women behave differently in a crowd of women compared to the behaviour of women in a crowd with both men and women. Women ask more questions and share personal details of their lives, even with a group of strangers when the crowd is exclusively women. For this reason I offer events exclusively for women.
This brings me to the related focus of this issue’s column. Recent polls indicate that women are less prepared financially both during their working years and as they approach retirement. My goal is to help women overcome this barrier and get motivated to prepare for themselves.
2015 RBC Poll: annual RBC poll also indicated that women are particularly unprepared for retirement:
- Three quarters (75 per cent) don’t have a retirement savings goal (compared to 62 per cent of men)
- Two thirds (67 per cent) responded that they have not done any retirement planning (compared to 55 per cent of men)
- 60 per cent don’t have a financial plan (compared to 54 per cent of men)
- 39 per cent don’t own RRSPs (compared to 31 per cent of men)
- 44 per cent don’t have a company pension plan (compared to 38 per cent of men)
How do I get started? Prepare a financial plan.
I believe many people would benefit from the process involved in creating a financial plan. A financial plan to evaluate your current situation and create a clear path to your retirement goal.
The first step:
Create and maintain a meaningful budget.
An excel spreadsheet or some form of financial tracking software can help with this. Detail all the financial resources coming into your family household with all the expenses, saving and spending within your household. Financial resources coming into your household would include monthly income for yourself and a partner or spouse if applicable.Any support payments received both spousal support or child support, disability income payments, rental income, or interest and dividend income from investments.And then take stock of all the expenses, savings and spending. This is where you need three different categories.The first category is your fixed expenses and I won’t list everything but I am referring to mortgage payments or rent, property taxes, heat and utilities, any spousal support or child support paid, all your car expenses, groceries, insurance, phone etc. These are all the monthly payments that are fixed and constant.The second category is your savings.This is long term savings, not saving for a trip next year. These are long term, do not touch, savings that are used to build, grow and create a pool of money that you will use in your retirement.This could include contributions into a company pension plan or contributions into a RRSP or TFSA. Also included are annual, excess funds left in your private corporation as a business owner, doctor or dentist which are invested long term for personal use when you retire.
The last category is lifestyle or spending habits. Essentially everything else, including things like gym memberships, dinners out, vacations, gifts, shopping trips, helping fund a child or grandchild’s post-secondary education, to name a few.
The assets created in the second category (the savings) are used to pay for the fixed expenses and lifestyle spending in retirement.You could receive a guaranteed pension from a company pension plan or income from your investments in your RRSP, TFSA and/or private corporation. The second category (the savings) supports the fixed expenses (column one) and also the lifestyle and spending habits (column three) in retirement.Too little pension income or not enough long term savings doesn’t allow for enough assets to support the expenses and lifestyle in retirement. A very thorough and accurate financial planning process will give an idea of your current situation and what steps need to be taken to ensure you are on the right path.
Make better investment choices.
Many of us will require and/or want a professional to help with this process. Perhaps you are working with a financial planner at a bank or trust company or have a relationship with an independent financial planner. A trusted advisor can help determine the appropriate asset allocation of investments for your unique needs based on your retirement goals, time horizon and risk parameters.A detailed questionnaire can provide a target per cent allocation of equity vs fixed income vs cash vs real estate to implement a successful investment plan.
Financially protect yourself and your loved ones.
74 per cent of Canadians with no financial plan to fund long term care in retirement. (Source: Guide to Long Term Care Insurance, CLHIA, 2012)
82 per cent say personal finances would be affected if they developed a chronic condition. (Source: Sun Life Canadian Health Index)
10 years of retirement . . . how long the average Canadian will deal with sickness/disability.(Source: 2013 Report of the Health of Canadians, Heart and Stroke Foundation)
Consider critical illness insurance, disability insurance and long term care insurance.These are all products designed to help Canadians financially in the event of a life-altering illness or disability. Disability insurance is designed to cover a percentage of your working income if you are unable to work because of illness or injury. Critical illness insurance is a tax free lump sum payment for a little as $25,000 or up to $2 million which is payable once the person insured suffers a critical illness and survives for 30 days.The funds are paid tax free in a lump sum to the insured to help with monthly bills, medical expenses or allowing another family member time off to care for and help the person suffering the critical illness. Long term care insurance is provided to help when a person is no longer able to perform two or more of the normal functions of daily living.This can help to pay for home nursing care, home help care, meal preparation, shopping, house cleaning or lawn care. The monthly payment from the long term care insurance can be used for whatever is required to keep the person independent and at home for a long as they wish.
The take away
Make your financial health a priority in your life and plan to live a better future. Financial health and physical health both contribute to an overall successful and happy retirement.
[ Reprinted with permission from Ottawa Family Living. ]