The three Ds that can derail financial security
Dear Money Lady readers: Does financial worry keep you up at night?
A recent survey by Pollara found there were three main life events that Canadians worry about the most (maybe even more than COVID). I was surprised to see the majority of worry came from our Canadian men, a definite shift from earlier studies done in 2000 and 2010.
Men seem to be very worried about their retirement with respect to their financial longevity, with an increased spike in concern over employment loss. Here are the top three points of the survey.
•Are you worried about having enough money for retirement? Yes. Men, 41 per cent and women, 28 per cent.
•Are you worried about the health of your spouse/partner?
Yes. Men, 23 per cent and women, 32 per cent.
•Are you worried about job loss or your spouse/partner’s job loss? Yes. Men, 33 per cent and women, 19 per cent.
Most Canadians know the value of having a financial plan, however, sometimes the plan targets are set too low. Your plan should be able to withstand a major decline in the market or have a fall-back strategy to account for major life events such as death, divorce, or a major disability/ illness. These are the three Ds to stress test your portfolio. Other than the obvious stock market dips, disability, death, or divorce have always had the most impact on a person’s future financial stability. Let’s discuss the triple-D derailments and what you need to consider in your own portfolio.
A disability or illness could have a huge impact on your long-term financial plans. Oftentimes, people are forced to retire earlier than they had planned, causing a loss of future income and impact to their savings strategy. An illness can be even more devasting if you are single and have no one else to rely on for financial support.
To prepare for this impact, Canadians should make sure they build an emergency fund, preferably in a TFSA (Tax-Free Savings Account) and review their employment short-term and long-term disability coverage. Don’t overlook critical illness insurance which provides a lump sum coverage benefit shortly after diagnosis and will help a single person or a family deal with any unexpected costs or meet short-term cash flow needs.
The death of a spouse will always have catastrophic financial impacts, yet only seven per cent of people in the survey were worried about the premature death of their partner. That was very surprising to me since my mother was widowed at 42. The financial impact of suddenly becoming single due to the death of a spouse can be long lasting and substantial. It goes without saying that, if you value your family’s well-being, you must have life insurance as an integral part of your financial plan.
Divorce is the third item that can blow up your financial plan, typically having a double shock effect of unplanned spending and loss of income. In Canada, the only age group that is seeing a rise in divorce rates are couples over 50, now referred to as the “grey divorce group.” The key to surviving this difficult process is to stop, process and then recalibrate your life to put your financial house in order. Update your personal financial plan, change your beneficiaries, wills and power of attorney designations. Get financial advice and build a professional team to help you accomplish what you need out of your life. Build your own credit, eliminate joint financial responsibilities with your ex and work on accessing your own line of credit or mortgage to transition forward.
Good Luck & Best Wishes, ATML - Christine Ibbotson
Chris Ibbotson writes a financial advice column, regularly speaks at bank advice events and is a frequent guest speaker for client focused retirement seminars coordinated by local financial institutions. She provides personalized investment and lending advice to clients with a focus on wealth building, estate planning and tax minimization.