On behalf of Sun Life, welcome to our session on "Reviewing your financial roadmap".
We are living in interesting times. There are changes in cost of living, in the workplace and many personal changes that affect you and your family. A financial plan, like a roadmap, provides a solid path to achieving our life goals and desires. It provides clarity about where we want to go and the routes available to stay on track. When life events happen, or we decide to change our destination as priorities and goals change, a financial plan is an invaluable blueprint that can be adjusted to meet our changing needs.
<On the slide:>
5 reasons to have a plan
- Prioritize your financial goals and protect yourself along the way to help make sure your dreams are looked after.
- Save money to reach your goals.
- Focus on the bigger picture.
- Organize your finances.
- Worry less about money.
A plan is more than saving money and buying insurance. It's about what you desire to do or achieve in life. It will help you figure out where you're going and how to get there. <End slide>
Proper financial planning addresses your whole picture. Consider it as a pyramid that must be built from the ground up. The purpose of the financial pyramid is to provide the structural integrity that will address your basic needs upon which higher levels of your wants and dreams can be built upon. Your financial plan is like the base of the financial pyramid that documents your short, medium and long-term goals. Your plan can provide clarity around your progress and protection from cracks in your foundation through regular maintenance, or monitoring, of your changing goals and needs.
<On the slide:> A pyramid diagram with five levels, from bottom to top:
Financial plan, Wills/Powers of Attorney, Non controllable events, Controllable priorities and Growth opportunities.
Growth opportunities include: Estate preservation, Maximizing wealth, Financial security
Controllable priorities include: Education savings, Home, Debt reduction, Emergency cash, Personal savings, Retirement savings
Non-controllable events include: Becoming dependent, Suffering serious illness, Suffering health issues, Dying prematurely, Becoming disabled. <End slide>
To ensure your financial pyramid has a solid base, proper Power of Attorneys (also known as POAs), and a Will are documents you need in addition to your financial plan. A POA, also referred to as a "living" will, is a document that allows another person to act for you, should you become incapacitated. A Will ensures that there is clear direction for who will serve to carry out your wishes, how your estate is to be distributed, as well as who will act as the guardian of your dependents, when you die. POAs and a Will are an important part of the base of your financial pyramid, as they protect your loved ones should you no longer be able to do so.
<On the slide:>
Wills:
- The importance of a will
- Keeping your will current
- The role of executor
Power of Attorneys:
- A property power of attorney
- A healthcare power of attorney
It is important to seek independent legal advice for your estate matters. <End slide>
Life can take unexpected turns that change our plans. Having established a good base, the next tier of your financial pyramid is planning for the uncontrollables. This will help navigate the unexpected expenses and reduce the stress on your household from an upset.
Losing a family member often has a financial impact. The death benefit from a life insurance policy can help your loved ones cover ongoing household expenses and care needs. When determining your life insurance needs, consider:
- What ongoing expenses will need to be covered?
- What sources of income will be available to help address the household needs?
- How may a survivor's ability to generate an income be impacted?
- What gaps between household needs and household income might exist?
- What needs will be temporary or short-term, and what needs will continue in the long-term?
Life insurance can be an excellent way to provide for your survivors. Completing a financial needs analysis with a financial professional will identify the right type of insurance for your various needs and bring you peace of mind.
Despite improving survival rates, illness and accidents often change the way we live. You may have some disability protection under the Canada or Quebec Pension Plan, as well as possibly through a group plan. Job changes can sometimes leave people without group coverage. Recommended disability coverage is 60% of pre-disability income and is intended to supplement any funds you receive from the government, extended health care plans or your family. Critical Illness is a lump sum payment, payable to you if you are diagnosed with a covered illness such as cancer, heart attack or stroke, and you survive at least 30 days from date of diagnosis. The money can be used in any way that you choose. Long-term care insurance allows you to receive benefits if you are unable to perform 2 of the following activities of daily living: bathing, toileting, continence, transferring, feeding or dressing. Note: Some plans may require you to be in a long-term care facility. Continual medical care in your home will likely require more funding. Personal health insurance provides affordable coverage for day-to-day health expenses and unexpected medical emergencies that are not covered by provincial plans.
Effective money management can address the next level in our financial pyramid, or our controllable priorities, and is the focus of the next module.
Let's take a minute to review the steps of an effective budget. Paying yourself first means setting aside a portion of your income to save before paying your bills and other expenses. Developing a monthly budget to determine where your money is going now, will provide you ways to cut costs and set money aside each month. Building an emergency fund equal to 6 months of your household salary, will help to reduce the stress that can result from unplanned life events. Make savings a part of your household budget (just like your cable bill or monthly rent) and start putting aside a sum you can afford on a regular basis. Pay down your mortgage principal each year, and if possible, consider increasing your monthly mortgage payments. Whenever possible, pay down more than your monthly minimums on debts and consolidate with other loans for lower rates. Use credit cards with caution!
Canadians are living much longer in the retirement phase than previous generations. This means that you may need your retirement fund to last 25 years or longer; especially if you retire prior to age 65. It is important to understand the sources of retirement income you may have. Government sponsored pension plans such as the Canada Pension Plan or Quebec Pension Plan, as well as Old Age Security, were only designed to replace approximately 25% of your pre-retirement income. As a result, employer retirement plans and personal RRSPs represent a significant part of our overall retirement funding needs. A Tax-Free Savings Account, or TFSA, can help address many financial priorities including retirement. It is never too early to start saving for retirement as nothing works your money like time. Working with a financial advisor can clarify the many options available and allow you to most effectively reach your retirement income goal.
In addition to your group plan, government plans may also help you attain certain savings goals. An example is a Registered Education Savings Plan, or RESP, which can be a very effective way to save for your children's education. No matter what your family income is, Employment and Social Development Canada pays the Canada Education Savings Grant (or basic CESG), equal to 20% of annual contributions you make to all eligible RESPs. Note: The annual maximum CESG is $500 for each qualifying beneficiary (or $1,000 in CESG if there is unused grant room from a previous year), and a lifetime limit of $7,200. Please visit Canada.ca for eligibility rules and all details of how the RESP program works.
<On the slide:>
Registered Education Savings Plan (RESP):
- Contributions allowed until the plan's 31st anniversary (year end)
- Maximum contribution is $50,000 per beneficiary
- Contributions are not a tax deduction
- Interest/growth earned is not taxable until withdrawal
Canada Education Savings Grant (CESG):
- 20% grant to your yearly contribution to a maximum of $500 annually per eligible child (up to $1,000 if carry forward room exist)
- If money isn't used, the 20% grant must be returned to the government
Source: www.canlearn.ca <End slide>
Many factors can impact the performance of your investments. During times of uncertainty, we understand that you may feel a little uneasy. Developing and monitoring your investment strategy regularly will avoid emotional reactions to short term dips that can leave you missing out on long-term gains. In other words, when markets go up and down, it's generally better to stick to your plan. Here are the tips to help you stick to your plan: First of all, know yourself and tailor your investment mix based on your comfort with risk. Secondly, focus on the endgame and understand what your short, medium and long-term goals are. Lastly, remember that it's all about balance and having a well-diversified portfolio can help during times of market volatility.
<On the slide:> Stay invested: Think about your personal financial situation and ask yourself:
- Has my financial situation or savings goals changed?
- When do I need to use my investments?
- Do I need access to the money I've saved up now or later?
If you sell when the market is down, you may miss out, by:
- Locking in a loss from selling at low value
- Missing the market rebound
Seek professional advice from a qualified financial advisor. <End slide>
Having provided security and having implemented good money management in your financial plan, you can now focus on maximizing your wealth, minimizing estate tax and building your legacy.
As the saying goes, most people do not plan to fail, they just fail to plan. In summary, failing to plan can lead to: Inefficient use of resources. Undue stress and inadequate care for your loved ones. Unpreparedness for catastrophes. Higher taxes than necessary. Having a plan and reviewing it periodically, will help keep you on the right path to financial success. Working with a financial professional can ensure you make efficient, informed decisions.
Thank you for listening in and all the best in the review of your financial plan.
<On the slide:> The information provided is of a general nature and can not be construed as personal financial or legal advice. Neither Sun Life or its affiliates guarantees the accuracy or completeness of any such information. This information should not be acted on without obtaining counsel from your professional advisors, including a lawyer, notary, tax professional, or financial advisor (registered as Financial Security Advisors in Quebec) as may be applicable to your individual situation.
Group Retirement Services are provided by Sun Life Assurance Company of Canada, a member of the Sun Life group of companies. <End slide>