In B.C. Almost Half Don’t Yet Have a Financial Plan

According to the 2019 RBC Financial Independence in Retirement poll 48% of those in BC do not yet have a financial plan. Of the 52% that do have a financial plan 32% of these admitted the plan is in their head. This means that 65% of those in BC have no written financial plan. According to Fidelity’s Retirement 20/20 Report 83% of people feel better prepared for retirement when they have a written retirement plan in place and of those who are retired, 96% of them feel better prepared with a written plan
My guess would be that those that have their financial plan in their head may have an amount they want to save. For example, the financial plan may be to save $1 million dollars in order to retire. While this is better than having no plan it still leaves a huge amount of what should be in a real financial plan not addressed.

A real financial plan should be a roadmap to take you to financial independence and beyond. The financial planning process we use at Planwell includes 12 areas:

• Retirement or Financial Independence Plan
• Budgeting and Cashflow Plan
• Debt Plan
• Mortgage Plan
• Investment Plan
• Fee Plan
• Pension Plan
• RESP Plan
• Real Estate Plan
• Insurance Plan
• Tax Plan
• Estate Plan

Each of these areas is very important and needs individual attention and regular updating. As life progresses different areas of the plan become more and less important. We know that goals help motivate us to accomplish things and the financial plan lets us establish goals and objectives that can then be worked towards. As Benjamin Franklin said, “If you fail to plan, you are planning to fail.”

I would also guess that the 35% of the RBC poll that say they have a financial plan in BC may have a very simple financial plan that may cover a couple of the 12 areas, but rarely do we see incoming new clients that have existing comprehensive financial plans. Even less do we see prospective clients that regularly revisit their financial plan and use it as a tool to help guide them towards their financial goals and dreams.

At Planwell we have created the Planwell Financial Planning Checkpoint System which allows us to establish along the way the measurable goals for our clients and then every 6 to 12 months check the progress towards these goals and take the appropriate action if necessary to get things back on course, or a new course if needed.

We think it is alarming that almost two-thirds of those in BC have no written financial plan. We also no that since there is no standardization of financial planning across most of Canada that the quality and meaningfulness of financial plans and the financial planning processes used can be very different. Unfortunately, there are a lot of financial plans that are pumped out by financial advisors, financial institutions and now online advisory companies that are very weak plans and offer no meaningful follow up.

Unfortunately, in Canada almost anyone can call themselves a financial planner and a lot of financial plans are being produced by people and companies that do not have recognized financial planning designations. Our advice is to ensure at a minimum that you only rely upon a financial plan produced by an individual that has a recognized financial planning designation in Canada like the Certified Financial Planning designation (CFP®).

Having a real financial plan could be one of the most important documents you have as you accumulate your wealth, maximize your wealth, protect your wealth and ultimately transfer your wealth to those you choose. Please contact us to help you create your own real financial plan.

ESTATE PLAN

Ensuring things have been properly planned for our end of life can not only save large amounts of money but can also make the process so much less complex for those left behind.
Wills, trusts, beneficiary designations, power of attorneys, and representation agreements all need to be reviewed and utilized where appropriate to ensure the transfer at the end of life happens in the best way possible.
For those with philanthropic desires planning for how to contribute to charities directly or through a foundation should also be explored.

TAX PLAN

Minimizing the amount of income tax paid should also be part of each financial plan. It is completely legal to try to avoid paying tax through various measures like RRSP deductions, interest deductions, using tax free savings accounts, etc. Tax evasion is illegal and could result in serious legal issues.
As income from various sources can be taxed at different levels it is important to structure investments and holdings in the most tax efficient way.

Long-term planning is also needed when assets are to be sold in the future that have large embedded capital gains. There may be ways to reduce or defer the income tax on these larger items with proper tax planning.

INSURANCE PLAN

Insurance is important in providing protection for families as well as protecting the wealth that is accumulated. Insurance can also be used to enhance the maximization of wealth especially due to insurance death benefits being paid out on a tax-free basis if structured properly.

A needs analysis should be part of a financial plan to determine what types of insurance are needed and whether existing plans are the most appropriate. This should encompass looking at the life insurance, disability insurance, critical illness and long-term care insurance needs.

REAL ESTATE PLAN

Real estate is one of the largest portions of wealth in Canada and is an important component of many Canadians wealth. Having a plan for the accumulation of real estate is important whether this is just a principal residence or multiple properties. Building the equity in real estate is important as it provides options for other opportunities. Rental revenue for many Canadians is an important source of income.

CHILDREN’S SAVINGS PLAN

Saving for children is very common for Canadians and different options exist. Most commonly used is the Registered Education Savings Plan but there are also informal trust accounts and open savings accounts.

Depending on the amount being saved strategic use of these plans should be made to maximize the grants and free money available from the government as well as other tax implications of saving for children.

PENSION PLAN

Pensions are a significant part of many Canadians financial plans and these pensions including private and government pensions need to be factored into the financial plan and their value maximized.
Plans around when to retire and what options to take in private pensions can be complex and need careful consideration and exploration. In some cases, it may also be advantageous to explore taking the commuted value of a private pension plan and transferring this to a locked-in RRSP or LIRA.
Similarly, with the Old Age Pension and Canada Pension options exist as to when to begin these pensions which should be assessed.

FEE PLAN

It should be clear in the financial plan what the fee levels will be for the work being provided by the financial planner as well as the products that are being used as part of the financial plan.
Ideally the financial planner will be able to demonstrate that by paying these fees the client is better off than having not paid these fees. The client should feel that the package of services being provided by the financial planner are well worth the fees being paid as evidenced through good rates of return, a sense of progress towards goals and a feeling of security in knowing that each area of the financial plan has been addressed and is being monitored.

INVESTMENT PLAN

The investment plan will look at what type of investments to use, the appropriate risk levels, the types of plans to use (RRSPs, RIFs, TFSAs, Open or Taxable accounts, etc)
Investments outside of real estate (see real estate plan) are an important part of a financial plan. Real estate is a more illiquid investment as it can be more difficult to sell in a shorter time frame. Other investments can provide more liquidity.
The investment plan should also provide a goal rate of return for the investments that can be measured against the actual performance and an agreed upon market benchmark return.

MORTGAGE PLAN

Mortgages have proven very useful to many Canadians by allowing them to invest in personal use properties, rental properties, recreational properties and commercial properties. Significant wealth has been built up especially over the last 20 years in Canada by investing in real estate.
As with other debt there are strategies and methods that can be utilized to assist in paying down mortgage debt in a more efficient manner and these should be explored in this part of the financial plan.
As equity is built up many people have used this equity to allow them to purchase additional real estate. Therefore, it is advantageous from many perspectives to try to build up the equity in real estate as efficiently as possible.

DEBT PLAN

Having a plan to pay down consumer debt and unsecured lines of credit is also very important. In Canada we have an obsession with debt which has been fueled by low interest rates for the last decade. Many peoples monthly credit card, car loans, and other installment loans and unsecured lines of credit payments are large portions of their monthly take home pay. Until these debts are under control and eventually paid down it is very difficult for many people to save at the levels, they need to in order to hit a meaningful financial independence number.
Various strategies and methods can be used to assist in paying down debt in a more efficient and methodical way. Of course, having a plan to stop building up debt is crucial and having a plan to eventually be out of consumer debt is the goal.

BUDGETING / CASHFLOW PLAN

Having a budgeting and cashflow plan is important for those that would like to maximize their savings and the accumulation and maximization of their wealth.
For most people it does take discipline to save and build wealth and starting with a budget and then monitoring the income and expenses against the budget brings clarity to the monthly actual financial situation. This then allows for spending adjustments to be made to allow the savings to occur at the necessary level to reach the financial independence goal.
As David Chilton described in the Wealth Barber it may be simpler and more advantageous for many people to turn the budgeting process upside down and start the budget with allocating between 10% to 20% of the gross income for savings (RRSP, TFSA and open accounts) and then live on the balance. In this way the saving component is prioritized similar to how a mortgage payment is usually prioritized. Unfortunately, most people budget the other way which is to deduct the various expenses from the income and then see if there is anything left over to save which many times is very little to nothing. Saving off the top and living on the balance is a great way to approach budgeting.

FINANCIAL INDEPENDENCE PLAN

Fundamental to a comprehensive financial plan is knowing what the target is or what is the amount of money needed for a person or couple to be financially independent. Sometimes we can equate retirement with financial independence, but it does not need to be the same thing. Some people do not plan to retire ever or until a much later age. Financial independence is a point where there is sufficient wealth accumulated to last for the projected life and also satisfy any transfers to heirs or philanthropic desires.
It is better to plan for a financial independence date rather than planning to never retire or to retire at a much later age. Life is unpredictable and even though the plan may be never to retire health and other issues can disrupt these plans and so it is better to have enough wealth accumulated at a reasonable age to then allow more flexibility around when retirement may occur.
Establishing an amount that is needed to be financially independent then allows us to determine how much needs to be saved on a regular basis to reach the financial independence goal.
Most important is to revisit this part of the plan every 6 months to a year to assess the progress towards the financial independence goal and make revisions if necessary.

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