Simply helping clients prepare for retirement may not be enough, as a majority of Canadians feel that they are poorly prepared for significant, but not improbable, adverse life events. A study by the BMO Wealth Institute found that even Canadians who feel adequately prepared for retirement were not making plans for sudden unexpected but not-improbable events that financially could be potentially catastrophic.
Although around 64% of Canadians have a financial plan, the majority do not feel that their existing plans will adequately protect them in the case of events such as the death of a spouse, divorce, or premature disability, the survey found. The survey, taken in late March, involved a random survey sample of 800 Canadians, 18 years of age and over, who were not yet retired and who were married or in a common-law relationship. It probed how well prepared people were for serious adverse events.
BMO built a case study considering a couple whose financial plan gets derailed 10 years early. Assuming over $400,000 savings in registered and non-registered accounts, 3% inflation rate and a 3% rate of interest and $48,000 indexed withdrawal per year, a couple, both age 51 who were on track with their financial plan for age-65 retirement could find themselves without income at 77 should one of them suffers a life-changing disability at 55 or earlier.
The dual impact on their financial plan of less income coming in and potentially more spending can turn a financial plan from one that had been accumulating savings to last until at least age 90 to one where all of the family’s savings will be exhausted by the age of 77.
Of the events referenced in the report – death, disability and divorce -- the premature death of a spouse or partner is the one most likely to have a catastrophic financial impact, yet only 6% of respondents said that they are most worried about the premature death of their partner, the bank said.
The survey found that women and men differed slightly in terms of the issues of greatest concern. The report found that men are more likely than women to worry about having enough money for retirement (33 per cent vs. 23 per cent) and loss of employment (19 per cent vs. 13 per cent), while women worry more about their health or the health of their partner/spouse (24 per cent vs. 21 per cent).