Are you financially ready for life’s curveballs?

Ask questions, tips, advice, financial planning, insurance, unexpected life events, preparing, preparation, personal finance, money, debt, mortgages, death

Readers, please note that this is moderated discussion, so you may not see your questions appear right away, as we're trying to keep questions and answers together. We will try to get to all your questions today.

by Christina Varga 3/15/2012 5:03:44 PM

Hello all

by Mark Halpern, CFP 3/15/2012 4:53:18 PM
Hello all from Vancouver

by Adrian Mastracci edited by Christina Varga 3/15/2012 4:54:29 PM
Thanks for joining us today, Mark and Adrian. To get us started, could you tell us about some of the top concerns you hear from your clients about how to prepare for the unexpected?

by Christina Varga 3/15/2012 5:04:54 PM
Most people don't think about getting sick or getting injured. Unfortunately it takes a close family member or friend or trusted advisor to bring the risks to their attention....

by Mark Halpern, CFP 3/15/2012 5:06:11 PM
Top concerns typically range from losing a job, becoming disabled, incurring a critical illness and a child becoming sick.

by Adrian Mastracci 3/15/2012 5:06:35 PM
...The first concern is around cash flow. Do they have an emergency fund? 3-6 months of cash equivalent...

by Mark Halpern, CFP edited by Christina Varga 3/15/2012 5:06:55 PM
...do they have an update to will and more importantly powers of attorney for health care and property?...

by Mark Halpern, CFP 3/15/2012 5:07:45 PM
... Being ready means both financially and mentally prepared for the occurrance.

by Adrian Mastracci 3/15/2012 5:08:08 PM
Here's a question from a young person.

by Christina Varga 3/15/2012 5:09:17 PM
What do you recommend for young people just starting out in life? I feel I have lots of places that money can/needs to go (mortgage, car, RRSP, TFSA, rainy day fund) and not enough money to go to each.

by Colleen 3/15/2012 5:09:22 PM
Great question. Always start young. First thing is you have to pay yourself first. Most people have more month than money. Establish a comfortable monthly savings amount.....

by Mark Halpern, CFP edited by Christina Varga 3/15/2012 5:10:24 PM
Young people would do well to begin with a TFSA and then deal with the RRSP when their tax rate and salary is higher.

by Adrian Mastracci 3/15/2012 5:10:57 PM
First step is an emergency fund, second is avoiding debt, third are RRSP/TFSA's, and finally protection e.g. life insurance, critical illness insurance, disability, etc....

by Mark Halpern, CFP edited by Christina Varga 3/15/2012 5:11:44 PM
Fortunately you have time to plan for retirement but not for unexpected risks. So it's important to meet with a professional advisor to get all the facts and determine the priorities based on your situation and budget.

by Mark Halpern, CFP edited by Christina Varga 3/15/2012 5:12:40 PM
... Debt is the primary downfall for most people, including the young. Hence, try to stay clear of the debts that consume your cash flow.

by Adrian Mastracci 3/15/2012 5:13:33 PM
Would you give the say top 5 risks that all families should prepare for? Would it be best to have a healthy emergency fund to be prepared?

by David Capek 3/15/2012 5:14:25 PM
An emergency fund is very important and should consist of 3-6 months of cash available in the form of a bank account, GIC's, line of credit (not equities that may become devalued)....

by Mark Halpern, CFP edited by Christina Varga 3/15/2012 5:15:39 PM
A healthy emergency fund is the first line of defense. Just make sure it's available on short notice and it's held at an institution that has not loaned you any money.

by Adrian Mastracci 3/15/2012 5:16:09 PM
Dying too soon, living too long, getting sick along the way, taxes, unemployment...these are my top 5 concerns that clients must address.

by Mark Halpern, CFP edited by Christina Varga 3/15/2012 5:17:42 PM
Top risks that may be incurred are health issues with oneself, spouse, child, parent or a friend. Losing a job follows quickly along with dealing with a long term care issue.

by Adrian Mastracci edited by Christina Varga 3/15/2012 5:18:58 PM
Where do you recommend storing a 3-6 month emergency fund?

by Kyle From Victoria edited by Christina Varga 3/15/2012 5:19:52 PM
You need the money readily available and easy to access....not subject to redemption charges, market fluctuations, fees, etc... E.g. money market funds, savings account, T-bills, short-term GIC's and open lines of credit.

by Mark Halpern, CFP edited by Christina Varga 3/15/2012 5:21:39 PM
Emergency money is typically a savings account, cashable GIC, chequing account. Something readily available. The return on investment would be low.

by Adrian Mastracci 3/15/2012 5:21:47 PM
Here's a multi-facted question from a reader.

by Christina Varga 3/15/2012 5:25:40 PM
Hi, a year ago separated from my husband, and bought an old condo that I cannot stand - it's noisy, bad bones, but it was what I felt comfortable I could afford at the time (and it was as much to buy as it was to rent). I have ~30% equity in the home now and I am wondering if I should move up a notch on the property ladder. My mortage has $143K remaining, I should be able to see for $210K (that's $1500 less than i paid, I want to be cautious), and am looking at a place that's $250K (listing price). I bring home $4K each month. I have a $340K in assets, including a $16K TFSA which I treat as an emergency fund, and $35K in cash, waiting to be invested somehow. Does taking on a bigger mortgage with these numbers leave me unprepared?

by Jenn 3/15/2012 5:25:42 PM
Further to my other question re: mortgage...I have no debt, but will likely need a car in 2 years; I'll buy used, and small.

by Jenn 3/15/2012 5:25:43 PM
Taking on larger debts means that you may place yourself in a difficult situation. One key is to put a plan in place that pays off the mortgage as soon as possible. And ask yourself how would you protect yourself if a curveball comes your way.

by Adrian Mastracci 3/15/2012 5:28:10 PM
Jenn, you really need to spend some time with a competent professional to review your specific situation and make recommendations for you to consider. I would not want to see you put all your eggs into one basket without properly doing the other housekeeping. Do you have disability and critical illness to protect your income flow? Do you have powers of attorney in place? etc. Find a Certified Financial Planner who can look at the big picture with you. Good luck!

by Mark Halpern, CFP 3/15/2012 5:29:11 PM
As a young person with no dependants, how important is it for me to have a will?

by Rebecca 3/15/2012 5:29:48 PM
Hi Rebecca. Anybody 18 years of age+ with any assets should have a will. Otherwise the government steps in to decide where your money goes and does not take into account any tax reduction strategies....

by Mark Halpern, CFP 3/15/2012 5:30:56 PM
...Most people have a will when they get married or have children...research shows that only 40% of Canadians have a will and, of those, 80% are not current. Don't wait. Take care of things while the sun is shining.

by Mark Halpern, CFP edited by Christina Varga 3/15/2012 5:32:01 PM
Everyone has a will. It may have been written by the politicians in your Province and you may not agree with all its provisions. Hence, spending a few dollars on getting your will in place is money well spent.

by Adrian Mastracci 3/15/2012 5:32:13 PM
my only debt is $10,000 student loan, I have a $3000 emergency fund, and $10,000 in RRSP savings at this point - should my priority to pay off or continue to build savings, I would like to buy a home soon...

by paulie 3/15/2012 5:33:40 PM
Hi Paulie. Pay off the debt as soon as possible - it's a good investment to avoid non-deductible interest charges. Establish a monthly savings plan. How much are you going to pay yourself first? 90% of the population spends and then saves. Only 10% who pay themselves first have the resources for buying a house, retirement, etc. Set up some time to meet with a professional planner. Your time will be well invested.

by Mark Halpern, CFP edited by Christina Varga 3/15/2012 5:35:46 PM
An approach is to pay off loans, especially the ones where interest is not deductible. It's like making a risk-free investment as you control how much and how fast you pay it off. Then direct savings to additional accumulations.

by Adrian Mastracci edited by Christina Varga 3/15/2012 5:36:18 PM
I have a question submitted by a reader: I’m in my 60s and worry about health problems. How smart is it to keep a wad of cash on hand, just in case? Or what kind of investment would give me a small return yet could be made liquid quickly?

by Christina Varga 3/15/2012 5:36:47 PM
By nature emergency funds are low return vehicles. At 60 part of your overall portfolio should be in fixed income. Hence some of that asset base could do double duty.

by Adrian Mastracci 3/15/2012 5:38:57 PM
I would need to know the context of the health problems. People 50+ need to be informed of their options - long term care insurance is an important defensive strategy to avoid the "black hole" caused home care or facility care needs. They cannot save enough for that so therefore need to look at insurance product alternatives. Alternatively, look at joint last to die insurance to make your estate whole (for inheritance, taxes due, charitable planning) while spending your cash for health care needs.

by Mark Halpern, CFP edited by Christina Varga 3/15/2012 5:39:49 PM
... Perhaps look at the portfolio to decide how much it could support by way of long term outflows. For example, long term care typically starts around $5,000 per month.

by Adrian Mastracci 3/15/2012 5:43:15 PM
Should people have an outside critical care/LTD policy if their employer currently provides a reasonable LTD/ADD/health/life insurance package (but no pension; I'm in the private sector)? What questions should I ask before signing up on a policy? Is a policy that you can cash out at 65 worthwhile? Seems early to cash out to me, but would like an opinion.

by Jenn 3/15/2012 5:43:50 PM
Looking at family history and your own health issues will provide better clues as to what you can pursue. I would suggest finding an independent professional who deals in such policies and review the cost/benefits of each. You may have to make choices as to what you can afford.

by Adrian Mastracci 3/15/2012 5:47:08 PM
Hi Jenn. Policies available at work are good but NOT as good as owning something on your own. They have restrictions. E.g. LTD only has a 2-year regular occupation defintion that changes to "any" occupation thereafter. There is an old adage that you get what you pay for. That's why it's so important to have a professional advisor read all the fine print and advise you accordingly...we are living in a very mobile society and a misinformation age. Once you leave your employer, as is quite common today, your benefits likely stay behind. Who is to say that you will be insurable at that time. That's why you may need a mix of both company owned and personally owned insurance ...

by Mark Halpern, CFP edited by Christina Varga 3/15/2012 5:47:34 PM
...Most plans do not have critical illness insurance, which I believe is even more important....nobody doesn't know a family member or friend who has been diagnosed with cancer, stroke or heart problems. Often group long term disability will NOT pay out for a short stay off work but critical illness will pay out 30 days after a diagnosis.

by Mark Halpern, CFP edited by Christina Varga 3/15/2012 5:49:11 PM
A reader asks a question related to people with aging parents: Is there a way to plan financially for elder care?

by Christina Varga 3/15/2012 5:50:15 PM
Aging parents is a big issue for baby boomer kids today. Make sure they have all their financial housekeeping looked after e.g. wills, powers of attorney, titles, an updated estate directory.... After that, you should consider long term care insurance or annuities designed specifically for nursing or home care.... It will eliminate the "black hole" of financial liability for the entire family. Seek out professional advice to understand your options.

by Mark Halpern, CFP edited by Christina Varga 3/15/2012 5:52:43 PM
I have perused some books on the topic. One that comes to mind is "Nursing Homes and Assisted Living" by Peter Silin. Such books usually cover a variety of considerations. At the same time, get familiar with what is provided in the government health unit you are in.

by Adrian Mastracci edited by Christina Varga 3/15/2012 5:53:19 PM
I'm afraid we're running out of time. One more question.

by Christina Varga 3/15/2012 5:56:06 PM
Is it a bad idea to have my rainy day emergency fund in a TFSA? Would it also be bad to have it in very low-risk mutual funds with my bank ?

by A.J. edited by Christina Varga 3/15/2012 5:56:07 PM
Parking the rainy fund is a TFSA is acceptable, provided it does not take more than say one week to get at your funds. However, I would not park it in mutual funds. You have to accept that the rainy fund is a low return vehicle. You would not want to be trapped without access to it.

by Adrian Mastracci edited by Christina Varga 3/15/2012 5:59:36 PM
I'm afraid we're out of time. Some of the questions readers submitted did not appear because they were too similar to previous ones. Please take a look at some of our guests' answers, as they likely apply to your situation. Before we go, Mark and Adrian, do you have anything final you'd like to say to readers?

by Christina Varga 3/15/2012 6:00:20 PM
One last point for everybody....here is a link to a free estate planning directory we developed to help people in the event of sickness or death. It is a writeable PDF to help your family locate all your important contacts and documents when they are needed most e.g. bank accounts, accountant, lawyer, will location, key to safety deposit box, asset location, real estate, etc.
www.illnessprotection.com

by Mark Halpern, CFP edited by Christina Varga 3/15/2012 6:01:10 PM
Mark, the precise link didn't come through. Let me try and link to it. Free Estate Planning Directory

by Christina Varga 3/15/2012 6:03:23 PM
When dealing with finances, always consider your total big picture. Make decisions based on investment merits first. And consider the optimistic and pessimistic outcome. Finally, managing your money matters is a long-term project, nor a sprint.

by Adrian Mastracci 3/15/2012 6:04:10 PM

Are you financially ready for life’s curveballs?

Ask questions, tips, advice, financial planning, insurance, unexpected life events, preparing, preparation, personal finance, money, debt, mortgages, death

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