A good financial advisor will work with you to create a comprehensive financial roadmap based on your particular needs and stage of life. One size doesn’t fit all and your plan needs to take into account the financial implications of milestones in your life: marriage, promotions, and children. It also needs to make provision for life-transforming events which can come at any time, such as divorce, job loss, and death of a spouse/partner (which we will discuss in next week’s column).
 
Single/Starting a Career:
As you are getting started in life, it’s important to establish a solid savings plan, basically using the old adage, “pay yourself first.” The rule of thumb is to save 10% of your gross income. With your financial advisor, you can design an investment portfolio that reflects your risk tolerance and long timeline. You should avoid excessive credit card spending, and be reduce existing debt (e.g. student loans) as quickly as possible. As a single person, you have to create your own safety net, an emergency fund and health and disability insurance that would protect your cash flow in the case of a sudden loss of income. At this stage, life insurance is not a great need as you have no dependents, but it is usually cheaper the younger you purchase it. A will is necessary, and so is an enduring power of attorney and personal directive that would come into effect if you became unable to manage your own affairs.
 
Marriage:
When you get married, you need to get a head start on saving for your future. If both spouses are working and only one is paying into a pension a spousal RRSP plan maybe a strategy you want to employ. With your financial advisor, you should reassess your investment portfolio and open a joint savings account for that emergency fund, holidays or a down payment on a home. Buying a home is generally your biggest purchase. It’s a good idea to compare mortgages and obtain life insurance to cover off this liability.
 
Starting a Family:
With children, priorities change and now life insurance is important to protect your cash flow and provide income replacement in the event of your premature death or that of your spouse. Investing for future educational needs is important as the cost of secondary education escalates. Take advantage of any government funding (Canada Education Savings Grants, etc.) available to help with that expense. Revise your will when each child is born and make arrangements for their care in case both parents die before the children reach the age of majority.
 
Prime Earning Years:
This is usually when the children have completed post secondary and/or moved out of the house, but be careful not to downsize to soon as increasing numbers of children are moving back home to live with their parents. In any event, this is when you need to accelerate savings for retirement, maximize RRSP contribution room and utilize any unused contribution room.
 
Pre-Retirement:
Preserving capital now becomes more important than maximizing returns, but don’t get too conservative. You don’t want to pull out entirely from equities into more conservative fixed income investments. With earlier retirement and increased longevity, you need to make those funds last longer as retirement could constitute one third of your lifetime. You also need to try to get a return that is greater than the rate of inflation so that your purchasing power isn’t eroded.
 
Next week we will discuss planning for life’s uncertainties.