Tag Archives: financial planner

Why “One” Is the Worst Number When It Comes to Financial Planning

“One” is usually the best number to be…except when it comes to financial planning.  Imagine if you only had one income stream, one investment, one insurance plan, etc.  As the saying goes, putting all your eggs in one basket is taking a big risk, and in the financial world, it doesn’t allow for what we call “diversification.” In today’s blog post, I’m going to talk about why I highly encourage you to avoid the number “one” and why it is the worst number when it comes to financial planning and wealth creation.

WHAT IF YOU HAD…
ONE Income Stream?
If you were reliant on only one source of income, you are adding a lot of risk to your retirement plan. The rules can change at any time, so it isn’t smart to rely on a single income stream. What you want to do is to look at the different types of income. Most people have one primary job, but consider looking for diversity in places other than your salary. Include your bonuses, pensions, RIFs, good dividend paying investments, rental income, etc. when you’re listing the variety of sources.

ONE Investment?
What if you had only one single security?  Sir John Templeton famously said, “The only investors who shouldn’t diversify are those who are right 100% of the time.” I cannot stress how important nor how true these words are. Don’t have a narrowly focused portfolio. Instead, build a globally diversified portfolio. Here’s a simplified four-step process for taking action against having a single investment:
1. Determine your mix of equities and fixed income, i.e. stocks and bonds
2. Determine your geographic mix of economic opportunities around the world
3. Identify, analyze and invest in the best opportunities of each component in your portfolio’s markets
4. Consider asset classes that have low correlation to one another. This refers to stocks, bonds, and alternative investments such as commercial real estate and private equity.

The most important tip to remember is that you must find the appropriate solutions for YOU. If your paperboy qualifies for the same type of investments that you are in, then you’re probably in the wrong place. Consider migrating your portfolio to a more appropriate investment solution that is better suited and priced for the threshold you are in. See here for more information on the four tiers of investment solutions.

ONE Education Plan?
In Canada, there are a number of options available that can help fund a child’s education: a) RESP, b) an in-trust account, and c) EPSP.

a) RESP—A Registered Education Savings Plan allows you to make contributions that are set aside for your child’s education.  A 20% Canada Education Savings Grant gives you 20% of the first $2,500 you put into your RESP each year. That’s an extra $500 that you can take advantage of, so it’s a fantastic return. Do remember, though, to hold off on putting in too much at once because you want to be able to receive that free $500 each year.
b) In-Trust Account—An informal in-trust account allows you to transfer any capital income to your child. The deferral nature of growth-oriented investments means that tax is deferred to the future and any tax on the capital gain income will be taxable in your child’s hand. There are no restrictions as to how or when your child takes out the money.
c) EPSP—An Employee Profit Sharing Plan is a great solution for business owners. This is a plan registered in advance with the Canada Revenue Agency (CRA) and allows you to share your income among your family members.  One big advantage lies in the ability for you to transfer the tax burden over to your child and take advantage of the lower marginal tax bracket. A second advantage of this solution is that you can avoid the kiddie tax (tax on a child’s income that is taxed at the highest federal tax rate of 29%) that you face when paying your kids a salary. With an EPSP, you can distribute the profits of the company to them and the money will flow from the business straight to your children to help pay for their education.

ONE Insurance Policy?
Our clients often say that they have group benefits, but group benefits don’t necessarily cover everything that you could be protecting.  What you need is a diversified insurance portfolio. The first rule of insurance planning is to solve temporary problems with temporary solutions, and permanent problems with permanent solutions.

a) Dependency Coverage—This is the period of time during which you have dependents, i.e. the time when your children are reliant on you. Typically, this will be the first 20-25 years of their lives. Since this dependency has an allocated time frame, it is therefore a temporary problem. The temporary solution = term life insurance, where one makes regular premium payments in exchange for protection.
b) Estate Erosion on Death of Second Spouse—After the death of the first spouse, assets get rolled over to the other spouse in what’s called a spousal rollover.  When the second spouse passes away, the CRA assumes you had liquidated all your assets and performs a calculation to tax you accordingly.  In insurance planning, this calculation is performed in advance by your advisor and is based on what you hope to have happened over the course of your life and your spouse’s.  Estate erosion is a permanent problem and requires a permanent solution: permanent life insurance.
*Consider adding a tax-sheltered investment account to your permanent life insurance policy.  The desire to tax shelter is a lifelong goal. Taking advantage of the only option in Canada that allows you to have tax-sheltered wealth accumulation on nonregistered investments in the insurance industry has one of the biggest benefits for your wealth and estate planning needs.
c) Accident or Sickness Affecting Income
This is another temporary problem since the risk of not being able to earn income occurs during your working years. Essentially, the only solution to this issue is long-term disability insurance.  Find out exactly what your long term disability insurance covers and whether or not you are adequately covered during your working years.
d) Risk of Cash Flow
We just mentioned the risk of losing income during your working years, but long term disability insurance isn’t enough sometimes, since it only covers you up to the age of 65. When a serious injury affects your ability to perform activities of daily living, e.g. showering and driving, you will need to find alternate ways to accomplish your tasks. Expenses such as hiring a helper will be paid from your cash flow and other investments, so secure a long-term care plan in place to take care of these costs.  Check out these dos and don’ts of long-term care insurance.

While “one” is usually the best number to be, it’s not the case in financial planning. As you transition into retirement and beyond, enjoy the advantages of diversification. Avoid the number “one” in your financial plan—you’ll be better off without it.

Having Little Financial Knowledge is a Dangerous Thing

When it comes to financial planning, knowing too little is a dangerous thing. As a financial planner, the main part of my job is to educate my clients on things that they may not know—or things that they may not know they don’t know. In today’s blog post, I’m going to tell you why it is important to work with a professional—someone who has a lot of financial knowledge.

The first thing that you should know about financial planning is that it is comprised of many moving parts. It is often based on variables, which means that personal hopes, goals and opinions, as well as factors such as inflation, rate of return, tax rate and contribution levels must be taken into account. If any of these variables change, chances are that the financial plan you have is going to end up being wrong and your long-term outcome would be inaccurate. This is the reason why being flexible and being able to make small adjustments now, can make a big difference in the future.

Many people feel that having a financial plan in place is all it takes for them to feel secure with their finances. The truth is, while having a financial plan is excellent, it doesn’t mean that you’re all set. It may give you more confidence, but it also only gives you an idea of the direction in which you are heading. To get a more up-to-date version of your financial plan, progress reports every six months are crucial and help you remain focused on where you want to go in terms of your financial goals.

Being confident about your finances and having some idea of what you need to do is great, but it’s not enough for you to tackle your financial plan on your own. For example, most people don’t realize that they are actually unaware of how their planner’s financial planning software handles taxes. Canada is a marginal tax rate environment, which means that all of our income sources are taxed differently and at different rates. What happens then is that a lot of software out there calculates using an average tax rate. As a result, this provides skewed results and causes you to think that you need to save a lot more money in the early years in order to have enough for retirement. The biggest challenge here is putting too much aside for the future while sacrificing the present, so make sure that you are being taxed properly.

Another obstacle that may come up if you don’t have enough financial knowledge is that certain thresholds offer different investment solutions, and you must know which one you qualify for. When handling your own financial plan, the number one rule of financial planning is that if you have accumulated a certain level of wealth, but are investing in the same investment solutions as someone who makes much less than you, then you’re in the wrong place. The four thresholds are:

Tier 1: up to $100,000

Tier 2: $100,000-$500,000

Tier 3: $500,000-$1,000,000

Tier 4: $1,000,000 plus

People want to increase their return without increasing the risk. Being in the right investment solution is the best way to get higher returns with lower fees, without increasing risk in your portfolio.

Many people want to handle their own investments because they resent paying fees for financial advisors, especially if they don’t see positive or any returns at all; they don’t want to pay simply to have someone else lose their money. However, deciding where, when and what to invest in is a daunting task and it is essential that you work with an expert. People who choose to manage their portfolio by themselves could face a huge problem, and there are two reasons why this might happen.

First of all, there is nobody managing the investment, which means that you alone are responsible for the instability and the consequences of your investments. This is a passive approach and while this may yield a decent return over time, it will also make you susceptible to making the wrong decisions when emotions get in the way. This is where the second issue comes in. When things get tough, do-it-yourself investors start to make small adjustments to their portfolios, but studies from the past 15 years have shown that the more you fiddle with your investments without professional help, the worse you do.

An interesting tidbit to point out is that oftentimes, the best days in the market start just after a market crash, a market correction or a really bad day in the market. However, people do not tend to invest during these unstable days and end up missing out on opportunities. Their emotions make it extremely difficult for them to act logically and continue to stay invested. This is why working with a professional can often produce significantly better results.

So you see, having little financial knowledge can be a dangerous thing. The most valuable solution I can suggest is to put someone between you and your investments. Hire a financial planner—an independent, third party—who can guide you through your choices and help you avoid making bad decisions. To help you get started, you can download your free copy of my special report—“Twelve Key Questions that You Must Ask a Financial Planner Before You Hire One”—to help you with the interviewing process. Keep in mind that there is a lot that a certified financial planner knows, so it really helps to talk to them about your financial future.

Related Links

How to Choose and Work with a Financial Planner You Can Trust
https://www.ironshield.ca/landing/how-to-choose-and-work-with-a-financial-planner-you-can-trust/

The Financial Advisor Evaluation: Yes or No?
https://www.ironshield.ca/articles/the-financial-advisor-evaluation-fae-10-questions-yes-or-no/

How to Respond to Market Crashes
https://www.ironshield.ca/articles/how-to-respond-to-market-crashes/

9 Strategies to Protect Your Personal Credit Score

There are a variety of unknown factors that can affect your personal credit score. For example, most people don’t realize the importance of and the difference between two key dates for paying off their credit card debt: the due date and the statement date. The latter is the date on the credit card statement, and refers to the date your balance is reported to the credit card bureau. As a result, even if you pay your balance on time each month, it may not be reflected in your credit score.

Here are 9 more tips and tricks to protect your personal credit score.

1. Know your score

In Canada, the credit score range is between 300 and 900 – the higher your score is, the better. This number reflects a person’s credit history over the past six years. Only 5% of Canadians are known to have a score of 850 or better, so make sure that you keep up to date with repaying your debts from all sources, including banks, governments and credit card companies. Checking your score regularly will alert you to mistakes and credit fraud as well. To check your credit history, you can consult the major credit-reporting agencies in Canada, such as Equifax Canada or TransUnion Canada, and receive a copy of your credit file for free.

2. Pay your bills on time

Being even one day late with your payments will hurt your credit score. In order to prevent this from happening, always allow extra time for online transactions to be processed. For example, make your payments at least three days before the due date to avoid any possible delays. Consider setting up an automatic payment each month to ensure that you never forget to pay the minimum.

3. Never exceed your credit limit

If you’re close to being maxed out, take precautions and pay more than the minimum. Otherwise, the interest due could push you over your limit. Going over your limit, even by as little as $5, can mean costly charges from your credit card company and will hurt your credit score.

4. Don’t apply for store credit cards

Many stores offer one-time discounts for signing up for their store credit cards, but don’t be tempted by the offers. Most store credit cards have interest rates as high as 29%, which are viewed in a negative light by the credit bureau and can lower your score.

5. Spread out your spending

The percentage of available credit you have is important because this will affect your score. Distribute your spending more equally so that you don’t have one charge card that’s nearly maxed out while another card has no balance at all. Spread it out so that both cards are at 50% capacity.

6. Prioritize your payments

You must decide which payments take priority and pay those first. For example, mortgage payments are important, but they are not usually shown on Canadian credit reports. Instead, you should pay more attention to your credit card, loan and lease payments, and make those on time.

7. Beware of closing accounts

If you’re preparing to close an account, ensure you make all your payments on time, even if you’re not completely satisfied with the lender. Missing a payment will show up on your credit report, can hurt your score, and is very difficult to fix. When closing an account, ask for written confirmation that the account was closed with a zero balance.

8. Don’t close unused credit cards

If you have low interest credit cards that you don’t use, keep them open and use them every so often. It is actually an advantage to have a zero-balance credit card, since this helps to improve a low credit score.

9. Don’t apply for too much credit at once

Be careful of taking on too much credit at once because the credit bureau views this as a sign of financial trouble. For example, don’t lease a car, sign up for a new cell phone and apply for a loan all at the same time; this will raise questions about your ability to fulfill your financial commitments. Also, beware of being preapproved by multiple lenders before you’re ready to buy. Even though you can check your own credit rating, preapprovals will affect your score negatively.

Related Links
Understanding the Basics of Credit Scores
https://www.ironshield.ca/media/understanding-the-basics-of-credit-scores/

Rebuilding Canadian Credit after Living Abroad
https://www.ironshield.ca/media/rebuild-canadian-credit-after-living-abroad/

Equifax Canada—Get a Free Credit Report
http://www.consumer.equifax.ca/home/en_ca

TransUnion Canada
https://www.transunion.ca/ca

How Life Insurance Can Save Your Family – Stories from the Heart

At IRONSHIELD, it is important for us to help you make the best decisions possible when it comes to your everyday finances. Life insurance is a tool that can greatly improve your life and provide your family with financial stability. In today’s blog post, I want to show you some examples of how a proper insurance policy can be an excellent security tool in the event of a terminal illness diagnosis or the death of the insured. For five individuals, life insurance significantly changed their lives forever. Be inspired by their stories below and discover how life insurance can make an impact on you and your loved ones.

Victoria’s Story

Nancy was a widow whose husband had died at a young age. His small insurance policy was not enough to support his wife and their two daughters, so Nancy decided that she wanted to purchase additional comprehensive insurance in case anything were to happen to her. Sometime later, Nancy was diagnosed with cancer and was able to use the terminal illness portion of her insurance, which allowed her to receive 75% of the policy’s face value. Nancy used this money to finance a home for her daughters, purchase a car for her parents, pre-pay her funeral arrangements, and pay for expenses such as clothing. In addition, she saved some of it for her daughters’ college tuitions. Described by her insurance agent and friend, Victoria, as “an advocate for life insurance,” Nancy loved her family enough to take action while she was still alive to protect them. Her greatest wish was to help her daughters live comfortably and have the lifestyle she would have given them, and with the money from the life insurance policy, her wish was granted.

Irene’s Story

Irene’s client, Susan, had stayed at home with her children and did not have life insurance since her husband, Mark, was the family’s main source of income. Irene initially set up an insurance policy only for Mark because the couple didn’t feel that Susan needed any protection if she was a stay-at-home mom. However, Irene convinced them to buy insurance for Susan, citing the argument that Mark could not just give up his job to stay at home and care for his family if something were to happen to his wife. Susan passed away in a speeding accident some time after they purchased life insurance; Mark also suffered injuries, lost his income due to a disability, and needed to stay home with the kids. Irene said, “the life insurance continued to provide the opportunity to keep a roof over their kids’ heads.” With that money, their daughter was able to attend college and accomplish her goals. While he still misses his wife dearly, Mark said, “to buy an insurance policy is the best thing I did in my life.”

Mike’s Story

Mike’s client, Anne, and her husband wanted a big family and adopted five children within a few years. As their family continued to grow, Mike suggested that they needed more “life insurance for protection,” since Anne wanted her family “to be taken care of.” The family then purchased term for both Anne and her husband; more for him, since he was the one bringing home the money, but also enough for her because she was a stay-at-home mom who took care of the children and the household. When Anne passed away suddenly, her husband and their kids were able to adjust and live comfortably with the extra money, which can actually help you find the strength to get through the grieving process. Mike offers this advice to his clients: “Do not forget about the stay-at-home mom.” It is vital to consider how valuable her contributions are to the family.

Larry’s Story

Larry’s client, Dan, was the president and manager of a small company. Larry discussed insurance programs with him that would help fund a buy-sell agreement between Dan and his business partners, as a means of protecting their company’s name and employees. They decided to buy “key person insurance,” which is essentially life insurance for the key persons in the company – usually the owner, founders or employees that are crucial to the business. In the event of a death or departure of a key person, the money comes straight into the company and is used to find a replacement for the empty position. When Dan passed away in a plane accident, the infusion of capital from the life insurance policy enabled the company to find a replacement for him and maintain the efficiency of their business. Dan’s former business partner and the current president and CFO of the company advises that all business owners should be responsible for their employees, and to “make sure there is some succession planning,” as well as insurance for key persons, in order to protect their company’s legacy.

Helen’s Story

Helen’s client, Alice, worked at a country club that offered its employees a comprehensive medical plan and a small insurance policy. The club believed that all employees should have the option of purchasing additional life insurance. Alice made the decision to buy life insurance not only for herself, but more because her husband was going through an organ transplant. Helen suggests that, often, people don’t realize the need for insurance until they are going through a real-life situation. In this case, Alice also wanted to make sure that their young son would be taken care of in the future. When Alice passed away unexpectedly, their family lost her income and had outstanding medical bills from the transplant. The money from the life insurance policy that Alice had initially bought greatly assisted her husband and son in their time of need. Alice’s husband calls the insurance money “a gift that [Alice] left me.”

* Some names and identifying details have been changed to protect the privacy of individuals.

Related Links
The IRONSHIELD Insurance Plan
https://www.ironshield.ca/services/insurance-plan/

Long-Term Care Insurance 101—Part 1
https://www.ironshield.ca/articles/long-term-care-insurance-101-part-1-the-basics/

Long-Term Care Insurance 101—Part 2
https://www.ironshield.ca/articles/long-term-care-insurance-101-part-2-the-dos-and-donts/

The Secrets of Benefits Planning

Photo by: Michelangelo Carrieri licensed under Creative Commons Attribution 2.0 Generic

Photo by: Michelangelo Carrieri licensed under

In small and mid-sized businesses, there are many common issues that may arise and a number of these problems are related to employee benefits. Recently, I spoke with Roger Thorpe, President of Thorpe Benefits and a specialist in benefits and wellness planning, to discuss his line of work. In today’s blog post, I will highlight some of the problems and share with you some simple solutions and tips that you could try to better manage your benefit plans.

Make no mistake about it: small businesses inevitably struggle with the cost of employee benefits. When a company grows to a certain size, they realize that they must offer a benefit plan in order to attract new employees, who are likely to have had benefits at their old employer. So, the company puts a plan in place for competitive purposes. The cost of benefits varies annually depending on the market, and companies, on average, see a five to ten percent increase in benefit costs per year.

Companies rely on their broker or agent to inform them whether or not a benefit plan is suitable. Nowadays, there are professionals who work in all the different areas of specialty and it is more important than ever to work with a specialist because if you are not, then you are merely getting the generic idea of a service. Having a generic, standard plan could be most frustrating for the business owner because they are not really given a rationale for what the rates cover. Here, I encourage you to work with a benefits specialist and go through a six-step process to discover some of the most common problems and solutions of benefits planning.

1. There is a disconnect between why a benefit plan was introduced in the first place and the role it now plays with employees.

Sometimes, you will find that employee benefits are no longer fulfilling their purpose. With a real mix of Boomers, Gen X-ers and Y-ers in today’s workforce, employee benefits may be way down the list in terms of what they want.

Solution: You want to re-evaluate and ask yourselves: how do I want to treat my employees? This is called the employee benefit philosophy. You want to go back to the basics and set up some parameters and rules around your design. This way, you can really create a benefit plan that would fit the needs of your employees.

2. There is an anxiety when it comes to the cost of benefit plans.

This is one of the most frustrating points for business owners: not knowing what goes into the price of a health or dental rate.

Solution: Learn everything you can about how rates are calculated: the claims, target ratios, loss ratios, inflation, reserves, pooling, commissions, and credibility. Understanding these terms will give you greater confidence when you know what you are paying for. In addition, calculating your own rates will help eliminate that anxiety.

3. The plan is being managed by an inexperienced employee.

In small businesses, this task is often delegated to a junior employee. But with very little training provided, mistakes can go undiscovered, salaries may not be up-to-date, etc.

Solution: Make sure you take the time to provide real training for the administrator in charge of managing the plan. This way, there will be no errors when the company data gets audited. You can even do group training with other companies or schedule one-on-one sessions.

4. There is a lack of employee appreciation and cost accountability.

Employees often don’t seem to appreciate the benefits that they are given by the company. As a result, they start to take them for granted and forget that the employer is the one who is paying for them, not the insurance company.

Solution: Build appropriate employee communication tools. There are a number of ways to do this. First, you could meet with them in person to reconfirm the value that is in the benefit plan and who pays for it. The second thing you could do is to use written statements or memos. An example would be total reward statements, which are summaries of all the salary, bonus, vacation, and benefit costs of an employee, and who pays for them. It is, in essence, an employer- vs. employee-paid comparison, and can be a very powerful tool.

Other methods that allow you to acquire feedback include surveys and focus groups. These are opportunities for employees to discuss what they are looking for from the company.

5. There is no schedule and no tracking mechanism for the plan.

Without a concrete plan, it is difficult to keep track of claims and all the options and alternatives that are available.

Solution: Set up a schedule for the year. Arrange a meeting every 90 days so that you can stay on track with the budget. Plan at least two additional meetings to review all your choices and plan all the alternatives. Allot a time for a face-to-face presentation with your employees for feedback. At this point, you are looking at about seven scheduled meetings throughout the year, but you will find that having these meetings makes managing benefit plans much easier.

6. Incorporating a level of wellness or health promotion into the business is still a fairly new idea.

Solution: Have a discussion on the concept of wellness in your organization and understand how a prevention program could help you in reducing the costs of benefits. In Canada and the U.S., wellness promotion is a huge and important advantage for a company because it educates employees on how to eat well, exercise, manage stress, etc., which shows their competitors in the industry that they can take good care of their employees.

Following these six steps will give you a different way of looking at benefit plan management. This program will allow you to take a more effective and more proactive approach to benefit plans as a business owner. Check out http://thorpebenefits.com/ for tools and resources that can help you create the right plan for your employees or speak to a specialist on this topic.

Related Links
Thorpe Benefits
http://thorpebenefits.com/

How to Choose a Financial Planner
https://www.ironshield.ca/landing/how-to-choose-and-work-with-a-financial-planner-you-can-trust/

What Kind Of Planning Are You Doing For Your Financial Freedom?

In my last blog post I talked about the nine things you need to know before you can retire comfortably. Make sure to check out the link and read that blog post when you get a chance, there is a wealth of information in it. There is a lot to think about when it comes to planning your financial freedom. I just want to quickly run down the list of those nine things here so we’re all on the same page.

 

1. What is your net worth today?
2. Where is all your money going to come from?
3. What are your retirement expenses going to be?
4. What is your debt management plan?
5. What does your base plan look like?
6. What are the “what if” scenarios?
7. What kind of planning are you doing?
8. What about risk management?
9. Are you planning for how your estate will be distributed?

Today I want to go back and take a closer look at number seven on that list above. We want to look at the kind of planning you’re doing.

There are two different types of planning: there’s goals based planning and cash flow based planning. The two types of planning are used at distinctly different times.

GOALS BASED PLAN

So, for example, if you have a long period of time between now and when you plan to stop working, that’s where we would use a goals based plan. It’s basically when you say to yourself, “what do I need to do today so I can stop working at age 65 with a certain level of income?” The goals based plan answers that question.

Goals based financial planning provides you with a clear idea of what you need to do to retire at a certain age with a certain level of income.

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Also read:

9 Things You Need To Know Before You Can Retire Comfortably

Financial Goals Vs. Financial Objectives

Why Your Financial Plan is missing the Mark (And How You Can Fix it)

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Cash Flow Based Plan

A cash flow based plan takes into account a different set of variables and it answers the question, “what type of cash flow can I expect after I leave the work force?” We’re no longer focusing on a long term accumulation goal but focusing on a cash flow goal.

Cash flow based financial plans do a much better job of mimicking your actual income when you reach financial freedom and the taxes associated with the cash flow received from your plans.

One of the biggest differences between the two plans comes down to taxes. If you go ahead and use a goals based solution to answer a cash flow based plan you are going to be way off the mark. The main reason for that is taxation. With goals based planning you’re assuming an average tax rate over the life of the plan but with a cash flow based plan you need to take a look at the tax on the cash flow every given year.

Don’t forget a financial advisor can help if you have any questions about what kind of plan you’re using now or should be using. Remember, the goal of any financial plan is to reach the desired finish, no matter what the finish line is. Only you can decide the finish line that is best for you but a financial advisor can help you along the way, help you decide what questions you need to ask and help you answer those questions. Be sure to check out my guide called “How to Choose and Work with a Financial Planner You Can Trust” to help you find someone who fits with you to help you map your path to financial freedom.

9 Things You Need To Know Before You Can Retire Comfortably

For many people, long gone are the days when you can retire from your job with the pension that your employer provides. Today it is important to have your own plan. It is all about taking control of your financial future and there a few steps you should take to help you achieve your retirement goals.

Here are nine things I think you need to know before you can retire comfortably.

1. What is your net worth today?
This is really the foundation of all financial planning. You need to understand your net worth in order to move forward. I suggest you make a list on one page everything you own; houses, cars, investment accounts, retirement accounts and education plans. Then take a look at your expenses or your liabilities; what do you owe? Now take your assets and subtract your liabilities and that gives you your net worth.

2. Where is all your money going to come from?
I want you to make another list here of where your retirement income is going to come from; retirement accounts, pension plans, government pensions and inheritances. We don’t need to know what the income is going to be only what the sources are.

3. What are your retirement expenses going to be?
You want to get very clear about what your expenses are now and what they are going to be moving forward.

4. What is your debt management plan?
So if you’re going into retirement and you’re going to be carrying debts, you really want to get a clear plan in place to get rid of those debts.

5. What does your base plan look like?
A base plan is a plan that lays out all of your information (your assets, your liabilities, your retirement income, your retirement expenses) and puts it into a system so you can get a clear picture of where you are today. This step helps answer the most important question can I retire with the lifestyle I’ve become used to?

6. What if scenarios.
I want you to think about and prepare for all eventualities in this step. For example, what if I really don’t like my job and I really want to retire five years earlier? Or what if we decide to downsize and maybe buy a summer home somewhere? All of these variables need to be worked into the plan.

7. What kind of planning are you doing?
There are two types of planning to consider here; goals based planning or cash flow based planning. Goals based planning provide you a clear idea of what you need to do to retire at a certain age within a certain level of income. Cash flow based plans do a much better job of mimicking your actual retirement income and the taxes associated the cash from your plan.

8. What about risk management?
This is important because when you are talking about financial planning there are three eventualities to consider. The first is you’re going to live a long healthy life. The second eventuality is you are going to live a long, unhealthy life. The third is you are going to die prematurely. We want to make sure all of our plans can sustain the level of income we will need to deal with all the eventualities.

9. Estate Planning
So what is going to happen to your family’s wealth when you die? What happens if both spouses die? Are you planning on leaving your wealth and assets to your children? We really want to be focusing on the efficient transfer of wealth from one generation to the next. If you want more information on estate planning, check out my recent post Keeping Your Cottage In The Family – Mistakes To Avoid.

Being able to retire comfortably takes planning. There is no doubt there is a lot to think about. A good financial planner can help you go through the steps so you can get clear on what you need to do to retire the way you want to. For more information on planning your retirement, check out my post Make Retirement The Time of Your Life: Ask Yourself Three Questions

If you are not sure where to turn, the team at IRONSHIELD Financial Planning can help. And of course take a look at this comprehensive and free Consumer Awareness Guide I wrote How to Choose and Work With a Financial Planner You Can Trust.

KEY047 | Financial Planning Software

Financial Planning Software

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IN THIS EPISODE OF THE KEY TO RETIREMENT™ PODCAST…

I interview Dave Faulkner, President of FPAdvantage and creator of the financial planning software ‘The Razor’.  Find out how this software evolved and how the financial planner should be the force of direction in creating the actual financial plan, not the software.

And if you’d like to get a jump start on finding the answers to your key financial planning questions, using our proven system, you can book your risk free, no-obligation initial meeting. One of our specifically trained Certified Financial Planners will be pleased to walk you through The KAIZEN Financial Planning Process™.

Visit us online, at www.ironshield.ca, to obtain our contact information, then simply call or email to book your free initial meeting.

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