It's Your Money  

Do it for your family

There are far too many Canadians without adequate life insurance coverage.

  • Some have the wrong type of insurance
  • others don’t have enough
  • many simply don’t have any coverage at all.

It’s hard to blame many of these under-insured people as the information out there is questionable at best and many people who sell insurance policies are not doing a great job. But either way, the problem still exists.

I have written about the needs for life insurance before – particularly strong for those with young families – but I wanted to expand on this subject a little more as the message still isn’t reaching those who need to hear it most.

I’ll start off with a quick story:

A few years ago, my brother’s next-door neighbour was killed in Calgary while driving his motorcycle. His wife had just given birth to their second child and he was the sole income earner for this young family of four. They had just moved into their new house that they bought after he landed his dream sales job making $125K per year.

He didn't have any life insurance.

With no savings built up and the house fully mortgaged, his wife was left with a huge debt load, two kids and no money. With the housing market retracting, she had no choice but to claim bankruptcy and walk away from everything.

She is living with her two young children in her parent’s basement and relying on them for financial assistance.

The young man from the story above was 26 years old when he died. $1 million of term life insurance would have cost him approximately $40-50 per month; well within his financial means at the time.

So why didn’t he have this insurance coverage?

People have many different reasons for not setting up proper insurance but there are some common themes that keep reappearing:

One common reason we hear is the price.

There is a huge misconception out there as to what it really costs. A recent study had respondents estimate what the cost was for a 30-year-old to buy insurance and the average person estimated 300-400% of the actual cost.

My example above shows how affordable it can really be.

The second one we often hear is about the need to spend on other priorities.

While many think that paying off debt, saving for retirement and even putting money aside for their child’s education take more priority, they aren’t looking at the risks properly. Life insurance is not a luxury, it’s a necessity.

The third, and often most common reason people don’t have insurance, is that they simply haven’t gotten around to it.

Procrastination is often the  No. 1 cause of financial failure.

It’s amazing that so many people out there understand the importance of this insurance and yet they can’t “find the time” to get it set up.

Take a look at your spouse and children tonight and decide if you really are too busy to spare one hour of your time to ensure their financial stability.    

Finally, there are many people who think they’re already covered because their employer’s group benefit plan provides a life insurance component.

These plans almost always cover one to two times your annual salary at most which, I can pretty much guarantee, is not enough coverage.

Take the time to sit down with a certified financial planner to discuss how much coverage you should really have.

If you know someone who has a young family, I urge you to share this article with them. If the unthinkable happens, at least they’ll know that the family they leave behind will be taken care of.          


RRSPs not for everyone

Many financial authors including myself have put out countless articles on the benefits of a Registered Retirement Savings Plan (RRSP) and told you over and over how important it is to have one.

But, just like most other things in the financial planning spectrum, the RRSP is not a one-stop solution and is not for everyone.

So should people not invest inside an RRSP at all? There are some who may in fact be better off skipping RRSPs all together and focusing on a Tax Free Savings Account (TFSA) and other tax-efficient non-registered investment options instead.

These people will generally fall into one of the following categories:

Low Income

While the annual income amount considered to be “low enough” will vary based on a number of other factors, those that live on a low income level now and expect to also do so in retirement will typically be better investing the small amount they can afford to put away into a TFSA.

In addition to getting little value from the tax credits for making RRSP contributions, if you plan to live largely on only CPP and OAS benefits in retirement, avoiding the RRSP program should allow you to qualify for the Guaranteed Income Supplement as well in retirement.

Close to Retirement

If you’re within a few years of your retirement date and you haven’t made any RRSP contributions at all, the benefits of the program may not be worth it.

This will depend on your current income and the tax credits that you would receive but generally if you’re only able to save a small amount and haven’t started yet, there is a lot less time to take advantage of the tax deferral benefits.

Having said that, there are some situations where large RRSP contributions in the last few years of working will also make more sense so again every situation is different and should be evaluated properly.    

Low Tax Rate

By investing in an RRSP, you get a tax credit that is applied against earned income.

If you’re paying a low marginal tax rate now, claiming this RRSP deduction will provide a smaller refund against taxes owed. Down the road in later working years or in retirement, you could end up paying higher taxes when you pull the RRSP money back out if your tax rate at the time is expected to be higher.

Young people who are in a lower tax bracket but expect their earnings to increase over time should generally still utilize some of their RRSP room now, though they may want to also save some for later years when they are earning more money.

In addition, instead of using the full deduction in the year it’s made, you may elect to hold onto some of your RRPS contribution credits and apply it in subsequent years when your income level has risen.     

Large Pension Plan

For those fortunate enough to have a significant work pension building up, the RRSP program may not be the best choice.

Your pension may provide a substantial income amount during your retirement that will be fully taxable and adding taxable RRSP income on top could push you to a higher tax bracket and/or cause your OAS to be clawed back.

If your pension is going to make up the majority of your retirement nest egg, it might be best to diversify your personal contributions into other options so that your tax situation in retirement is more manageable.    

Roughly half of those who can contribute to an RRSP will in a given year and it’s sad to see all of this RRSP contribution room being wasted, often due to misconceptions about how the program actually works.

Canadians are falling farther behind in their retirement planning and the benefits associated with the RRSP program can go a long way to helping most people reach their goals.

I still strongly advocate the use of RRSPs for most people, but if you fall into one of the four categories above make sure you discuss your situation with a certified financial planner professional to see what contribution plans make the most sense for you.     

True cost of care

At some point, many older people will need additional care as time passes and their health declines.

This care, and often the associated costs that come with it, often fall on the shoulders of younger family members.

More than eight million Canadians provide caregiving of some form to relatives or friends and many of these caregivers have their own children to care for at the same time.

Here’s five tips to help budget both your time and money while caring for someone in your life:

Get Help

Provincial health care programs offer a variety of benefits including in home care, nurses’ visits, meals and more, but you need to advocate for these services. Advocating can be time consuming in itself but will often be well spent for those with already busy schedules.

According to Statistics Canada, the most common caregiving tasks are providing transportation and doing household chores.

These are inexpensive jobs, but they are time consuming and can impact other aspects of the caregiver’s own life. Splitting up these duties among other family members can help distribute the workload.

Budget for Major Devices and Renovations

Medical devices can make life easier for an aging or ill person but the costs can be high. A basic walker may only cost $150 but a motorized wheelchair can be $5,000 or more.

When you care for someone in their or your own home, you may need to do some renovations to ensure safety and enable care. Fully equipped hospital beds, bath lifts, ramps and other safety devices can put serious strain on a budget if not properly planned for.

Plan for Costs of Care

Many government programs offer limited home care and you may need to pay privately to get all of the help that you need to keep an elderly person safe and healthy at home. Personal care workers can cost $30-$70 per hour and a live in caregiver costs much more.

The funds to pay for this ongoing care may come from the senior’s own retirement savings, the caregiver and other family’s finances or both. A certified financial planner (CFP®) professional can help assess your family’s overall financial situation and provide guidance on how to best pay for these services without completely derailing your own retirement plans.

Consider Insuring Yourself

Protecting you and your family by getting long-term care insurance is worth exploring. It provides financial assistance to cover care – both at home and in a facility – as well as money for other costs related to care, including paying for caregiving by family members.

Keep Your Receipts

Always keep all your receipts as the cost of caregiving can be used for various income tax credits, both federal and provincial. You can see a list of available tax credits here: https://www.canada.ca/en/financial-consumer-agency/services/caring-someone-ill/tax-credit-caregiver.html

Most important of all, keep the lines of communication open in your family regarding those who need care or may need care in the future.

When all family members share the costs and time load of caregiving, and work strategically to get the most support possible, it’s good for everyone’s health!


Planning a home reno

People choose to renovate their homes for a number of reasons to:

  • enhance and refresh
  • create additional space
  • increase energy efficiency
  • boost the resale value of their home.

But as with any major project, proper planning is key to making sure you get the most value out of your renovations without spending more than you can afford.

Home renovators often do some level of basic financial planning before they start, but far too many end up blowing past their budget and not realizing the cost savings and higher resale values that they hope for.

If you’re considering a home renovation project, consider these tips before getting started.

Create a plan and carefully review it

Decide on the renovations you want to do and why to confirm that they all make sense.

If the goal is to increase the value of your home for resale, reach out to a variety of experts to confirm what changes will actually help.

Spending $10,000 on new hardwood floors might seem like a good idea to you, but what if the perfect buyer really wants carpets instead? You may be far better off dropping your sale price by $5,000 instead.

Renovations that make your home more energy efficient (and therefore spending less on monthly heating bills) might sound like a simple upgrade but do the math to see how long it will take to break even.

This type of renovation will pay off far better if you plan to stay in your home for a long time.

Budgets are important

Once you know what you want to do and that it makes sense to move forward, you need to ensure that you have the money to pay for it!

Creating a budget is the logical next step but it must be realistic and well researched. Extra expenses may arise so be prepared by setting aside a contingency of at least 15-25% of your total budget, depending on the size of the project.

Setting up a savings plan and waiting to being until you have the full amount required saved is ideal. Be very wary of financing a renovation as adding to your debt load for a renovation rarely makes financial sense.

You might also determine what parts of the project you can tackle on your own. Sweat equity is a great way to save money!

Do your research

Choose a contractor carefully and don’t make a decision based on a single recommendation.

Make sure you get multiple quotes to help figure out what a reasonable price is. If possible, try to visit current projects of the contractor you’re considering.

If part of your renovation project is to improve the energy efficiency of your home, look into grants and rebates offered by the government as well as local utility providers.

Depending on the extent of your renovation, you may need a building permit. If you live in a condo or other strata type development, the building management company can identify what approval you may require.

Taking on a home renovation project can be rewarding but many people find that they don’t get the financial results that they had hoped for.

A well-researched budget and plan can go a long way to avoiding financial repercussions that can have very long lasting effects.

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About the Author

Brett, designated as a chartered investment manager and certified financial planner, is the regional director (Okanagan) for IG Wealth Management.

In addition to his “day job," Brett was appointed to the board of directors of FP Canada (formerly FPSC) in 2014, named as the board’s vice-chair in 2017 and will take over as board chairman in June. 

Brett has been writing a weekly financial planning column since 2012 and provides his readers with easy to understand explanations for the complex financial challenges that they face in every stage of life.

Enhancing the financial literacy of Canadian consumers is a top priority of Brett’s and his ongoing efforts as a finance writer and on the regulatory side through the FP Canada board focus on this initiative.   

Please let Brett know if you have any topics that you’d like him to cover in future columns by emailing him at [email protected].

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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