Even though 64 percent of Canadians have a financial plan, and 80 percent of those say having one has helped them achieve their fiscal goals, a majority of our neighbors to the north say that a major life event would devastate their finances.
According to a report by BMO Wealth Institute, “The Biggest Life Events That Can Derail Your Financial Plan,” 60 percent of Canadians said they felt unprepared financially to handle a major life event, such as retirement, declining health of a spouse or the death of a spouse.
Further, 84 percent stated they would weather a major monetary blow if they were disabled, and three-quarters said the death of a spouse or a separation/divorce would negatively impact their financial status.
Chris Buttigieg, senior manager, wealth planning strategy, for BMO Financial Group, said in a statement that having a financial plan can be helpful, but “one of the biggest mistakes individuals make is not stress-testing that plan against unforeseen events that can cause financial derailments.”
The BMO report found that men are more likely than women to worry about having enough money for retirement (33 percent versus 23 percent) and loss of employment (19 percent versus 13 percent), while women worry more about their health or the health of their partner/spouse (24 percent versus 21 percent). The report also noted that 43 percent of Canadian women who have undergone a separation or divorce had a substantial decrease in household income.
If confronted with a disability, nearly half (49 percent) of Canadians said they would rely on government disability benefits, which, the report noted, are capped at a maximum of $1,200 a month with the average payment being much less. Forty percent of Canadians own disability insurance, according to the BMO report.
In the event of the premature death of a spouse, respondents said they would turn to personal insurance (50 percent), the government (49 percent), employer group insurance (43 percent) and personal savings (42 percent) to make up for the shortfall. A divorce or separation would force 57 percent of Canadians to dip into personal savings to support themselves.
To cope with these difficulties, BMO suggests that Canadians employ a variety of strategies such as buying disability and long-term care insurance; purchasing term or permanent insurance; setting up an emergency fund; and updating beneficiaries.