This year we celebrated Easter with an Easter egg hunt at my sister’s place. My kids and their cousins had to search for the Easter Eggs while doing an action like hopping on one foot like a bunny or acting like a Dinosaur. The favourite egg was the ‘Golden Egg’ of which everyone had the opportunity to get one. It was great to see them have fun and share in the egg hunt excitement. In the end all the kids and some of us adults ‘cracked’ the eggs open and divided the chocolate inside equally.
How does this relate to financial planning? Well, we are all searching for our nest-egg and are often distracted while working towards our desired nest-egg.
What happens if that nest-egg that you have built has a few cracks along the way and there is not enough ‘duct-tape’ in the world to hold the egg together? How can you Protect, Accumulate, Convert and Transfer your nest-egg so that you meet your desired financial goals and objectives and are able to live the lifestyle you deserve and to pass along your assets to future generations?
I would suggest that your ability to earn an income is your most likely nest-egg builder and this is something that you need to protect as much as possible. This is where you need to review your benefits package at work to see what happens if you were to lose the ability to earn an income for a short-time or worse over a long-term basis. These benefits are often nice to have but not enough so you need to look to a financial planner to search out additional coverage that will compliment your work coverage but in the end meet the income replacement needs you have to be able to meet your nest-egg goals for you and your family. This would include short-term and long-term disability coverage, life insurance, critical illness coverage and medical and dental coverage. It is not an exciting exercise to go through but a very important one is to take a snap shot of what life would look like if you did get injured or disabled and you were not able to make the income you counted on to build your nest-egg.
You will need to find out how big your nest-egg needs to be to meet your desired lifestyle during your retirement and beyond. This is the accumulation phase. We just finished ‘RSP Season’ and the media does a great job making it sound like making a contribution to your RSP is your only way to retirement to use what you have built up in your nest-egg but I would argue that building your net-worth in the best possible way will have better effect than just an RSP. This accumulation doesn’t only consist of investments but other assets too such as property. With the ongoing rise of housing prices in different parts of Canada over the past couple years you may find yourself not being able to contribute as much to your investments as you would have liked due to mortgage costs. Another trend against you is more and more companies going away from pension plans and therefore that ‘guaranteed’ income your were hoping for to be part of your overall retirement plan. You may be forced to ‘downsize’ during your retirement to be able to utilize some of those assets to replace the money you were not able to put away during your working years. The sooner you plan ahead the better you will have to be able to decide ‘when’ to downsize or if you have to at all. The questions you need to ask yourself are i) when will you retire?, ii) how long will you live?, iii) how much money can you invest during your working years?, iv) how much money will you need to live on during retirement?, v) what will your expected risk and return with your investments and other assets during your working years and during retirement?, vi) how much of your assets do you want to pass down to the next generation or contribute to a charity of your choice? This is another opportunity to work with a financial planner to help you project the numbers and different scenarios so that you can feel confident that your nest-egg will be big enough to meet your goals and objectives. These assumptions should be updated on a regular basis to meet reality of your life situations and the economic environment of the day.
If you are close to your desired retirement age you will need to discuss with your financial planner when you will be converting your investment goals and objectives as well as risk tolerance to be able to start accessing your nest-egg. In retirement it is important to understand the RRIF rules, access to your OAS and CPP benefits as well as other government benefits you may qualify for depending on your personal situation. Conversion could also be applied to an insurance policy you may have that is part or your overall retirement and estate plan. The further ahead you plan the better you will be able to take into consideration the government and tax rules at this conversion time in the future.
In my book, Financial Fotographs: How to talk to your family about money, I talk about that the transfer stage discussion (with your financial planner and family) may be the most important part of the financial planning process. This is when you can make sure your final wishes are followed through with and your legacy is carried out the way you want. Take a moment right now to plan to review your will and power of attorney for your health and assets. If you don’t have a will or power of attorney make sure you get this done right away. Please!
There are different occasions throughout the year that are good reminders and maybe each year during your Easter Egg hunt you are reminded to review what your nest-egg is looking like at that time as finding that ‘Golden Egg’ is not as easy as you think.
Finding passion from personal finance
Over the past year I have found a passion for cooking so I wanted to combine the passion of helping people with money and cooking chicken. Therefore, my blog ‘Don’t be Chicken With Your Money - Be Smart’ was born. I encourage you to connect with me and give me your thoughts and opinions on the information I present. I have to admit that I am more ‘money’ expert than ‘cooking’ expert.
To stay with my theme of cooking chicken a dish that I recently completed was Basil Pesto Alfredo Penne with chicken. Bring water to boil in a cooking pot to suite your desired noodle output. After cooking enough penne noodles I dump the water from the pot and add enough Alfredo Sauce and Pesto Penne. If prefer more Alfredo than Pesto but you can make the decision yourself. I like to use the Classico brand from Walmart but I have also used the Paul Newman brand before. As for the chicken I use the boneless chicken breast from Walmart ($10 for 5 healthy servings). Heat frying pan with a couple drops of olive oil to prevent ‘sticking’. Cut the chicken breasts into desired pieces (smaller the better for easier frying) and add your desired herbs and spices. Add some garlic bread and you have a very good and economical meal.