A financial plan is much more than retirement savings, says Ting Pan, Investment Advisor at Servus Wealth Strategies and Credential Securities.

Planning to achieve your ideal retirement lifestyle is just one component of an overall strategy that advisors like Ting can work with you to put together, a plan that has a broader scope and covers all aspects of your financial life.

Ting says she likes a quote attributed to Benjamin Franklin: “If you fail to plan, you are planning to fail!” He may not have been talking about financial planning, but Ting says she still likes to use it when meeting with members.

“It’s never too late to put a financial plan in place,” she says. Everyone has life goals, things we want to achieve. Not every life goal costs money, but most do. A financial plan is a roadmap that leads you toward your goals – particularly those that kick in at retirement age – and a good one should address six areas, according to Ting.

The six components of a financial plan

  1. Cashflow/debt management
  2. Investment planning
  3. Risk management
  4. Tax planning and minimizing one’s tax hit
  5. Legacy/estate planning
  6. Retirement planning

It's important to understand the differences among these six components. Take risk management, for example. A financial plan is a strategy for the accumulation of wealth, and a retirement plan focuses on daily expenses and lifestyle costs such as travel after you stop working. Risk management is an important part of building a foundation and protecting yourself in the event of a sudden loss of income. Disability insurance*, for example, is an important part of risk management. Debt management needs to take into account how your debt load fits in with your overall long-term strategy – is it wise to just focus on paring down debt or should you keep some debt so that you can start building up your retirement fund sooner (and capitalize on the magic of compound interest)? Many members also don’t just want to make sure they have enough money to live on for retirement, but they want something to leave to their estates – to benefit children or favourite charities. A good advisor can help with all of that.

Have backups for your retirement plan

“More than half of people don’t have financial plans to back up their retirement plans,” Ting says. “Most people know they need an RRSP for retirement, but they don’t understand the need for emergency savings – so if something happens, like a medical emergency, they don't resort to cashing out their RRSPs and paying higher taxes for doing so.” If you have a financial plan set up at the beginning, one that allows you to allocate some of those savings to risk management, when the unexpected hits you won’t be putting your retirement savings at risk.

Having backups for your retirement plan is something Ting says she discusses with her members on a regular basis. “Investment product recommendations are based on the client’s holistic plan and specific investment goals – the time horizon, risk objective and their unique situation,” she says.

Couple sitting together looking at an iPad reviewing their financials

Choosing the right vehicle

Your investment assets need to be allocated to the appropriate vehicle, in alignment with your investment goals. Common investment vehicles include tax deferred or sheltered accounts (RRSP,RRIF), tax sheltered accounts (RESP, RDSP), tax exempt accounts (TFSA) and taxable accounts (non-registered account). You can select almost any type of common product to be held within those vehicles, such as:

GICs

A GIC, might be suitable for your short-term goals (usually between one and three years), such as a down payment on a big purchase like a house, car, wedding or tuition;

Common Shares

Servus Credit Union common shares, suitable if you're not looking for liquidity of the funds within a year, are better held under the registered account (RRSP or RRIF with regular scheduled payments);

Mutual funds

Mutual funds**, giving you access to professionally managed portfolios of equities**, bonds** and other securities, may be suitable if you want to grow your money with a higher return than GICs, over a longer period of time (three years and above).

On the risk management and estate planning side, Servus has estate, trust and wealth protection specialists in-house that Ting says she calls on. Legacy planning is the same as estate planning – preparing for the transfer of one’s assets or wealth after they die.

“I will work with them, tell them what we are looking to achieve,” she says.

Different life stages or circumstances call for different financial plans

Early

“Millennials are early in their life stage,” Ting says. “They get married, have children, they buy a house. This is the stage where they set their financial habits. They are not thinking too much about retirement here. They typically need a solid budgeting plan to help manage debt.”

Middle

Middle-aged people are more in the stage of accumulating wealth. “During this stage, their family grows, they see career advancement, they might see inheritance, so they likely have more to invest,” Ting says.

Entrepreneurs

Having a financial plan in place isn't only important for individuals. Those who are self-employed should also have a plan in place for their business. Business owners, focusing on the day-to-day, often miss important steps in such areas as business transitions. Ting gives the example of a couple nearing retirement who were joint owners of a corporation. They had pensions (CPP, OAS), and other income streams in place for retirement, and wanted a plan to give the business to their kids when they made the transition. The couple met with a lawyer and went ahead and did all the paperwork to pass on the business, but soon discovered a massive tax bill – under the alternative minimum tax, designed to ensure high-income earners do not pay little or no tax, but pay a minimum.

Ting helped the couple put together a “sale as wasting freeze” strategy, meaning their ownership in the company is held in preferred shares, which the company buys back each month, providing cash flow for the couple's retirement lifestyle. With this strategy, the business will be transferred to their kids tax-free after the couple passes on. This way, the couple's lifestyle is protected through their retirement years, with estate planning for their business also in place. No one wants to see the income put aside for the retirement lifestyle we all dream of chipped away needlessly.

Your plan should be all inclusive

A good financial plan should cover all aspects of your financial life – short-term goals such as savings and debt reduction and longer-term ones such as retirement. Your financial plan will take into account what life stage you are at, will provide backup strategies in case of unexpected life events and will use the investment vehicles that best meet the financial goals you and your advisor have set up. Once put in place, it's a good idea to review your financial plan periodically with your advisor, so that you can make any adjustments as your financial circumstances or long-term goals evolve.

*Servus Wealth Strategies Ltd. is a subsidiary of Servus Credit Union Ltd. offering financial planning, life insurance and investments. Your insurance contract will provide details of the coverage available under the plan you choose. Restrictions may apply.

**Mutual funds and other securities and securities related financial planning are offered through Credential Securities, a division of Credential Qtrade Securities Inc. Credential Securities is a registered mark owned by Aviso Wealth Inc.

The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This article is provided as a general source of information and should not be considered personal investment advice or a solicitation to buy or sell any mutual funds and other securities.