Priorities have certainly changed over the pandemic. According to the Bank of Canada, “Canadians are less prepared for retirement because of COVID-19”.
For many, now is a time to review their post-lockdown financial plan. The world still feels on edge with the word ‘unprecedented’ beginning most announcements amongst the rise of the variants. There are changes for those mandated back to the office, including commuting, clothing and child care. Many no longer feel comfortable on public transit and have purchased vehicles or are contemplating doing so based on having moved out of the city during the peak of the pandemic. Lifestyle changes are slowly emerging, and now is a critical time to review one’s financial plan and overall budget.
An April 2021 report from the Ontario Securities Commission’s (OSC) investor office showcased insight that Canadians were hopeful that by October of the same year, they would be back on track with their financial plan.
“Four in ten (42%) of Canadian investors felt it will take at least until October 2021, if not longer, for their household to get back to the same financial position as before COVID-19, and an additional 4% said they think they’ll never get back there.”
Here’s the good news out of all of this – it doesn’t have to be overcomplicated. If you follow these four simple steps, you’ll find yourself back on track to your financial goals.
1. Check your emergency fund/savings rates
Reflection is the best indicator for projection. Looking back, did you or your business have enough in reserves, or do you need to look at increasing it for future bumps in the road? Did you not spend as much as you anticipated? What goal could those extra savings be used for?
Scrutinizing your emergency fund is crucial for your financial health. It’s not just about saving for a rainy day. It’s about saving for the hurricane with enough cushion that if you lost your job tomorrow, you wouldn’t worry about what you’d be eating if the roof caved in too.
The scary part is, 3 in 10 Canadian investors claimed they wouldn’t be able to afford an unexpected expense of $5,000 with their current financial situation. Instead, they’d be looking at these quick-fix options:
- Obtaining a bank loan
- Putting what they could on credit cards
- Withdrawing funds from an investment account
Is there a valid reason for panic, or are Canadians facing unexpected financial burdens? In the same report, 1 in 10 expressed they faced an unexpected expense of $5,000 or more due to COVID-19.
Discussing what’s in your emergency fund and calculating what you’ll need for all worst-case scenarios with your financial advisor is the key between blind savings that can deplete quickly and informed proactive financial planning.
2. Revisit goals
Many small businesses have re-opened and are straining to catch up from months of closure, while others have thrived during the pandemic. Some even saw an extreme decrease of interest in their business services due to the changes in the way people shopped, dined, and did business. As individuals, many of us are slowly emerging back into the world, with social comfort levels varying and cautiousness abounding. Many companies are working to set up back to the office mandates and how to best balance remote and hybrid options for their employees.
With everything that’s happened, things have changed. Were you saving up for a trip and now want to purchase a car to avoid public transit on the way to work? Did you move outside of the city? Has downsizing crossed your mind?
Now that Canadians have experienced the unknown on a larger scale, goals and priorities have shifted. Moneysense reported on a story that sounds all too familiar for those who had a perspective shift during this time. Just like Walter Schultz, a man in his 40s, residing in Kitchener Ontario, who deferred his RRSP payments.
“Without going into detail, I’m classified in the at-risk category when you do the screening for COVID,” he says. “Seeing how the economics of the world was going and as my life could be in jeopardy here, I thought ‘OK, it’s time to suspend putting that little bit extra that was being stashed away and not having access.’ I stashed away some cash separately to have it on hand in case of dire need.”
The Bank of Canada weighed in on Canadians failing to save for retirement, which is a dire priority to consider, even during a pandemic. Almost 20% of the population reported having less than $25,000, and 34% had less than $10,000. Another 16% didn’t even know how much they were able to stash away. The Financial Post warned of the grim report after a study was completed by the Canadian Institute of Actuaries (CIA). If you plan on retiring at 65, you’ll need at least $900,000 to keep a retirement income of $50,000 per year.
Working alongside your financial advisor to distribute your financial security for short-term, long-term, and retirement is more crucial than ever.
3. Check insurance amounts
Even the invincible felt their world shaken over the global crisis that affected their healthy friends, family and neighbours with no age discrimination.
Re-evaluating savings goals and the types of insurance coverage if faced with a worst-case scenario is beneficial for both peace of mind and security for your personal safety. A report from the Canadian Life and Health Insurance Association (CLHIA) stated that during 2020, life insurance payouts totalled $154 million. Similar amounts were also paid out for disability claims. These numbers are not a surprise but rather proof of the value of the risk planning side of a financial plan. This crisis highlighted the importance of life and living benefits products and the lasting effects that they can have.
Especially when the Ontario Securities Commission (OSC) reported 2 out of 10 Canadians were worried about their ability to pay their monthly expenses. An unexpected illness or injury resulting in the inability to work is not worth the risk of that added stress.
4. Keep at it
According to Statistics Canada, the average retirement age in 2019 was 64, but from the Financial Post’s report in September of 2021, the CIA surveyed that 14% of Canadians did not expect to ever retire.
For many small business owners, this pandemic has created a need to go back to the basics of financial planning. Fundamental concepts such as cash flow analysis, debt management and insurance planning come to the forefront. While the government support programs provide aid and income to small business owners, some of those assistance amounts may need to be repaid in the form of taxes.
Others saw a decrease in their overall discretionary spending during the pandemic and even made significant savings. The proactive move is to discuss how to invest those amounts best as we emerge with your financial planner.
In whatever situation you may find yourself, monitoring and planning for liquidity and debt levels are critical as we are not yet back to any type of ‘steady-state.’ Advisors need to come alongside their clients and provide support and guidance as the decisions made today will ultimately have a long-term impact, especially on retirement planning.
The biggest takeaway that will keep you on the road to financial freedom is to keep planning. Even if your pre-pandemic plan has changed, update it. Don’t abandon it. The future is not certain, but moving forward is your only course of action towards success.
It is clear there will be challenges to be faced post-pandemic, individually and economically. Having a clear financial plan with advice from a trusted advisor will help to bridge the gap and provide direction as we move towards a brighter future.