4 Financial Lessons to Emerge Stronger from the Pandemic

It’s probably fair to say that most Canadians will be happy to bid farewell to 2020, and there are still three months to go until the end of the year.

The pandemic has taken a heavy toll, from the loss of lives and jobs to the disruption of schooling and retirement. Financially, countless individuals and families across the country have been negatively impacted.

While it’s easy to focus on the negative, we believe there are lessons to be learned from the pandemic that will help us emerge stronger in the years ahead. Here are four of them.

Lesson 1: An emergency fund is essential

This year, countless Canadians have lost jobs, struggled with collapsing businesses or faced sharp declines in their investment returns. For many, this has resulted in a major cash crunch and enormous financial stress.

The current pandemic may be a once-in-a-100-years event, yet we can be confident that other crises will emerge during our lifetime. That’s why a key takeaway from this pandemic is the importance of establishing a financial safety net.

Whatever your financial situation, setting aside enough money to cover at least 3–6 months of your living expenses is not just a good idea – it’s essential.

Lesson 2: We can all reduce wasteful spending

Amid the financial fallout from the pandemic, many Canadians have been reviewing their spending with a more critical eye. With incomes squeezed or disappearing for many, it’s no surprise that people have been looking for ways to trim their monthly expenditures.

From rarely used subscriptions to frequent dining out, it’s up to each of us to decide what we consider essential versus frivolous. Yet for most of us there are opportunities to reduce unnecessary spending.

You work hard for your money, so you owe it to yourself to ensure you’re not wasting it needlessly.

Lesson 3: A portfolio loses value more easily than it gains

The global spread of COVID-19 rocked stock markets in early 2020, with the TSX Composite Index plunging by 21.6% in the first quarter of 2020 compared with end-2019. Although the sharp drop has been followed by a relatively rapid rebound, the index is still short of its February 2020 peak.

For investors, this fluctuation during the pandemic has provided an important reminder for investors: if your portfolio drops by 20%, it will take more than a 20% rise to return to the level it was at before. Why? Because a 20% drop in a $1,000 investment takes you to $800, but a 20% rebound takes you only up to $960.

The lesson here is that it can take longer to rise than to fall. So if you’ll need money in the short term to buy a house or for retirement income, your portfolio should generally favour low-volatility investments.

Lesson 4: Regular portfolio rebalancing should be a priority

Aligning your portfolio with your risk profile is an investment best practice, but it shouldn’t be a one-off event. Without regular portfolio rebalancing, a portfolio that was meant to be 70% equities may have risen to 90% in the pre-pandemic bull market.

The problem here is that when stock markets plunged earlier this year, this portfolio would have been exposed to much higher volatility and risk at 90% equities versus the intended 70%. With regular rebalancing, the portfolio would have locked in gains gradually during the bull market and faced the crash with only 70% equity exposure.

Rebalancing your portfolio regularly can mean forgoing some potential gains when markets are strong, but it also means you’ll be at a more comfortable risk level when tough times hit.

Translating lessons into action

The pandemic has shown us how difficult it is to plan for all eventualities. Yet is has also reminded us of the value of financial planning best practices.

To discuss how to apply these lessons to your situation and get on track to a better financial future, contact us contact us at info@rubachwealth.com or at 647.349.7070.

 

 

 

Achieving Financial Confidence During Retirement

Achieving Financial Confidence During Retirement

Everyone has their own vision of an ideal retirement. For some, it means escaping winter for warm climates and playing as much golf as possible. For others, it’s all about time with grandchildren, volunteer work or pursuing favourite hobbies.

One thing that no one wants in retirement is financial stress, yet that has been one of the by-products of the pandemic. The recent financial turmoil has been particularly worrisome for retired Canadians, as many of them depend on their investments to finance their retirement.

Going back to basics can help lift this cloud of uncertainty.

Meet Alice

At 67, Alice is loving retirement. She stopped working a few years ago following a successful career in media. Although she sometimes misses her former colleagues, she is thrilled overall to have more time for visiting family, playing tennis and travelling. The pandemic has put a damper on all three of these activities, but she’s optimistic about things gradually returning to normal.

That’s not to say that Alice is stress free. She knows the pandemic has wreaked havoc on stock markets, and she’s worried about how this will impact her financial situation. She wants to be sure that her money will not run out, which would bring a swift end to her golden years.

At the same time, Alice hopes to have the financial resources to support her children and grandchildren in the years ahead – and after she’s gone. Ultimately, what she would like is personalized support from someone she can trust to ensure her financial needs are met.

Overcoming uncertainty with financial planning

Alice enjoys her active retired life, but she has little interest in spending time and energy managing her finances. She’s more than happy to entrust this responsibility to someone else as long as she’s confident they have her best interests at heart.

If you see similarities between Alice’s situation and your own, here are three things that may help you achieve peace of mind regarding your personal finances during retirement:

  1. Discuss your concerns. One of the first steps in tackling the stress that comes from financial uncertainty is to talk about it. Rather than sweeping your concerns under the carpet, bring them out into the open. Gaining confidence in your financial situation begins with asking questions and seeking advice.

 

  1. Find a true partner. Meeting your unique financial needs requires help from someone who will take the time to understand them. It’s a bad sign if someone starts telling you what to do without first listening to what you want. A trusted advisor will listen carefully, advise thoughtfully and help you gain clarity.

 

  1. Keep things simple. Ensuring wealth preservation during retirement is important, but that doesn’t mean it has to be complicated. With a clear understanding of your current situation and desired outcomes, the goal should be to draw as straight a line as possible between them. Minimizing complexity will minimize doubt.

A personalized approach

Retirement should be a joyful time as you enjoy the life, family and wealth you have worked hard to build. While the pandemic has introduced uncertainty, going back to basics with personalized financial guidance can help keep your retirement on track.

If you’d like to gain clarity regarding your financial situation, Rubach Wealth can help. Contact me today at elke@rubachwealth.com.

Together, we got this.

This blog post is part of Rubach Wealth’s Back to Basics series highlighting how focusing on financial planning fundamentals can help you stay on course toward your long-term goals during these uncertain times.

 

Smart Financial Planning for Business Owners

Smart Financial Planning for Business Owners

Being a business owner can be stressful at the best of times. Amid mandatory lockdowns, unpredictable stock markets and a widespread economic slowdown, the past few months have dialed up the pressure and uncertainty even more than usual.

Every business owner has their own unique challenges and requirements, yet some concerns are relatively universal: managing cash flow, growing asset values and maximizing tax efficiency while balancing business and personal financial needs.

Amid today’s complex market conditions, going back to basics can offer a profitable path forward.

Meet Mike

At 48, Mike is in the prime years of his career. He runs a profitable consulting firm, which had seen revenues growing steadily up until the start of the pandemic. While business has slowed downed sharply during the past few months, Mike is optimistic that he’ll be able to bounce back as the economy picks up again.

However, Mike is less confident about his personal finances. With no employer pension to fall back on, he knows it falls on his shoulders to save for retirement and meet his family’s long-term financial needs. Although he regularly puts aside money for savings and investments, he’s not sure whether it’s enough and whether it’s optimized.

Ultimately, Mike is focused on efficiency and results. With a business of his own to run, what he really wants is someone with the expertise to guide him toward a financially secure future so that he can be free to focus on growing his business.

Smart yet effortless financial planning

Mike’s time is valuable, so he needs financial planning solutions that can drive results without taking up too much of his time or mental energy. He has no use for needlessly complex financial structures; instead, he’s looking for a simple, clear path to a secure financial future.

If you see similarities between Mike’s situation and your own, here are three things that may help you balance running your business with managing your personal finances:

  1. Understand your situation. It’s hard to save for retirement without a clear understanding of how much you’ll need to maintain your desired lifestyle. A clear business plan is a crucial starting point for any successful venture, and a clear financial plan is similarly critical for charting your path to retirement. A bit of effort up front will pay huge dividends in terms of clarity and peace of mind.

 

  1. Optimize for tax efficiency. You don’t leave money on the table when running your business, and it also doesn’t make sense to do so in your financial plan. As a business owner, you have opportunities to make smart use of various tax structures to minimize your tax bill. The key is knowing what they are and how they work so you can do more with every pre-tax dollar.

 

  1. Create an effortless plan. You already have one business to run, so you don’t need a financial plan that also demands ongoing time and effort to keep it progressing smoothly. Once you lay a foundation of sound strategies, repeatable processes and thoughtful diversification, your financial plan should be able to work hard in the background while you get on with growing your business.

Financially efficient strategies for business owners

The unprecedented economic disruption of the pandemic has provided business owners with a stark reminder of the need for contingency plans. And when your personal finances are tied closely to your business performance, optimizing both is important for ensuring long-term financial security.

At Rubach Wealth, we help business owners optimize their financial position both personally and professionally. If you’d like to discuss your financial situation, contact us today at www.rubachwealth.com.

Together, we got this.

This blog post is part of Rubach Wealth’s Back to Basics series highlighting how focusing on financial planning fundamentals can help you stay on course toward your long-term goals during these uncertain times.

 

Putting your needs first: Why group insurance doesn’t cut it

Putting your needs first: Why group insurance doesn’t cut it

Employment contract? Check. Benefits? Check. Group insurance? Check. Do you clearly understand what you are covered for and are all your insurance needs taken care of? Not so fast.

If you have group coverage through your job, it can be tempting to assume that you’re good to go on the insurance front. The reality is that the group insurance benefits offered by employers often fall well short of the level of coverage we require and lack the nuance to meet our personal needs.

In this article, we explore the pitfalls of relying exclusively on group insurance and highlight how often one size doesn’t fit all.

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I’m covered, right?

When it comes to your insurance, the devil is in the details. Yes, you have group insurance through your employer, but what does it cover? Perhaps your benefits include a new pair of glasses every couple years, or maybe a few hundred dollars annually for massages and physiotherapy. These perks are nice, but they won’t do you much good if you have a serious illness or accident.

If one day you can’t work due to the loss of a limb, how will you replace your lost income? If you are diagnosed with a chronic illness and need to pay for expensive medication, where will the money come from? And if – knock on wood – you pass away suddenly and unexpectedly, will your surviving family members have the resources to pay off your mortgage?

If your group coverage includes disability, critical illness and life insurance, then you’re off to a good start. But again, it’s the details that matter most and determine the answers to the crucial questions above.

  • Life insurance. When included in a group policy, life insurance often features a death benefit of two times your annual salary. This may sound like a lot, but how long will this amount last if you leave behind a spouse who has to keep paying a mortgage, raise your kids and put them through university? Furthermore, most executives find that their bonus structure constitutes a large part of their compensation, but this bonus may not be part of the calculation of death benefit.
  • Disability insurance. Group disability typically covers 40%–60% of your salary. If you were to become disabled and unable to work, would you be able to manage with only 40%–60% of your current income? How would this impact your family’s lifestyle? Do you understand the definition of disability under your group coverage?
  • Critical illness insurance. Group critical illness insurance is often narrowly defined. This is a problem because more exclusions mean there’s a greater risk that you could receive no insurance money should you become seriously ill. This could force you to go back to work when you should be focusing on recovery.

Ours, not yours

Even if the group coverage through your employer is (currently) generous and ticks all the right boxes in terms of insurance essentials, it still has one major shortcoming: your employer owns the policy, not you.

If you rely solely on your group coverage for disability, critical illness and life insurance, then all your eggs are in one basket. If you lose your job tomorrow – whether you are laid off or resign or the company goes bankrupt – your insurance coverage will disappear along with it.

Sure, you may land another job straight away that also provides generous group insurance, but there is no guarantee. In addition, a pre-existing condition clause may apply. If a lack of individual coverage puts the financial well-being of your family in jeopardy, this becomes a risky situation. Even if you don’t lose your group insurance, your employer can change the coverage and benefits at its discretion as the owner of the policy, potentially leaving you with less security and more uncertainty.

Meeting your needs on your terms

We’re not saying that group insurance is bad to have, but chances are it is not providing you and your family with the financial safety net that you need. From insufficient coverage to the risk of losing it entirely if you lose your job, your group insurance is likely not cutting it.

With individual insurance, you can tailor your coverage to meet your family’s unique needs. If you are the family’s sole breadwinner, an individual disability insurance policy can allow you to lock in benefits covering 100% of your salary, rather than the 40%–60% offered under the group plan.

Another key advantage of individual policies is that they guarantee future insurability. For example, once you have an individual life insurance policy, this coverage is guaranteed for the rest of the life of the policy (usually age 80 or 85 or permanently, depending on the type of policy). This is in stark contrast to your group life coverage, which will disappear as soon as you change or lose your job.

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Confidence through clarity

Insurance is one of those things that most of us wish someone else would just take care of for us. That’s why it’s so common for people to think, “Group coverage through work? Great, that’s insurance taken care of.” However, as we’ve illustrated here, adopting this approach can put the financial well-being of you and your family at risk. You owe it to your loved ones to do the right thing.

At Rubach Wealth, we can help you achieve clarity on what you have and what you need so that you can be confident that your family’s financial future is secure. You need to make an informed decision. If you’d like to sit down with us to talk through your situation, give us a call today.

It’s not about ditching your group coverage; it’s about helping you make sense of your current situation and identifying gaps that can be filled with tailored individual coverage. Working well in a group is important in the office, but sometimes your needs must come first.

 

Disclaimer: This article is provided for informational purposes only and does not constitute any form of legal or tax advice. You should consult your lawyer and/or accountant prior to making decisions related to the topics covered in this article. Rubach Wealth can work with you to facilitate such discussions.

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Passing on the family cottage

Passing on the family cottage

For countless Canadians, the cottage has a special place in our heart. It’s the patter of little feet and the joyous splash of our kids running along the dock and plunging into the lake. It’s the cozy afternoon of hot chocolate and playing cards, while the thunderstorm howls outside. It’s the togetherness of family sharing stories around the dancing flames of a campfire.

Many of us assume that our cottage will stay in the family, passed on through the generations. But have you considered how this will happen from a practical and legal perspective? If you have multiple children, will they share ownership or will only one inherit the cottage? Have you thought about who will pay the capital gains tax – potentially in the tens of thousands of dollars – that may arise with the transfer of ownership when you die, and where this money will come from?

Your cottage is the backdrop of cherished family memories. However, without planning to pre-empt potential family disputes and unexpected tax burdens when ownership passes to the next generation, there is no guarantee that your children and grandchildren will be able to continue building these memories.

No tax holiday for your holiday home

When you die, your cottage is treated the same as your other assets: from a tax perspective, Canada Revenue Agency will assume it has been sold at fair market value and – assuming this value is higher than price you paid for the cottage – apply capital gains tax to half of the increase in value.

In this situation, numbers are better than words for illustrating the point: if you purchased your cottage years ago for $225,000 and it is worth $500,000 when you die, your estate could be hit with a capital gains tax bill of $61,875[1].

Will your children have that kind of cash on hand to pay the tax owing? Will they have to take out a loan to cover this amount? Or will they be forced to sell the cottage?

[1] This assumes a marginal tax rate of 45%, applied to half the increase ($137,500) in the value of your cottage.

These questions can be difficult to answer, especially when you don’t know what the future holds for you or your children. Fortunately, there are different strategies that can help you minimize the uncertainty and reduce the risk of your family losing the cottage, including the following:

  • Establish a family trust. By transferring ownership of your cottage to a family trust, you or an appointed trustee can exercise greater control over the ownership, maintenance and use of the cottage. Your children and other family members will be able to enjoy the benefits of having the cottage, but will be spared some of the financial implications of direct ownership.
  • Use a life insurance policy to cover any tax obligations. This can be a cost-effective way to cover the capital gains tax for your cottage. By using the death benefit from the life insurance to pay the tax bill, your children will not need to come up with tens of thousands of dollars on their own.

Hoping the kids will play nicely

Most of your family memories of cottage life are undoubtedly positive, but chances are there were some sibling arguments mixed in among all the sunny days. As grownups, your children will be better at resolving disagreements without wrestling, but that still doesn’t mean they will see eye to eye on everything.

If you have more than one child and want to leave the cottage to all of them, the best place to start is with an open and honest family discussion. This is an opportunity for both you and your children to share your wishes, intentions and expectations.

Even if everyone is on the same page now, it’s important to acknowledge that this may change as personal, financial and health situations evolve in the years ahead, resulting in differing views on usage and ownership. A buy/sell agreement is a useful tool for managing changing circumstances in the future.

Such an agreement lays out clear rules for what happens if one or more of the children want to sell their share of the cottage. By providing clarity, a buy/sell agreement can help prevent your family’s cottage memories from being overshadowed by tears and animosity.

Sunny outcomes require a plan

Ultimately, there are many factors to consider when passing along a cottage to the next generation and many ways to tackle this issue, but doing nothing is not one of them. Failing to plan ahead can result in hurt feelings and financial hardship among your family members after you die.

At Rubach Wealth, we can work with you to understand your priorities and develop tax-optimized strategies aligned with your wishes. If you have a cottage that you hope to keep within your family for future generations, call us today to set up a meeting. Your family has been shaped by the magic of sunsets at the lake, and we want to ensure that your children and grandkids can enjoy sparkling sunrises on the dock for decades to come.

 

Disclaimer: This article is provided for informational purposes only and does not constitute any form of legal or tax advice. You should consult your lawyer and/or accountant prior to making decisions related to the topics covered in this article. Rubach Wealth can work with you to facilitate such discussions.

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