By Pat Irwin
Bruce was sitting pretty for retirement. He had set up complex spreadsheets and online feeds to monitor all his investments and spoke to his financial advisor almost every day. Recently, his oldest son had asked Bruce to invest in his start-up company.
Catherine’s mother’s day lunch was dominated by an excited talk from her adult sons and their wives about the possibilities of her taking out a reverse mortgage. Those television ads are so compelling—you can travel, lend money to the kids, add a sunroom, lend money to the kids…
Roger had dementia. His wife Barbara was exhausted from being his full-time caregiver but was reluctant to look into getting help. “It’s so expensive and Roger’s always looked after that side of things. What if we run out of money?”
Each of these cases requires financial literacy—but what exactly is that? Financial literacy is defined as the knowledge, skills and confidence a person needs in order to make—and understand the impact of making—responsible financial decisions. It is a means by which a person can fully meet current and ongoing financial obligations, feel secure in their financial future and be able to make financial choices that allow life to be enjoyed. It is especially vital for vulnerable members of the community.
An emerging need
Canadians are living longer, healthier lives than ever before. A 50-year-old Canadian man can expect to live to the age of 79 (his grandfather would have lived to 74) and a 50-year-old woman to 83 (her grandmother would have lived to 75). Consequently, the number of older adults is growing rapidly. And unlike previous generations, some of today’s seniors are delaying retirement and working longer. Whether they are about to retire or have already done so, many Canadians are contemplating questions such as: How can I ensure that my money will last? How should I manage my financial affairs if my physical or cognitive capacity becomes diminished?
Often, people over 60 are still carrying mortgage debt and supporting adult children. In fact, an Equifax study in 2015 found that Canadians aged 65 and older had actually increased their debt by nearly five percent.
We also know that financial risk increases during times of difficult life events that may occur in these years, such as living with illness or disability, losing a spouse or partner or caring for a loved one.
Reducing financial risk?
We talked to certified financial planner Paul Bourbonniere from Polson Bourbonniere Derby Wealth Management. He suggests the following to start:
- Choose a trusted advisor. Interview this person—they should deserve the job of looking after your money! Be comfortable with them, and feel that they understand your unique needs and are really listening.
- No product or service is good or bad in of itself; it just has to consistent with the financial strategy that you have articulated. Your manager is there for you—so ask all the questions you like. If you don’t feel that you can ask questions, maybe that person is the wrong advisor for you.
- Keep in touch every six months. Advisors are trained to notice changes in the family situation, such as signs of dementia, financial abuse or other major issues.
Applying an expert’s insight
So, let’s apply Paul’s insight into our examples.
Bruce, despite his careful spreadsheets and phone calls, was actually incapable of managing a portfolio and had in fact been diagnosed with early-onset dementia. His son’s request for a loan may have seemed like elder abuse but, in this case, could be part of a carefully created estate plan that incorporates selective investments, including Bruce’s son’s new venture, which was an extension of the existing family business. However, to reduce the risk of elder abuse, here is what could have been put in place ahead of time. Bruce would have been wise to have done the following:
- appointed powers of attorney for property sooner rather than later
- chosen trusted advisors, such as a financial manager, accountant and lawyer
- articulated his financial objectives to the power of attorney and all related parties
- set up “checks and balances” to avoid future family conflicts
Catherine listened politely to her children’s thoughts about a reverse mortgage—and noted the repeated suggestions of a loan or two. In fact, as a retired insurance executive, Catherine was well versed on all aspects of financial markets and investments. There was no need for her kids to act on her behalf—she had long ago set up a comprehensive estate plan, which included an alter-ego trust that would administer all her assets according to her wishes, making herself the main beneficiary and avoiding probate. As lunch drew to a close, she told her kids that if they wanted a loan, they were welcome to approach her trustees for an encroachment meeting.
Roger and Barbara were poorly prepared for retirement in general, and lacked information about subsidized care and social services available from the provincial ministries of health. Barbara should:
- contact the provincial ministry of health under the “seniors” tab to connect with the many programs and services available to her and Roger
- research temporary respite programs in local retirement residences and book some regular relief periods
- use one of the many retirement calculation tools to help forecast their cash flow and address any shortfalls; the Canadian Retirement Income Calculator on the Government of Canada’s website (canada.ca) is a good place to start
- inform herself on basic financial literacy, using some of the services listed below
The good news is many seniors, after a lifetime of thrift, are in excellent financial shape according to Bourbonniere. With a smile, he suggests: “They may even need to go to ‘spending school’ to learn how to enjoy life.”
See for yourself
See the financial literacy report: lowestrates.ca/reports/lr-financial-literacy-canada-report.pdf.
Check your life expectancy: sunlife.ca.