Planning for the Future Original Air Date: February 8, 1998 Planning for the future: How do you do it? What are the consequences of not doing it? The importance of communication: making your wishes known and making them clear to those who will be affected. Financial Planning Legal Planning Financial Planning Is there such thing as a "typical" retirement anymore? Retirements are becoming more and more varied. There's not a lot of the typical retirement where people work full-time until 65 and retire on a company pension. Younger wives tend to retire at the same time as older husbands, or women give up their jobs to take on caregiving responsibilities. More people are working part-time after retirement -- not necessarily for the money, but to keep from becoming bored. What's the financial state of seniors in Canada? Financially, seniors are not doing well. There is a prevailing "myth of the wealthy senior." While they quite often have a home and live mortgage-free, they need income for upkeep of the house, food, clothing, etc. The majority of women living alone have incomes below Statistics Canada's designated "low-income cutoff" (currently $17,000 for one person). Overall, 19% of all seniors 65 and over had incomes below the cut-off. In 1994, people aged 65 and over had an average income (from all sources) of just over $19,000. Is money a taboo topic within families? Yes. Studies have been released showing that children are reluctant to talk to parents about financial topics as they age, and vice versa. What's the danger in not knowing about one another's financial situation? In the case of an adult caregiver with an elderly parent, for example, if the caregiver doesn't know the financial status of the parent, it's hard to know what type of care is available to the parent in the event of illness or accident. The way to approach a parent who's unwilling to reveal financial particulars would be to present several options ("We could do this or this or this....") and ask the parent which one they'd like to pursue. Be frank! If you're in the position of being a caregiver, it's important to know if your parent/spouse can afford to pay for care. What should a financial planner do once you've made the decision to get your finances in order? For an older person: An advisor should suggest possibilities based on how long the person is likely to live. If the person will likely be around for another 15-20 years, they should invest in low-risk things. Advanced age is not the time to be taking risks and playing the stock market. For a younger person: A planner should sit down with the person and talk about what they want to do when they retire. What lifestyle do they envision? How much money do they think they'll want/need? You can calculate your future requirements from investments on a percentage basis. For example, if you think you'll want to retire with income of $40,000 a year, subtract from that the amount you'll get from CPP, OAS, company pension (if applicable), and see how much you're short. The remainder is what you'll want your investments to generate for you. (There are books and computer software on the market that will calculate this for you. As well, many financial institutions have websites that will do this.) What will you need? The general rule is you'll need 70% of what you were making before retirement. What if it turns out there's no way I'll reach my retirement goals? If you find out there's no way you'll be able to retire in the manner you've envisioned, you'll have to adjust your expectations. You can choose to change the age at which you'll retire, keep a part-time job after retirement, or do something like move to a cheaper house to lessen the gap between what you want and what you'll actually have. What are common financial mistakes that people make? Cashing in RRSPs when they're short of money. There are better alternatives, like asking your bank for a line of credit. People often have no idea how much money they'll actually need for retirement. Often it's much more than they'd imagined. Is there a difference for men and women in retirement planning? Yes. Women live longer, retire younger, and have less money with which to do it. That makes prudent planning all the more important for them. What's a reverse mortgage? A reverse mortgage is a way to use your paid-for home to receive a regular monthly income. You find a lender who will give you a lump-sum payment, which is tax-free, or a lifetime annuity, based on the value of your home. The annuity gives you monthly payments for life and the income is tax-free. The lender holds a mortgage on your house, but you don't have to make mortgage payments. The mortgage is paid off if you sell the house or when you die. The amount you can borrow under these arrangements ranges from 15-42% of the appraised value of the home. The major drawback is that they're not easily available. Regular banks don't grant them. They're available through a company called CHIP (Canadian Home Income Plan). Whether you'll qualify depends on things like where you live and the likelihood that your house will increase in value. Although it sounds like a great idea, lot of older people are reluctant to get into debt again. They feel they have to leave their home "free and clear" to their children. Is the Canada Pension Plan broke? The plan can't be broke, because it's a pay-as-you-go system. That means that the workers of today are funding the pensions of current retirees. There is a question, however, of how high contributions will have to go to finance the pensions of the large number of seniors on the horizon. The smaller numbers of the baby "bust" (where birth rates fell off) are going to have to finance the baby boom retirees. Under new legislation implemented January 1, 1998, the CPP will be reviewed every 3 years (up from every 5). This is dangerous in that it could open it up for more changes on a regular basis. What's the new Seniors Benefit? The Seniors Benefit is a new income-tested benefit for those 65 and over that is due to come into effect in 2001. There's been no legislation tabled yet, however, so the final version may be different than what's presently proposed. (It's under a lot of pressure from seniors groups because of income-testing.) The federal government has been meeting with seniors organizations and others and we're likely to see changes before any final legislation is announced. One of the big problems: income testing based on joint income is detrimental to older women, many of whom have never worked outside the home and have no income of their own. If the family income is above the limit, neither partner will get the Seniors Benefit. Who will be better off under the Seniors Benefit? Who will do worse? Couples or individuals with income of $45,000 or more will end up with less. Those under that (75%) will end up with the same or more. One good thing -- it won't be taxable. Old Age Security is. What would you say to an 80-year-old woman who's afraid she doesn't have enough savings to see her to the end of her life? There's not much one can do in terms of "financial planning" at that age. Seniors in Canada don't have to fear being absolutely penniless, however, because we do have the social "safety net": CPP, OAS, the Guaranteed Income Supplement (an income-tested additional benefit for low-income seniors). Top of page Legal Planning

Will (Estate Will)

Sets out who will receive your estate when you die, how it will be distributed, etc. Must be signed and witnessed to be valid.

Holograph Will

A handwritten will. Valid in most provinces. If it is completely in your handwriting, it need not be witnessed (but it can't be handwritten by another person and then signed by the testator).

Codicil

A document made to change a term or terms of a will without having to redo the entire will (i.e. changing executor). It may not be advisable in some (sensitive) cases, such as removing a beneficiary.

Power of Attorney

Term used to describe the document that gives over to a designated person (the "attorney") the authority to handle the legal and financial affairs of the grantor (or donor) in the event that he/she can't. It can be as general or as specific as the grantor wishes. Attorney (or donee) must act in accordance with grantor's wishes; the document is legally binding.

There are two types:

1. Financial: relates to assets (house, tax return, paying bills, etc.). There are variations, which include:

• Continuing (Enduring) Power of Attorney: can take effect upon signing, and survives incapacity of the person who gives it.
• Limited Power of Attorney: limited to the performance of a specific act (i.e. selling a house) or business transaction. Useful, for example, in the case of a grantor being out of the country.
• Springing Power of Attorney: comes into effect upon some triggering event (i.e. incapacity).

  2. Health Care (Personal Care): admission to facility, consent to or withholding medical treatment (i.e. surgery), ongoing health care regime, who has access to the person and who doesn't, what the person eats, etc:

  If an attorney isn't given specific instructions with respect to an act or decision, he/she is bound to make decisions in the "best interests" of the person.

  Advance Directive

  Sets out more specific circumstances (if A happens, then do B). Can either be within a power of attorney or a separate document.

  Living Will

  In the event of incapacitation or ending up on life-support systems, sets out in advance a person's intentions or wishes (i.e. with respect to organ donation, "heroic" measures to resuscitate, etc.). Done to give family members and physician guidance. Has no force and effect legally, but provides "moral suasion." It is more general than an advance directive.

  Why are people reluctant to do things like sign a power of attorney or living will?

  • It's emotional and it's unpleasant: it necessitates facing difficult questions and facing your possible death or incapacitation.
  • People are superstitious. They feel they'll be tempting fate. How do you approach a family member whose affairs you're worried about?
    • Do it in a practical, prudent, non-confrontational manner, in a non-intimidating environment. Don't have several family members gang up.
    • For older people, "in their own home, in their own time" is best. If they seem reluctant at first, don't push. Try again another time.
    • Try something like, "I'm doing this. Maybe you should think about it too."
    • If they're reluctant because of the "family taboo," then offer to facilitate in finding a professional advisor, assuring them you'll back out once they're in good hands. How is a person's mental capacity to sign these documents established?
      • It's up to the lawyer to establish mental competence. The person has to meet the appropriate test (asking questions about their estate, their understanding of what assets they have, why they're in the lawyer's office at this time, etc.). If these are answered satisfactorily, usually the individual is competent.
      • If the lawyer has some concerns about competency, he/she will direct that a medical assessment be done.
      • It's a delicate process. You may say something like, "Given your age (and/or health), there may be some concerns. The only way to ensure that this document will be valid is to have the necessary (medical) backup."
      • In addition, the lawyer will meet at least once with the person alone -- no other family present -- to be sure there's no duress or influence involved. Why is it important to get one's legal affairs organized before something happens?
        • Making things as tidy and as simple as possible for those you leave behind. If your wishes are set out explicitly, there's less room for dispute, miscommunication and misunderstanding.
        • There's no "right" age to do this. Don't wait until you're "old."
        • Many people think having a will is enough. It's equally important to have a power of attorney. What happens to my estate if I die without a will?
          • There is a big misconception that if you die without a will (intestate), your estate will be tied up in probate for ages. That isn't true. It doesn't really take a lot longer to settle things, but there is a problem in that you haven't appointed anyone (an executor) to look after your affairs. You've given up your opportunity to direct how your assets will be distributed after death. The law will decide who gets what according to a pre-set statutory formula. What's the danger of not having a power of attorney?
            • If you're suddenly incapacitated, you've lost your choice to name who you want to be in control of your affairs.
            • Also, there's a time lag before an attorney is appointed by the public trustee. During that time, no one has control or authority over things like paying your bills and mortgage, filing tax returns, etc.
            • In the case of a couple where the husband controls all the finances and the wife has no independent means, if he's incapacitated, she can be rendered broke while the province (not necessarily speedily) appoints an attorney. How do I regain control of my affairs if someone's been acting for me under a power of attorney?
              • A medical assessment is required to allow you to regain control of your affairs. What mistakes do people commonly make?
                • They don't review their situation often enough. Things like marriage, birth of a child, divorce necessitate reviewing your affairs. At the very least, a person should review their will and other documents every 3-5 years.
                • They forget about some of their assets. For example, life insurance passes outside of a will. Check to ensure beneficiary designation on policy (and things like RRSPs) is up to date.
                • Divorce does not invalidate a will.
                • Make sure the person you're appointing as executor (or attorney under a power of attorney) is someone you're confident can and will carry out your wishes. If you want, you can name more than one person.
                • Keep the documents in a safe place. There's only one signed original, so make sure someone knows the document exists, and where it's located. How much does it cost?
                  • You can get a relatively simple will done for as little as $100. The more complex your estate, the more involved and lengthier the will is, and the price will rise as a result. What about the do-it-yourself kits that are available for wills and powers of attorney?
                    • There's nothing wrong with these kits per se but anyone can fill one out without appreciating the implications of the document.
                    • An improperly-completed document, or an incomplete one, is useless.
                    • Some provinces require a lawyer for completion of these kits.
                    • If done correctly, however, they are an accessible and easy means of making your wishes known. Laws and regulations differ from province to province. Viewers should check with the law society in their province for specific information or referrals.
                      

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