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THE BAG LADY SYNDROME

YOUR CHOICE

“NO NAME” OR “GUCCI”

BY Donna Worthington, CFP EPC

Investment Planning Counsel

Certified Financial Planner

BAG LADY SYNDROME

“In a poll, half the women said they fear they will lose all their money

and become destitute in old age.” *¹

Behind the fear:

^·Divorce – Almost 40% of Canadian women will not celebrate their 30^thWedding Anniversary because of divorce. *²
^·Widowhood – Average age of widowhood is 56. *³
Longer life expectancy – Women on average live 5 years longer than men. *²
Wage gap – Women on average earn 80% of men’s income. *²
^·Child care, elder care – The average woman spends 15% of her career out of the paid workforce caring for children and parents. *⁴
Lower pension benefits – Women retirees receive only about half the average pension benefits that men receive. *⁴Whether you are in your 20’s, 40’s or 60’s, the image of being destitute in old age may come up. If I had the power to be “The Enforcer” and guide women to financial freedom, where would I start?

1. You work so you can earn a living and enjoy life. Your greatest economic asset is your ability to work. Whether you’re an employee or self-employed, purchase Disability Insurance. If you become disabled according to the definitions in your Policy and are unable to work, you may receive approximately 65% of your income tax free. Is this not better than depleting your savings or losing your home?
2. Women live an average of 5 years longer than men and our health care costs are higher.*⁵ Purchasing Critical Illness Insurance with a return of premium can serve both as a method to cover the health care costs if you have a critical illness and as a forced savings account.
3. Will anyone go without food, clothing, shelter or an education should you die tomorrow? Or will you leave your loved ones with debts and taxes to pay. There are many forms of life insurance; purchase the kind that covers your short, mid and long term needs.
4. Save at least 20% of what you earn. Start by putting your annual limit into your RRSP and use up any unused contribution room. Remember contributions are tax deductible. Chances are you will be in a lower tax bracket when you retire and redeem your RRSP.
5. If you use a credit card, pay the balance off monthly. Remember, you are paying interest with after tax dollars. To pay interest of 18%, you really have to earn 25 cents on the dollar or 25%.
6. Most women believe that they will be “okay” if their home is paid for. However, if they have no savings they can become “house rich” and “cash flow poor”. A sound strategy might be: Put money into your RRSP and use the tax return to pay down your mortgage (or if you have a large amount of unused RRSP room, you might want to buy more RRSPs).
7. Something that we can learn from wealthy women: they buy quality not quantity. Before you buy, think: Is this a need or a want? Did you know that many wealthy people get their shoes resoled, use coupons, and live in older, more modest neighborhoods. Wealthy women use the professionals: accountants, lawyers and financial planners.

8. For every year a woman stays home caring for a child, she must work 5 extra years to recover lost income, pension coverage and career promotion.*³ The average Canadian woman spends 15% of her career out of the paid workforce caring for her children and parents.*⁴ So when it comes to investing in those RRSPs, she needs to be aggressive. As women tend to be more conservative in their investing, they need to use balanced mutual funds or managed portfolios. Over 58% of female baby boomers have less than $10,000 saved in some form of retirement saving.*³ Don’t let this be you.

9. When choosing an employer look at more than salary. Many employers show their employees how much they are valued through their group benefits plan. Does your employer have a pension plan or match an RRSP contribution? Do they have short-term and long-term disability, health benefits and other incentives for you to stay? In other words, does your employer want to invest in you?

10. Be Charitable – Start out small. Even $20 a month can make a difference. When we give to a worthy cause, it makes us feel good. Have a family meeting and decide on a charity that you can support as a family. The government encourages charitable gifting by giving us a tax credit.

11. Women and Entrepreneurship – About 821,000 women are entrepreneurs.*⁶ They employ 1.7 million people and contribute $18 billion to our economy.*⁶ Consider supporting a woman entrepreneur or becoming one yourself. Did you know the Canadian Youth Business Foundation lends money to women between the ages of 18 and 35 years of age who have a sound business plan. Do you know a young woman who could use a “hand-up”.

12. Is your estate in order? Over the past many years of being in the financial services profession, I’ve witnessed many sad situations. The proper implementation of a Will, Enduring Power of Attorney and a Personal Directive would have saved a lot of heartache and dollars. Do Not forget to check your pension plans, insurance policies plans and RRSPs to be sure the right beneficiary is registered.

13. What about your mortgage? If your mortgage is to be renewed, start looking 4 to 6 months ahead of time. Consider calling a mortgage broker. Should you choose a fixed rate or variable rate? A fixed rate gives you peace of mind if you believe interest rates will increase. A variable rate may offer you more savings, knowing that you can lock in at a later date should interest rates increase. Before jumping into a faster pay-down schedule, consider your cash flows: other expenses need to be covered.

14. An emergency fund--Is it necessary? When times are good and employment seems secure, an emergency fund may seem unnecessary, especially if you have a secured line of credit. However, nowadays, I suggest clients consider the new Tax Free Savings Account (TFSA) once they have maximized their RRSPs. Put your tax return in the TFSA so it can grow tax free. But Caution, get professional advice. Other circumstances such as outstanding balances on credit cards may need to be addressed first.

So Ladies, as you see, regardless of your age there are steps you can take to secure your future. Whether you are single, married, widowed or divorced, chances are that you will live a long time and you want to live comfortably and with dignity. The time to take action is now! Seek out the advice of a Professional Financial Planner (one with the Certified Financial Planner designation). Go to him or her with your lifestyle goals: where would you like to see yourself in 5, 10, 15, and 20 years from now? Have your advisor prepare a comprehensive financial plan, one that includes: goals, net worth, cash flows, retirement planning, insurance planning and estate planning. The comprehensive financial plan should also include a list of recommendations and dates that all items need to be completed by. This plan should be reviewed on an annual basis or if significant changes take place in your life that could affect your plan.

The choice is yours:

“No Name” or “Gucci”

Donna Worthington is on the National Board of Directors of the Canadian Institute of Financial Planners.

For Seminars, appointments, or speaking engagements please call 780‑702‑1551.

*¹ Source: Allianz Life Insurance survey, 2006

*² Source Statistics Canada

*³ National Centre for Women and Retirement Research

*⁴ Womens Institute for a Secured Retirement

*⁵ Bureau of Census

*⁶ RBC Group