Response to: “Single mom worries she won’t save enough to retire” Article

The Follwing comments are based on the recent “Single mom worries she won’t save enough to retire” article

By: Les Machan SR., President (Pension Planning Centre)

1.  The solution they provide does not take into considerations the real dangers she will be facing.

• They recommend that she waits till she pays off her mortgage and car loans before she starts saving!  Only then will she have extra cash flow to start putting away.
• She NEEDS to start building Capital today for her future NOT when she turns 50 years old!!!

Lesson #1 The Value of Time:

A 20 yr old invests $2,000 for 6 yrs @12%.  At the age of 26yrs old he stops investing but lets the investment grow on its own – How much do you think his investment ($2,000 x 6yrs = $12,000) will be worth at 65yrs old?   $1,5 Million dollars

A 26 yr old would have to invests $2,000 every year from age 26 to 65 yrs old ($2,000 x 39 yrs = $78,000) to have an investment worth $1.5 Million Dollars

“Ok” you say but “If I do not have the cash flow how can I put money away?

2.  Liability Management has not been addressed with Carol.

• The recommendation given: When you pay off your mortgage, when you pay off your car loan (assuming no more maintenance expense, car won’t break down), if you quit smoking and if your ex-husband continues to pay child support) then you can start saving.  Is this considered Liability Management?
• Her danger is that she is not getting the proper guidance on how to manage her liabilities.

Lesson #2 Become wealthier within your CURRENT Cash flow:

We can reduce her current liabilities by $850. This provides for $850 dollars available a MONTH for her to Save for her Retirement!

3.  Investment Risks NOT Addressed…..

• Her real enemy is the investment managers.  Can they predict the economy?  Will they be there managing her money in the next 40 years when she needs it?  Are any of the investments GUARANTEED?  There recommendation “should provide more stable-long run returns”.  But, they may not!
• With $850 extra a month, she can invest it in RRSP’s  and get an extra tax refund which will reduce her debts.
• She is currently investing $6,400 in RRSP plus $9,100 (which is $750 out of the $850 we saved her) at the age of 65 she will have close to 1 Million dollars to live off of COMFORTABLY.
• Her investment will be in a GUARANTEED 4-5% accumulation till age 65 and GUARANTEED income for life.
• Any short term plans (which was not addressed in the solution) vacations, private school, new car bc old one breaks down etc. can and should be incorporated into her portfolio in short term guaranteed investments.  Again Guaranteed.
• That is why it is important to sit down with an expert and have your situation analysed.
• There are other options like an Estate Bond which can provide guaranteed TAX FREE payout that where not considered in their recommendations.
• Find out the 5 things Financial Advisors are NOT telling you!

4.  What About Her FAMILY PROTECTION!!!!  Irresponsible!!!

• It is recommended to increase her coverage to $250,000 from $25,000 – this is Irresponsible!

Let’s analyse this:

After paying off the debts and funeral expenses the children will be left with about 100,000$ or less to live on from the $250,000 coverage.  If their current life style would be maintain they would run out of money in 2 years…. They are not even of age at this point.

The whole point of life insurance is to replace the breadwinner’s income.  To do this more is definitely needed.  Through proper coaching and liability management you will be able to sleep better at night knowing that you and your family will be taken care of.