The best laid schemes o' Mice an' Men,
Gang aft agley, (often go awry)
An' lea'e us nought but grief an' pain
Robert Burns wasn't thinking about retirement when he wrote these famous lines of his poem, To a Mouse, more than 200 years ago. Yet, they perfectly express the reality of retirement planning today. Despite carefully laid plans and diligent saving, sometimes life goes awry, wrecking our retirement plans and weighing down our lives with grief and pain. Divorce, death and disability are some of the family situations that can derail even the best-laid retirement plans.
The number of Canadian marriages projected to end in divorce before the 30th wedding anniversary has fluctuated between 35% and 42% over the past 20 years. Add to this the number of failed common-law partnerships, for which data are sparse, and one can easily conclude that a relationship breakdown will affect the retirement plans of nearly half of Canadians. There are several financial dimensions to this impact:
If your marriage or common-law relationship ends, moving quickly to recalibrate your financial affairs is an important step toward getting your retirement plans back on track. Figure out your living expenses on the basis of your single status and decide how much money you can allocate to retirement savings.
Review and update your retirement plans in the light of your single status and your future rate of retirement savings. Updating your plans might require tightening your budget to save more for retirement, lowering your lifestyle expectations, working longer or working part-time for a number of years after retirement.
The death of a family breadwinner could be devastating for all aspects of a family's finances. The sudden loss of income could make it challenging to pay for the necessities of life, let alone save for retirement. The death of the spouse who cares for the family's children could have similar consequences. Paying for a caregiver could leave little or no money in the family budget for retirement savings.
The remedy for such situations is life insurance that pays a tax-free cash benefit to the surviving family member(s) if the insured person dies. This money would be invested to provide an income stream to replace the deceased's income. Term life insurance, the lowest-cost option, provides protection for a specific time period, typically to retirement age. Permanent and universal life insurance pay benefits whenever the insured dies, even after retirement.
Retirement plans must be factored into the decision on the right type and amount of life insurance to buy. For example, if the surviving spouse has adequate retirement income from his or her own pension(s) or other sources, term life insurance may be appropriate; if not, a permanent life-insurance policy could be best.
A disability that prevents a family breadwinner from working, or a spouse from caring for young children, could be even more devastating financially than death. Besides the sudden loss of income or the added cost of a caregiver, there may be extra expenses to care for the disabled person. Retirement plans are likely to suffer under such a scenario. Insurance can provide an income that will allow a family dealing with disabilities to pay living expenses and address retirement needs.
Some disabled workers or their dependents may qualify for CPP or QPP disability benefits. Workers' compensation will provide a modest income for those who suffer work-related accidents. Not every disabled person will qualify for these benefits, and even if someone does, the income is unlikely to be sufficient on its own. Depending on individual circumstances, one or more of the following types of insurance could fill the income gap.