Prepare for the unexpected

One key outcome of the pandemic is the harsh reminder that anything can happen at any time. Many Canadians recognized the importance of having a financial cushion – especially business owners affected by COVID-19 shutdowns and those unable to work.

We can’t predict if or when a challenge will arise, but we can prepare to manage the financial consequences. Here are examples of unexpected events and the solutions you can put in place in advance.

During working years   

Julia is a civil engineer employed by a consultant firm. Last year she suffered a debilitating back injury in a skiing accident and is still in recovery. Financially, Julia is fine – she had purchased individual disability insurance to enhance her group plan coverage. The group plan capped the monthly benefit below her salary level and provided benefits for up to two years. With her individual policy, her total monthly benefits are about the same as her previous employment income, and she can continue receiving disability benefits beyond two years if needed.

Sohail and Zahra wanted to cover all of their child’s education costs and ensured that their Registered Education Savings Plan (RESP) accounted for a bachelor’s or graduate degree. But they supplemented their RESP by dedicating Zahra’s Tax-Free Savings Account (TFSA) to cover potentially higher education costs. All of Zahra’s TFSA was required as their university graduate decided to go to law school.

Curtis had always enjoyed good overall health. But then he developed cancer – a type of cancer that he believed was best treated in the US. Curtis has critical illness insurance and the lump-sum benefit enabled him to afford surgery across the border. The benefit also allowed his wife to take time off work to care for him during recovery.

In retirement  

Gordon retired at a time when inflation had remained low for many years. It would be easy to expect that inflation wouldn’t be a factor in retirement. However, not only can inflation rise at any time, but even low-level inflation can devalue savings over two or three decades of retirement. With guidance from his advisor, Gordon has no worries, as his retirement savings objective and investments were designed to outpace inflation over the years.

Maia and Liam, a retired couple, have a young granddaughter with special needs. They now want to contribute to a Registered Disability Savings Plan (RDSP) so the contributions will have decades to grow and compound. Fortunately, the couple can fulfill their wish by using emergency funds they accumulated to meet any unexpected needs, separate from their savings for retirement income.  

Creating an emergency fund for retirement can be used in a variety of ways, including covering the costs of long-term care. If the funds aren’t needed, they can become estate assets for heirs or a charity.