News Releases

TORONTO, ONTARIO--(Marketwired - May 15, 2013) - While a financial plan can help Canadians achieve their goals, a new report by the BMO Wealth Institute reveals that very few Canadians with a financial plan have considered how unforeseen events such as a disability, the death of a spouse or partner, or divorce could affect their lifestyle and financial situation.

The report, The Biggest Life Events That Can Derail Your Financial Plan, outlines the top potential unforeseen life events that keep Canadians awake at night due to anxiety of not having enough money to cope with them:

• Eighty-four per cent believe that they would face a major financial hit in the event of disability.
• Three-quarters of Canadians feel that the death of a spouse or a separation/divorce would negatively impact their financial situation.
• Close to 60 per cent feel financially unprepared to deal with major life events such as retirement, declining health of a partner/spouse or the death of a partner/spouse.

The report found that men are more likely than women to worry about having enough money for retirement (33 per cent vs. 23 per cent) and loss of employment (19 per cent vs. 13 per cent), while women worry more about their health or the health of their partner/spouse (24 per cent vs. 21 per cent).

"A financial plan can be very helpful in ensuring you are well-prepared for life's milestones such as buying a house, saving for a child's education, and retirement," said Chris Buttigieg, Senior Manager, Wealth Planning Strategy, BMO Financial Group. "However, one of the biggest mistakes individuals make is not stress-testing that plan against unforeseen events that can cause financial derailments. By working with a financial professional who understands the potential impact of life events such as job loss or disability, Canadians can develop a more practical and proactive plan that provides greater peace of mind."

Proactive Planning and Professional Advice Go Hand in Hand

The report also examines several situations that can derail a financial plan, and highlights a variety of strategies to help individuals and families implement changes that can put them in a more secure financial position:

Disability or Illness: Loss of income, drawing down on savings, and medical costs over and above what is covered by a family's group plan or by government-funded health programs can quickly add up and become a financial burden on a spouse or family. According to the study, half of Canadians (49 per cent) would count on government disability benefits even though support is limited. Instead, the BMO Wealth Institute believes Canadians should:

• Set up an emergency fund to cover costs during a short-term disability.
• Accumulate funds in a tax-free savings account (TFSA) for future needs.
• Consider disability insurance, income replacement insurance, long-term care insurance, and critical illness insurance to reduce the impact on finances.

Death: Premature death of a spouse or partner can have a large financial impact on an individual. To fund the resulting shortfall, the report found that many would turn to personal insurance (50 per cent), the government (49 per cent), employer group insurance (43 per cent) and personal savings (42 per cent). But as savings are used up, long-term financial goals are sacrificed. To help prepare, Canadians should:

• Review beneficiary designations, wills and power of attorneys, and re-examine their financial plan.
• Buy term insurance to cover risks that have a short time period (such as remaining mortgage, education fund for children, or income replacement).
• Consider permanent insurance to cover longer-term needs and build up savings on a tax-deferred basis.

Separation or Divorce: The key to financial survival through the often difficult process of obtaining a divorce is to have your financial house in order. The study revealed that 70 per cent of Canadians would be unprepared financially to withstand a separation or divorce, with 57 per cent relying on personal savings to support their new lifestyle. To help Canadians recalibrate from a divorce or separation they should:

• Review and update their financial plan.
• Update beneficiary designations on life insurance policies, employee group insurance, RRSPs and TFSAs.
• Seek legal advice on will and power of attorney and adjust as necessary.
• Switch jointly-owned assets to single ownership.
• Determine if new or additional insurance coverage is necessary.
• Update credit and eliminate joint responsibilities or guarantees.

The BMO Wealth Institute provides insights and strategies around wealth planning and financial decisions. The Institute's team of professionals have deep expertise around all aspects of wealth planning including retirement, estate, tax and insurance.

To view a copy of the full report, please visit: www.bmo.com/wealthinstitute.

Get the latest BMO press releases via Twitter by following @BMOmedia.

Survey results cited in this release are from online interviews with a random sample of 800 Canadians 18 years of age and over, conducted between March 15th and March 19th, 2013. A probability sample of this size would be accurate to +/- 4.3%, 19 times out of 20.