(Special) - With so much evidence these days that Canadians are not adequately prepared financially to meet many of life's challenges, developing a financial plan early in life takes on a new meaning and added urgency.
Some recent reports have concluded that Canadians aren't financially prepared for their retirement and for many of the emergencies that life can throw at them.
A recent study conducted for asset management company Blackrock Canada showed that many Canadians believe they are better prepared for a long retirement than they actually are and few have a clear idea of how much they will need to carry them through a retirement, which now can last 25 years or more.
The report comes to the conclusion there is a "longevity paradox."
"The paradox is that investors recognize their retirement savings will need to last longer than ever before but they aren't making plans to ensure they will actually have the money they need," says Noel Arcand, head of Blackrock Canada. "There tends to be a false sense of security when it comes to planning for retirement. This is a serious problem and addressing it must become an urgent priority."
Canadian investors generally are "unjustifiably optimistic" that they are prepared for retirement but "dangerously passive" when it comes to managing their retirement savings.
Sixty-two per cent of non-retired investors are confident they've planned well for retirement yet only 59 per cent of them have a plan and fewer than half of those with less than $100,000 in retirement savings have one.
Investors generally are being too passive about managing their portfolios. Most (70 per cent) believe that government pensions will be there for them in retirement but almost three quarters admit they hardly ever, or never, adjust their allocations to their plans and portfolios even though they know they should.
Nearly half also said they have chosen to invest less in the stock market over the past few years and a third admitted they missed out on the post-2009 market rally.
Canadian investors tend to have a heavy national bias and are over-valued in Canadian equities, a sign they're not taking a rigorous enough approach to investing for retirement, says the report. It urges people to take full advantage of their workplace retirement plans, reduce their home market bias and diversify their portfolios outside of Canada, and seek professional advice if unsure about where to start.
"What this survey shows is the urgent need for all parties - government, employers, investment advisers and industry participants, to do a better job helping prepare Canadians for retirement," Archand says. "The effects are far reaching and the solutions need to be as big and urgent because the longer we wait to act the bigger the problem becomes."
One way to help the cause of financial preparedness is to get Canadians involved in financial planning early on in life when they graduate or are starting their careers.
"This is the time in life when it's most important to create a financial plan and start developing discipline when it comes to saving," says Murray Pituley, director of tax and estate planning with Investors Group.
Pituley recommends consolidating all debts into a lower-rate personal loan and a line of credit. "Both options often carry lower interest rates than credit cards do, but remember they are simply replacing multiple debts with one debt and you should develop a plan to pay it off as soon as possible," he says.
Cut your credit card costs, spend less than you earn, set your financial goals by writing down what you'd like to achieve in the next five years and then work backwards to find out what you need to do to achieve your goals.
Invest in your future. Look into setting up both a Tax Free Savings Account (TFSA) and a Registered Retirement Savings Plan (RRSP) and plan ahead, with help.
"When it comes to planning for your future, especially if you are starting out, it's best to seek professional advice from an adviser who can help develop a customized plan tailored specifically to your needs and financial goals," Pituley says.
Talbot Boggs is aToronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.
