My former neighbour sent me the picture that accompanies this post. I apologize for the quality of the image–it’s an old newspaper clipping. Truthfully, I had forgotten about it. It was taken nearly 14 years ago, and I was in the throes of infant induced insomnia.
The article appeared in the Toronto Star and spoke to how women were taking control of their finances. I was interviewed because I had been a marketing consultant when I became pregnant. Back then, politicians were still bantering about the viability of instituting maternity or parental EI benefits for the self-employed. (Side note: if you’re now self-employed, parental EI benefits are now an option).
It was early 2009, shortly after the US markets experienced the most severe financial meltdown since the Depression. As I walked into my client meeting, for what was supposed to be a long-term project, I learned the client (a large US automaker) had drastically reduced the scale of the project and with it my role.
I was literally out on the street.
“I was twisting and turning our financial situation, this way and that like an intangible Rubik’s Cube, exploring every possible permutation to unlock our solution.”
I called my husband to break the news: the income we’d projected for my business had vanished. We had a fairly hefty mortgage, child support payments, contributions that needed to be made to an RESP to fund my stepdaughter’s education and, now, I was pregnant, unemployed and ineligible for EI benefits.
I went home, leashed up my dog and went for a long walk. Admittedly, there were some tremors of panic. Mostly, I was twisting and turning our financial situation, this way and that like an intangible Rubik’s Cube, exploring every possible permutation to unlock our solution.
And I did. That was the focus of the Toronto Star article. Specifically, how we managed to fund an 18-month maternity leave in absence of EI benefits. We continued to meet all of our financial goals, but we went out and ate out a lot less. I borrowed maternity clothes. I accepted gifts of gently used baby clothing. My husband and I turned to each other, held hands and took long walks in our leafy neighbourhood, dreaming about our future.
Whatever panic had risen inside me, the day I learned I was essentially unemployed, subsided. It had been replaced with a plan and an overwhelming feeling of contentment.
I was happy. WE WERE HAPPY.
Nice story, right? Fast forward 14 years. I strike up a conversation with another client at my hairdresser’s salon. Inevitably, the question of “what do you do” (btw, this is more or less a North American phenomena) reared its head, and I explained I was transitioning from my corporate role in Digital Communications to become a Financial Educator.
With that, my new friend launched into an all too familiar story. She has a friend who’s retired and recently lost her husband. As is often the case, her husband had managed their finances. Now, the friend was relying on the guidance of her financial advisor. Before I go any further, let me be clear, there are amazing, honest, professional and principled financial advisors in our communities—however, he was not one of them.
This financial advisor was endorsing “cashing-in” or commuting the value of her husband’s defined benefit pension (DB). He proposed, instead, managing the proceeds of this investment on her behalf.
“Words like guaranteed, indexed to inflation, consistent cash flow are generally the stuff of retiree’s fantasies.”
This option might be viable if the pension fund was not fully funded (i.e. there’s a risk it may not have the funds to support her for the rest of her life); the portion she would receive from it “as is” (i.e. the default 60% survivor benefit) is insufficient to meet her needs; it wasn’t indexed and didn’t offer a survivor benefit (i.e. a portion of the pension paid out to her survivor(s) should she too die within a specific time frame of starting the pension, let’s say 10 years).
It’s my understanding none of these issues were discussed, never mind thoroughly reviewed. The friend was considering her financial advisor’s recommendation because a) she trusted him b) she was concerned about leaving a legacy for her children and, frankly, c) she had no idea how to choose a new financial advisor.
In essence, a DB guarantees a portion of your spouse’s income for life, provides predictable and sustainable cashflow and is often, at least partially, indexed to inflation. Words like guaranteed, indexed to inflation, consistent cash flow are generally the stuff of retiree’s fantasies. My 2 cents: DB’s are tough to beat.
In the end, my new friend accompanied her old friend to a meeting with her financial advisor. The friend opted not to take the commuted value of the pension and subsequently transferred her investments to a new financial advisor. Under her guidance, and through conservatively forecasted projections, she learned she could maintain the security of the DB and still provide a significant legacy for her family.
This story had a happy ending. Unfortunately, so many more don’t.
In Canada, women now control an astounding $2.2 trillion of wealth. That number is estimated to increase by 70 per cent by 2030. Still, women as a whole, defer the responsibility of overseeing finances to our spouses or financial experts. Often, in the case of the latter, we do it based on word-of-mouth recommendation from family or friends.
Think about it: have you taken the time to research the credentials of the “expert” you’ve entrusted with your financial future?
This lack of research can wreak financial devastation. The good news: there’s plenty of great resources available to help women become more confident about money. This week’s homework: check out the diverse collection of infinitely palatable female forward finance articles on Golden Girl Finance. Then, experiment with one of the many easy-to-use financial calculators over at Get Smarter About Money.
Pound Wise & Penny Prudent 