Surviving a mid-life financial crisis


Surviving a mid-life financial crisisWe joke about people having “a mid-life crisis” when a middle-aged woman cuts her hair off for a drastically new look or a man spends $60K on a new Porsche, but what if she cut her hair off before it fell out from chemo treatments, or he spent the money recovering from a heart attack?

Either of those would be a real mid-life crisis, and they’re no laughing matter.

In financial terms, it doesn’t have to be a critical illness to be a major set-back to retirement plans.  A disability or even extended unemployment can throw plans into total disarray, but most of us don’t give these things much thought until they happen to us, or someone close to us.

Consider the heart attack recovery above, for example.  It could happen.  In fact, according to the Heart & Stroke Foundation of Canada, it happens about 6,000 times a month.  The cost of recovery arose primarily from a six month leave of absence for him and a three month leave for his wife to care for him.  Lost wages were replaced with RRSP withdrawals. With an average tax rate of 34%, the $60K actually required withdrawals of $90,000 and if they’re like the 67% of Canadians with less than $100,000 in their RRSPs (BMO Leger Survey), it’s safe to say the heart attack pretty much wiped it out.  How would you fair in this situation?

The good news is you may be alright.  You may have disability and critical illness insurance at work, or even better, own your own insurance policies.  You may have an emergency fund established with 6 months of income tucked away, a larger than average RRSP and a maxed out TFSA.  Okay, now I am being funny, for most Canadians, at least!

However, that scenario does map out the ideal we should all be shooting for.  If you don’t have disability and critical illness insurance at work, talk to a financial advisor about getting an affordable policy.  Use your TFSA to build up an emergency fund so that if a real mid-life crisis does happen, you won’t have to tap into your RRSPs.  It’s far better to prepare for the worst than have it jump up and surprise you. If you end up with too much savings and no crisis, then let your hair down and hop in that Porsche, ‘cause you’ll be laughing!

To get another perspective on your finances, contact your EFAP to speak to a counsellor or get some financial advice to help you reach your goals.

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