A comprehensive wealth plan is a written document that combines your personal financial goals and the financial tools, tactics and systems that will be used to achieve your objectives. A comprehensive wealth plan includes seven primary sections (goals and objectives, budget and cash flow, tax, risk management, investment, retirement income, and legacy) that I’ll elaborate on below.

Are you thinking to yourself “only rich people need something like this — I’m doing well with what I’ve got?”

You aren’t alone. Almost half of Canadian families across the country report not having a financial plan according to the 2019 RBC Financial Independence in Retirement Poll. The problem with delaying putting your plan down on paper is that you are hurting yourself and your loved ones.

Imagine that you only learn one piece of financial advice in your lifetime, something like, “a penny saved is a penny earned” and you are wise enough to put it into practice. Every time you earn some income, you save a bit. Every year, your savings grow bit by bit.

Sounds good right?

What if you never consider the tax consequences of your savings? What if you never figured out how much you’d need to retire in the lifestyle you wanted? What if you never asked the question “Will my legacy and wealth transfer wishes be fulfilled?” Questions like these are addressed when you put your plans and thoughts down on paper, and they’ll lead to better outcomes.

Better outcomes means you can be more comfortable, you can leave a bigger legacy, and you have more options when it comes to your finances and your life. Ultimately, it means that you and your family will be better off.

As mentioned above, I’ve laid out below the seven sections of a comprehensive wealth plan that you can use to organize and write down your personal financial systems.

1. Goals & Objectives

The first section of your wealth plan is used to pinpoint both your starting point (current financial circumstances) and finishing line (future financial position). You’ll want this element to include not just your goals, but the risks that you’d be comfortable accepting in order to achieve them. This section doesn’t need to be long or elaborate, a few sentences about your current financial circumstances, your thoughts towards money/finances, and a vision of where you’d like to end up should be sufficient.

2. Budget and Cash Flow Planning

Budgeting and cash flow planning involves the review, execution and monitoring of the cash in/cash out equation. Budget and cash flow planning is tenet number one when creating your long-term wealth plan. You’ll want to have a firm grasp of the money flowing into your household and perhaps more importantly the money that leaves your household accounts through the payment of taxes, debt, lifestyle expenses, etc. I’d recommend that you use a spreadsheet to list the following important inflow and outflow items.

Cash Inflow Items:

• Direct deposits
• Investment income
• Regular cheques
• Government benefits
• Pension income deposits

Cash Outflow Items:

• Taxes
• Savings
• Debt repayment
• Rent or mortgage
• Car and transportation
• Food
• Monthly bills
• Subscriptions
• Discretionary spending

Families that go through this exercise often realize that money is slipping through the cracks or they aren’t bringing in enough cash to meet their monthly obligations (an issue that needs to be addressed immediately). For others it’s a great way to visualize your financial priorities. Once you’ve listed your primary cash flow items, it’s time to take a hard look at one of your largest annual expenses — income taxes.

3. Tax Planning

Tax planning in the context of your wealth plan is the focused attention on tax preferred savings, investing, investment income planning, asset location planning, and short-term versus long-term personal income tax issues that arise through certain triggering events that include but are not limited to incapacitation, death, divorce, or the culmination of an investment operation.

Income tax is likely your largest household expense and it deserves your focused attention. It’s important to realize that the government has set up incredible programs to assist you in better managing your annual tax liability including but not limited to RRSPs, TFSAs, certain insurance products, deductions and credits. I’d highly recommend that you set up your wealth plan to take advantage of as many tax saving opportunities as you can so that you can lower your tax liability and increase the amount of wealth you can accumulate for the benefit of you and your family.

Once you’ve created your tax planning strategy, you’ll want to move up one rung on the planning ladder to consider the primary financial risks that you and your family will face through the years.

4. Risk Management Planning

Risk management planning is the system of managing your insurance program. Your insurance program should ideally cover your major life cycle risks including but not limited to death, disability, disease, incapacitation, living too long, health, travel, home and auto.

You’ll do this by knowing what you own (i.e. the type of insurance that you own, the premiums you pay monthly/annually) and why you own it (What risk does it cover? How does it cover the risks in question, and what other options exist? Is it the right product/solution for your situation?) I know you might question the validity of insurance, partly because of the stories you hear and the perception that insurance companies don’t want to pay out benefits. While I understand the frustration, and the fear, risk management and mitigation is an essential element of a comprehensive plan. If you still aren’t sure that risk management planning is for you, I’d recommend you read these stories.

It’s important to clearly think through your risks, and cover the ones that you believe leave you the most exposed. At this time, I’d highly recommend that you seek out professional guidance when considering your risk management plan. A professional advisor will work with you to answer the questions you have, and present you with solutions to meet your wants and objectives.

Your life changes regularly (new homes, growing families, loss of loved ones, retirement, etc.), and therefore I’d recommend that you review this section of your wealth plan on a frequent and regular basis.

5. Investment Planning

Investment planning is the operation of setting your investment goals and risks, and then executing, and rebalancing your short and long-term investment operations over time. Investment operation planning can be as simple as finding an undervalued asset, buying it, watching the price increase and then selling it. It can be as complicated as setting a 30+ year goal of retiring with $1,000,000 in the bank and making investments in accordance with your long-term objective. Whatever the operation you are undertaking, I encourage you to be mindful of the investments you make, and how they are getting you closer or further from where you ultimately want to be.

For an investment operation to be successful, it’s important you undertake a prudent, thoughtful and well executed program to achieve repeatable results. This includes defining your annual return expectations, the risk of loss that you’d be willing to accept in order to achieve your desired returns, the types of assets that you’ll acquire (new companies, blue-chip companies, real estate, loans, savings accounts, etc.), the mix of assets that you’ll own (low, medium, high risk assets), the location of your assets (taxable accounts and tax preferred accounts), and defining your rebalancing strategy to list a few.

If the implementation of this part of the program is beyond your desire or comfort level, you’ll want to consider working with a wealth management professional that you can trust. I’ve written about how you might want to select your ideal wealth manager, and I recommend that you take a look at it.

6. Retirement Income Planning

You’ve worked hard, you’ve saved and invested to build a rock solid financial foundation and now it’s time to step away from work. Do you have enough? Will your money last as long as you need it to? These are the questions that are answered through the retirement income planning process.

Your retirement income plan should clearly define the following key retirement questions:

1. How much of your retirement income will you’ll receive from:
2. Government benefits (Canada Pension Plan [CPP], Old Age Security [OAS], Guaranteed Income Supplement [GIS])
3. Private pensions
4. Personal savings
5. How will you turn your personal savings into a retirement income stream?
6. Annuities - a contract between you and an insurance company that promises to pay you a steady stream of income based on the contract specifications.
7. Probabilistic withdrawals - systematic withdrawals from your private savings based on historical evidence of volatility and expected returns so that your money last as long as you need it to.
8. Rules of thumb - based on historical financial practice like withdrawing a certain percentage of your portfolio (the 4% rule).
9. At what age will you begin to take CPP, RRSPs, TFSA, etc.?
10. What are the tax consequences of your retirement income decisions?

Getting the answer to these questions down on paper will give you a clear understanding of where your cash inflow is going to come from in retirement, and how you can optimally manage your cash outflow so you can enjoy a retirement full of peace and happy memories.

7. Wealth Transfer

Finally, the last stage of your comprehensive wealth plan is to efficiently manage the transfer of your wealth so as to create the legacy you’ve dreamt of. A wealth transfer and legacy plan ensures that your philanthropic and family legacy desires are executed and your assets transfer to subsequent generations in the most efficient way possible.

Questions that your estate and legacy plan will answer are but not limited to:

1. How might you want your assets divided up between heirs and philanthropic causes?
2. Who’s going to manage the windup of your affairs (executor/executrix)?
3. Who’s going to care for you if you need help (power of attorney)?
4. Will you designate beneficiaries on your registered accounts and insurance products? If yes, then whom?
5. What are the tax impacts of your desires?
6. Is this process going to be as easy as possible for your loved ones?
7. If you have young children, who might care for them if you are gone (guardianship)?

There are plenty of questions that come up at this stage, and it’s important to think through your options. It’s useful to think about what you want to achieve, and to run those ideas by qualified advisors. It’s amazing how often desires are decided on, only to determine that what you thought was going to be fair and equitable turns out to be unfair and the start of family issues.

Let’s save you from that.

What do you do next?

Now that you’ve learned about the seven elements of a comprehensive wealth plan:

• Goals and objectives
• Budgeting and cash flow
• Tax planning
• Risk management
• Investment planning
• Retirement income strategies
• Wealth transfer

What should you do with that knowledge?

The next step on your path will be to organize all of your financial information in one place.

I have a digital tool to help you do just that, it’s called the personal financial questionnaire (PFQ) and it’s available for free to anyone who emails me at kurt.lucier@raymondjames.ca with the subject line Free PFQ and your First and Last Name in the body of the email. You can also call me at 613-788-2175 with your request and I’d be happy to mail you a hard copy of the tool if you leave me a message containing your request for the tool and your name and address.

Here’s to you taking control of your financial life!

Sincerely,

Kurt Lucier, CFA

Information in this article is from sources believed to be reliable. However, we cannot represent that it is accurate or complete. It is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell securities. The views are those of the author, Kurt Lucier, and not necessarily those of Raymond James Ltd. Investors considering any investment should consult with their investment advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decision. Raymond James Ltd. is a Member Canadian Investor Protection Fund.