Goals are easy, execution is tough

By Mark Noble | November 17, 2009 | Last updated on November 17, 2009
4 min read

Canadians have set themselves some admirable financial goals, but many are struggling to meet these commitments, according to a poll by RBC.

Half of Canadians ranked retirement savings as one of their top financial priorities, yet a quarter of those people are not putting any money toward this goal. Homeownership was a priority for 47% of Canadians, but nearly half of would-be homeowners (47%) are not making any headway on this goal.

“We have so many complex and competing financial priorities today that it’s hard to stay focused,” said Lee Anne Davies, head of retirement strategies at RBC. “That’s the main driver behind half of Canadians saying they need financial planning help.”

The only “top priority” where they are having much success is debt repayment. Shoring up the balance sheet was a priority for 41%, and roughly 80% were managing to pay down debts. It should be noted, that right now interest rates are at unprecedented lows, making it easier to pay down debt.

The poll found that financial priorities can shift rapidly. Last year only 20% of Canadian boomers (defined as those over 55 years of age) listed home ownership as a priority. This year it was a goal for 44%.

“More boomers than you would think are struggling to balance home ownership with retirement savings as financial priorities,” said Davies, who points out that a financial advisor can assist in balancing these goals. “Sometimes you lose sight of priorities in a lively housing market.”

Boomers were not alone in raising the importance of owning their home; 44% of Canadians aged 35 to 54 said it was a priority, compared to 30% in 2008.

Davies is concerned that homeowners are choosing real estate over retirement savings. A combination of the home-renovation tax credit, buoyant home prices and stock market uncertainty are seeing older clientele put money in their homes.

“We’ve got the older segments showing a lot of activity in the homeowner categories. Given the turmoil from the marketplace over the last 18 month, real estate is attractive because it’s moving upwards,” she says. “We’re strong advocates of diversification of a portfolio. We wouldn’t want someone to put all their eggs in the real estate basket at the expense of jeopardizing their retirement savings.”

The survey clearly highlights that Canadians have an ability to set goals, but complete inability to stay on track. As Davies points out, this sort of situation begs for the intervention of an advisor.

“We see people talk about priorities, but we also see that four in 10 didn’t put money towards their goals. One reason is human nature — we lose sight of our goals,” she says. “A financial planner helps remind someone about meeting their goals, and can evaluate what has changed that might have changed a client’s priorities.”

Debt versus savings

Robert Abboud, a CFP and president of Ottawa-based Wealth Strategies, agrees that a plan keeps clients on track. It’s a two-part process, where goals are outlined, then a strategy is put in place to meet them.

Generally, he says, clients who stick to the strategy — which he monitors as their planner — don’t run into problems in determining whether they should focus on home-debt versus retirement savings.

Abboud’s goals are time tested. He and his client outline what their goals are for a certain age and then determine how they can be meet those targets. Sometimes goals are unrealistic when the plan is drawn out.

For example, Abboud advocates having a plan to both save and pay-off a mortgage by retirement. If the client can’t pay off the mortgage by their retirement date, then they’ll need to put off retirement.

“Miracles aren’t going happen,” he says. “Clients often want the mortgage gone right away, but it’s not necessarily a bad thing to have one. It’s a bad thing when you’re retired, it’s not a bad thing while you’re pursuing both goals of paying off a mortgage and saving for retirement.”

Abboud says a lot of his oversight is about monitoring his clients’ cash-flow.

“If you can’t save enough for your retirement, something’s got to give. Deciding whether to pay down debt or save for retirement is certainly not an either-or proposition.”

He adds that with a plan in place, any extra money — like a year-end bonus — can be used to fund a more immediate concern.

“If you get extra money that the plan hadn’t accounted for and you don’t need more money to meet your goals, let’s put it against the mortgage,” he says. “If the retirement is behind schedule, let’s put the money in the retirement plan if that’s the goal that needs feeding.”


Mark Noble