Money for Life* consists of 5 must-have, needs-based conversations at each life stage to help clients plan to achieve their financial goals. In part 1 of this 5-part series, we’ll look at the building block for these conversations: basic needs.

There’s no denying it: basic living expenses are non-negotiable. These essential living expenses include housing, food, bills, clothing, taxes, etc. And, for some clients, this can include membership fees, property maintenance costs or recreational vehicles.

In all life stages, whether working or retired, clients need to plan to cover daily essentials. During their working years, a portion of their earnings will cover the basics, but as they get ready for retirement, clients need to consider how their retirement income will cover these expenses. Making sure basic needs are covered is step one; once they’ve planned for the basics, they’ll have a better understanding of how much they have left for their health, lifestyle and growth, saving and legacy needs.

Building for the future – Career builders and younger families.

Getting ready for retirement – Those who are about 10 to 15 years from retiring.

In retirement – Those who are going to retire in the next year, are ready to convert retirement savings into income, or are already retired.

The cost of living is expensive

In 2013, Canadians spent an average of $53,000 on the basics, including food, shelter, household expenses and furniture, clothing, transportation, personal care, recreation and education.1 And let’s not forget taxes. Canadians have a hefty tax bill; between 1961 and today the average tax bill has increased by 147%! The average Canadian family now spends more of its income on taxes (42.1%) than it does on basic necessities (36.6%).2 With taxes and inflation rates rising, we can expect the cost of living only to go up.

But, as clients build their foundation and set the path for their retirement, will they have enough to cover their basic needs?3

  • Almost 1 in 3 Canadians think there’s a serious risk they could outlive their savings; while another 39% aren’t sure, that doesn’t mean they haven’t thought about it.
  • When thinking about retirement and living on a set income, working Canadians are 2.5 times more likely to believe they will outlive their savings.
  • 36% of Canadian workers are worried about outliving their savings compared to 14% of retirees.

And with Canadian debt levels at an all-time high, personal debt is threatening retirement plans. So naturally, 34% of Canadians rate paying down debt as their top financial priority.4

Start the conversation

There’s good news — 96% of clients who work with an advisor say they’ll be able to take care of their basic living expenses in retirement.5 As a trusted advisor, you can help show clients how their basic needs will add up and determine if they’ll have enough income to cover those needs in retirement. If they won’t have enough income each month to pay for their basic needs, they’ll have a basic income gap.

To determine if someone will have an income gap:

  • First, calculate the amount for their monthly basic expenses.
  • Then, subtract the amount of guaranteed monthly income from Canadian Pension Plan or Quebec Pension Plan, along with Old Age Security and any defined benefit pension plans they might have.
  • If there’s a basic income gap, you’ll want to work with the client and discuss using their investments and savings to generate secure monthly income, how they can lower their expenses, or a combination of both.

A basic needs conversation can lead to other conversations about lifestyle and growth, health, savings and legacy needs. Clients will also be more likely to consolidate assets with you, making you their lifelong trusted advisor — which ultimately helps you grow your business.

Solutions to cover the basics

We know that the basics are vital, but how can clients pay for them and protect their plans? There are several options to consider in every stage of life.

Building for the future:

Life solutions Health solutions Wealth solutions
In the event of an untimely death of an income earner, life insurance can help protect the loss of income and help to repay debts. A health event could affect their ability to earn an income. Health insurance can help protect their earning potential and their ability to pay for household expenses. A regular saving program is key to helping these clients reach their short- and long-term goals. During these accumulation years, clients should rely on their earned income to pay for their basic living needs.

Getting ready for retirement:

Life solutions Health solutions Wealth solutions
In this life stage, the need to protect income begins to shift to a desire to protect the assets they’ve been accumulating. Permanent insurance can help protect and supplement savings. The ability to earn an income is still important to this group, especially as they increase their savings to fund their retirement. Health insurance can protect clients from the risk of a health event that would otherwise leave them with significantly less income for their basic needs and savings. Just like younger clients, those who have 10-15 working years left should be regularly saving to help them reach their short- and long-term goals. They too should rely on their earned income to pay for their basic living needs.

In retirement:

Life solutions Health solutions Wealth solutions
In this life stage, clients are usually focused on protecting their assets since they’re no longer working to earn money. The desire for life insurance shifts almost entirely from a need to a want. Permanent insurance can offer protection for savings and access to cash values. Since health needs increase with age, health insurance is vital for clients in retirement. You can help them put a plan in place for their care and health expenses so they can keep their financial plans on track — including the ability to pay their basic living expenses. To cover non-negotiable expenses, it’s important to look at guaranteed sources of income first. Payout annuities can provide the highest level of lifetime guaranteed income to help cover basic living expenses in retirement. Some segregated fund contracts offer the ability to receive lifetime guaranteed income and may also offer a death benefit for legacy planning. While not guaranteed, for certain clients, mutual funds may also be a viable source of income to help cover the basics in retirement.

Get continuing education (CE) credits – take the basic needs course

Available on Sun Life Financial’s Education Hub, you can take the Money for Life – Basic needs course and earn CE credits. During this 1-hour, self-study course, you’ll learn more about:

  • the importance of discussing and planning for clients’ basic needs in each life stage,
  • what those conversations include and
  • how to help clients plan to cover these needs.

Looking at the role that life, health and wealth solutions play in each life stage will help you more easily start a conversation about solutions to help clients address their current and future basic needs.

For more information about Money for Life and basic needs, along with tools and resources, visit sunlife.ca/moneyforlifeadvisor.

Money for Life – Sun Life Financial’s customized approach to financial and retirement planning – offers a conversation framework to help clients talk about their short- and long-term goals, and get them thinking about how their needs will change over time. Supported by a suite of tools and resources, this approach can help you have conversations and present the right mix of life, health and wealth solutions.

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*Sun Life Financial’s customized approach to financial and retirement planning

1 Statistics Canada. Average household expenditures, by province, CANSIM, table 203-0021 and Catalogue no. 62F0026M.

2 The Fraser Institute. Taxes versus the Necessities of Life: The Canadian Consumer Tax Index, 2015 Edition, August 2015.

3 2015 Sun Life Unretirement Index

4 2016 Sun Life Retirement Now Report

5 2015 Sun Life Unretirement Index