Canada can't afford your clients anymore.
This is evinced by recent changes to CPP, and a looming increase in OAS eligibility age to 67 for anyone born after 1958 (see "Warning").
Add to that the Conference Board of Canada's finding that Canadians are living, on average, 10 years longer than they were in the 1960s, and you have a formula that dictates those planning to actually retire will have to save more than prior generations.
But, say advisors, actuaries and accountants many clients aren't saving enough, despite prodding.
Jill Wagman, managing principal, Eckler Ltd., provides this hypothetical scenario of Mark and Tonya, a 65-year-old Canadian couple (see "Horror story".
Mark works in a warehouse and Tonya's in retail sales. Their combined income is $90,000 a year, about average for a couple, says Statistics Canada. After banking 5% of their income, they've got about $400,000 in savings and investment returns.
But to get to their goal of a 60% income-replacement ratio, Eckler estimates they still need another $400,000. So, at 65, they're only halfway to funding that goal.
Still not convinced?
Cathie Hurlburt, partner at Integrated Planning Group and senior planner at Assante Financial Management, recently told a client he couldn't quit his job—ever, unless he altered his lifestyle. He's half of a wealthy Vancouver couple in their late 50s with an $11- million net worth, including a home, boat, and several cars, and RRSPs.
What's the rub? Their sky-high expenses that include plans to continue supporting two adult children. They have no pension (other than the husband's CPP), and Hurlburt's calculations conclude inflation plus the costs of late-life medical care would leave them strapped for cash.
"If they want to retire within two to five years, they have to do two things," she explains: "Cut their greedy kids off and move into a smaller home."
Right now, this couple has a daughter in university, and a son living rent-free in a $700,000 condo they own. Hurlburt suggested they force the son to pay rent or get other tenants. This could net them at least $1,000 in cash flow each month, once maintenance, condo fees and taxes are deducted.
Secondly, she suggested they downsize from their $4-million, 4,000-square-foot home, to a $1.5-million condo. This would save them $16,000 in annual property taxes, as well as costs for landscaping, cleaning the pool and maid service. The $2.5 million netted from the sale could then be put into a portfolio, including fixed-income annuities, and tax-efficient investments.
It took Hurlburt four meetings to convince them of these changes. She showed them the hard truth—if they continued to spend between $16,000 and $22,000 a month, they would run out of money quickly. Also, they want to travel, so she asked why they needed a big house if they weren't planning on being home two-thirds of the year.