This article appears in the November 2022 issue of Advisor’s Edge magazine — our second last print issue. If you’re a print-only subscriber, learn more about our digital transition and how to continue to receive all the best news and features on Advisor.ca.
New models of employment call for a new era of retirement planning.
Everyone knows the traditional route to retirement: years of steady work accruing seniority with the same employer until the magic age of 65, when a pension and some savings kick in to carry you through the remaining years of life.
But that familiar template has been undermined as demographic and societal norms shift, said Julia Chung, senior financial planner at advice-only firm Spring Plans in Surrey, B.C.
According to Statistics Canada, the proportion of Canadians with a pension tied to their workplace has been trending down since the mid-1970s, when close to half of all employees were covered by a company plan. By 2020, the most recent year for which data is available, that proportion was 39.7%.
Combined with longer life expectancies, workers have to take a more active role in their finances, prompting firms like Chung’s to develop more personalized approaches to retirement planning.
“Life has changed so much in the last 40 years, and retirement even more so,” she said. “Our industry might be trailing a little behind, but it’s definitely starting to react.”
Advisors may find younger clients have veered even further from the conventional employment path. Public opinion firm Gallup Inc. labelled millennials the “job-hopping” generation after a 2019 U.S. survey found that 60% were open to different professional opportunities, while more than one-fifth had started new roles within the previous 12 months — making them three times more likely to switch jobs than older generations.
After the workplace disruption wrought by Covid-19, Shannon Lee Simmons — founder of advice-only firm the New School of Finance in Toronto — said workers of all ages are more open to even more drastic employment changes, trading in benefits and steady income for a chance to follow their passions or achieve better work–life balance via sabbaticals, freelance work or a complete career change.
However radical her clients’ work transformations, Simmons said her focus remains the same.
“In retirement terms, we’re making sure you can hit your savings target. If it turns out you can’t, then we will have a conversation about trade-offs,” she said. “I would never say to someone that they have to stay in a job they don’t like. What I do is to show them the potential impact of changing, which gives them the motivation to make any lifestyle adjustments that are needed in the short term to keep them on target.”
Those considering a move to more precarious work may also want to think about realigning their registered accounts, Simmons said.
“I love RRSPs, but they’re not for everyone anymore. There is definitely a place for them when cash flow is consistent and high, but for someone in the gig economy or working from contract to contract, it may make less sense,” she said.
By contrast, easy access to funds makes TFSAs an attractive option for people embracing less stable employment, especially if they’re carrying a large mortgage or if their cost-cutting leads them outside of Canada in search of a more affordable remote work location — or even a retirement destination.
Chung welcomes the recent expansion of the sabbatical beyond academic circles, explaining that it can function as a trial run for retirement that gets clients thinking about what they really want later in life.
Despite all this openness to new ways of working, Chung said that traditional ideas persist about the nature of retirement, particularly among older generations. She sees it as part of her job to shake clients out of their mindsets so she can build a financial plan around their values and goals rather than focusing on a purely monetary savings target.
“The focus should be on what kind of life they want to build for themselves. That might mean saving enough money to have a core sustainable income, or deciding not to do a hard stop at 65,” she said. “We’re talking about 25 to 40 years for a lot of people. Sitting on the patio drinking wine or constantly travelling is not sustainable for most of them. It’s the people who are able to find purpose, enjoyment and challenge in retirement who live longer and healthier.”
After three decades in wealth and investment management roles, Susan Latremoille recently switched the focus of her practice after witnessing these struggles up close. She co-founded Next Chapter Lifestyle Advisors in Toronto, where she coaches advisors to take a more holistic approach to retirement planning.
“This is something we feel advisors should become knowledgeable about, because if you’re going to prepare a financial plan for retirement, you’d better know what that person’s lifestyle is going to look like,” she said.
A lot of clients reach retirement with enough money but struggle with the transition, she said. “A lot of them were feeling lost and questioning who they were without the title and business card. Many people spend more time planning what they’ll do in a one-week vacation than in their next 25 years.”
At Vancouver-based Hillside Wealth Management, portfolio manager Mike Preto and his team have developed a “dreamscape” component to their retirement planning that is designed to help clients bring their retirement goals forward.
The inspiration for the program came after Preto inherited several older clients who put off opportunities to fulfil lifelong dreams only to miss out when physical limitations took the decision out of their hands.
“They were in their 80s, with millions of dollars, but they could no longer do the things they wanted to because they never had the confidence to spend the money earlier,” he said.
The critical element of the program is a “dreampool” created from surplus assets in the client’s portfolio — over and above what is required to fund their retirement lifestyle.
“You need regular and consistent reporting and communication to make this work. It can’t be one and done, because the numbers are changing all the time,” Preto said.
The pool allows clients to spend before retirement rather than waiting. He said he has a client who is almost ready to upgrade their camping trips by purchasing a small recreational vehicle for up to $100,000, while another client is on the way to treating her large family to a reunion — putting $40,000 toward travel and lodgings to get them all in the same place at the same time.
“Our industry is really good at telling people what they need to do to reach their retirement goals, and how much they need to save by the time they retire,” Preto said. “What we’re bad at is encouraging people to go and do the things they want to do.”