This is part two of a four-part series based on Dean Connor’s Money in Motion article.
There are over 9.4 million boomers in Canada—27 per cent of the population1—and, in addition to strength in numbers, the boomers’ moxie and willingness to challenge the status quo have made them one of society’s biggest influencers. The fact that they hold $1.24 trillion in assets and control 40 per cent of Canada’s wealth2 only emphasizes this more.
Over the past six decades, boomers have made their mark on culture, technology, housing, education, politics and all kinds of businesses as they’ve progressed through different life stages. Today, the oldest boomers are in their late 60s and many are entering retirement. Despite retirement’s long-awaited arrival, making the switch from receiving a paycheque in the accumulation years to drawing down retirement savings in the retirement years can come with mixed feelings.
As your clients’ trusted financial advisor, you have a tremendous opportunity right now to deepen relationships and help fit Canadian boomers with unique solutions—that other institutions outside our industry just don’t have—to reduce their worries, ease this transition and help them retire with confidence knowing their holistic needs will be covered for life.
Transitions can be complicated
Canadians preparing to enter retirement are asking themselves many questions: When do I retire? Should I retire completely or work part time? Should I downsize the family home or renovate to stay? What about recreational property? How will I spend my time and money in retirement? Do I want to focus on more time with my family—the grandkids?
Facing the unknown can be difficult. The potential loss of a loved one, a reduction in household income, changes in lifestyle and increased health needs with age are some of the realities that boomers will face during this time of transition. As an advisor, you might experience moments where you feel like you’re part financial coach, part therapist and maybe even part marriage counsellor! That’s a big responsibility. As an industry, we need to support you in deepening relationships with clients and responding to this call to serve Canadians whose lives—and money—are in motion today unlike ever before.
Canadians are concerned
Canadians aren’t as confident as they could be—and the numbers speak volumes.
On a scale of 1 to 100, where 100 represents extreme optimism and the expectation of a perfect retirement and 1 represents the most negative or pessimistic outlook on issues that relate to retirement, working Canadians sit at a 42.3
Two-thirds say they don’t have anyone they consider their personal advisor4 and eight out of 10 Canadians don’t have a written financial plan.5
Now more than ever, boomers need your advice to help them navigate these changes, become more confident and find peace of mind knowing they can plan for this pivotal life transition.
Canadians want guarantees
Results from the 2014 Sun Life Canadian Unretirement Index reveal that 97 per cent of Canadians want guaranteed income in retirement. Yet, not enough Canadians know about their options. For bread-and-butter products such as annuities—which help create a solid income floor in retirement to help cover the basics—62 per cent of Canadians aren’t sure how annuities work and 61 per cent aren’t sure when to buy them.6 An annuity can function almost like a paycheque in retirement—offering peace of mind so clients can feel confident that their basics are covered, and they can go on to enjoy the gratifying aspects of retirement.
There’s a significant gap between Canadians wanting guaranteed income for life and their understanding of how to achieve it. Providing education and having conversations about guaranteed income products could help them mind the gap.
Canadians also need to know they have choices when it comes to guaranteed products in retirement. Income from a life annuity can be higher—sometimes much higher—than income from a GIC. And life annuity income will last as long as your clients live. That’s important because Canadians are living longer today than ever before.
Another problem facing retirees who use GICs for retirement income is the RRIF minimum payment rules. Those rules force retirees to withdraw increasingly higher percentages from their RRIFs each year—4 per cent at age 65, over 7 per cent by age 71, almost 9 per cent by age 81, all the way up to 20 per cent at age 94 and older. The rules date back to 1992, when interest rates were higher and life expectancies lower. But today, retirees relying on GICs in their RRIFs will reach a point where they have to withdraw more money from their RRIFs than they earn in interest. They will reach this point earlier in their retirements than ever before. This can become an issue with increased longevity.
But annuity income can last for life, and may even provide a higher income than a GIC. What about investment funds? While they offer potentially higher returns than annuities, they don’t offer the certainty of income that an annuity offers. This makes an annuity a compelling choice for clients seeking long-term retirement income security. Clients can also choose to have income increase each year by a fixed percentage to help offset the impact of inflation.
In the past, there’s been a misconception around avoiding annuities in a low interest rate environment. However, waiting for interest rates to rise before investing in a guaranteed income product could leave current investments exposed to market volatility (the value of a client’s investments could decline). If clients require a guaranteed level of income now from their investment portfolio, waiting could harm their financial well-being. Clients benefit from more than interest rates when they purchase a life annuity. Because of insurance credits, as individuals pass away and no longer require income payments, their remaining premium stays in the pool to fund future income payments for survivors. As an advisor, you’re in the unique position to offer guaranteed solutions such as these, which are offered only by the insurance industry.
Building a brighter future for Canadians
As advisors, your advice is often a financial lifeline for your clients. Are you ready and positioned for this incredible opportunity to help Canadians? Take stock of how carefully you’re listening to each of your clients—anticipating their needs and what lies ahead of them, especially during the shift from the accumulation to decumulation years. Offer holistic solutions and take advantage of the accessible and innovative products and services our industry has to offer. And reinforce your clients’ decision to save for retirement or buy protection for their loved ones—making them feel good about the action they’ve been empowered to take through your insight.
Reinforcing the value of financial advice from a trusted advisor is something we deeply believe in at Sun Life Financial. Let’s build a brighter future for Canadians.
You might also like…
- Money in Motion: Canadians’ need for advice from a trusted advisor has never been stronger
- The future is increasingly female: Helping women plan for longer life expectancies
- Becoming the trusted family advisor for wealth transfers and estate planning
1 Estimates of population, 2014 – Statistics Canada
2 2013 Household Balance Sheet
3 Sun Life Canadian Unretirement Index score
4 2013 Canadian Life Ownership Study
5 2013 Sun Life Canadian Unretirement Index
6 2014 Sun Life Unretirement Index
Kevin P. Dougherty is President of Sun Life Financial Canada. He is responsible for the company’s group benefits, group retirement services, individual wealth, insurance and investment management businesses in Canada.
Kevin joined Sun Life Financial in 1994 with extensive experience in the financial services industry. He assumed his current role in 2010, after holding a number of senior leadership positions across the company’s wealth, group and insurance businesses.
Kevin’s vision for Sun Life in Canada is focused upon its mission of helping customers achieve lifetime financial security, by offering every individual client, every group plan member, and every group plan sponsor, access to the best advice, the best service, and the full breadth of protection and wealth solutions provided through the company’s businesses. These include life insurance, health insurance, mutual funds, pensions, annuities, and financial and retirement planning, accessible at home, at work, or on the go.
Sun Life has number one positions in its primary businesses in Canada owing to its commitment to developing the best technology and the best employees and advisors to create a unique combination of high tech and high touch, which is at the heart of its business strategy. Kevin and his team plan to expand these market leadership positions in the coming years.
Kevin is actively involved in the industry as a member of the Canadian Life and Health Insurance Association, and in the community as a volunteer with the United Way of Toronto. He serves on the University of Toronto’s Rotman School of Management’s Financial Services Advisory Board and the Providence Healthcare Foundation Board. He is also on the Board of Governors of the Corporation of Massey Hall and Roy Thomson Hall and a member of their Corporate Development Committee.
Kevin has a Master of Business Administration (International) from the Rotman School of Management at the University of Toronto, and an ICDD designation from the Institute of Corporate Directors.