Senior couple making nordic walking in the park
© Slalomer Cruz / 123RF

This article is the fourth in a 4-part series. In the previous articles in this series, we discussed the challenges people face today and their need to manage life, health and wealth solutions to create a powerful retirement plan. While all areas demand attention, the need for wealth management in retirement is often undervalued and overlooked.

Think of the difference a generation or two makes for those on the cusp of retirement. If you think back to 1960, it’s a world few would recognize today.

A client would retire at age 65, and start collecting their employer’s defined benefit (DB) pension. There was no Canada Pension Plan (CPP), and Old Age Security (OAS) wouldn’t kick in until age 70. It was dependable lifetime income — and with the home paid off and no debt, there wasn’t much to manage other than household budgeting. Your client would lead a decent retirement life until their death.

Fast forward to today and, for both you and your clients, the retirement world has been turned on its head. Other than those in the public sector, most employees don’t have DB plans. Instead, they have defined contribution pension plans or their own registered retirement savings plans (RRSPs). Other than the bedrock of CPP and OAS, little is guaranteed. And since CPP is based on contributions and OAS is based on years of Canadian residency, it’s possible that even those may not be guaranteed for everyone. Clients must manage their own savings and, as life expectancy increases, this could mean they need their money to last 20, 30 or more years. And according to Statistics Canada, one-third of retirees are carrying debt in their retirement years.1

But it’s not just the financial side of retirement that’s changed: retirement lifestyles have changed too.

“Retirees today are actively pursuing goals and stimulation – and doing it on their time and their schedule,” says Rick Headrick, President of Sun Life Global Investments. “It’s a profound change from just a couple of generations ago. For advisors, it means they need to go into the retirement wealth and income planning process without any preconceived ideas about what the client needs, because money needs will be very different from client to client.”

A more dynamic age

While there will still be many retirees who choose to live the traditional picture of retirement — golfing, gardening, looking after the grandkids — the real difference today is the broad range of pursuits that are possible. People are generally in better health, more active and living longer. Budget-priced airfares and a greater range of travel options — from cycling tours, to cruises, to volunteer-abroad opportunities —also make it easier for this generation of retirees to expand their horizons, as does technology, which provides for greater connectivity and a greater ability to pursue opportunities.

“Some people want to start second careers or their own business, others look to leverage their life and work experience to help others in a volunteer capacity — and some might choose to use their capital to help the next generation of start-up companies grow,” says Headrick. “These are all radically different pursuits that require different wealth management solutions.”

Think solutions, not products

When it comes to the wealth management portion of a retiree’s needs, there is no single product that can balance every risk and meet a client’s specific goals. Your clients will have different income needs, different liquidity needs, and different risk tolerances. And that’s where customized solutions come in — with a mix of products that work together to meet retirement goals.

For example, a client heading into retirement might draw down their registered accounts using income funds for tax-efficient income. A portion of their non-registered savings could be invested in a segregated fund contract, which has the ability to bypass probate and provide an efficient estate settlement for those assets.

Or, a client might look at an annuity with a joint life option for a portion of their non-registered assets — a tax-efficient strategy that provides guaranteed income for life for both partners. They might also hold some of their investments in a GIC or money market fund, to ensure they have an easily liquid investment should they need the money down the road.

“The advisor’s role truly goes beyond investing,” says Headrick. “Yes, the advisor has a basket of product opportunities for an individual — mutual funds, ETFs, GICs, guaranteed investment funds, payout annuities — but the craft and the value is in putting these together in a tax-efficient way that balances factors such as risk tolerance, long-term security, and ongoing income needs.”

The advisor’s role is also crucial in helping clients navigate tax changes — an event that occurs frequently and one that can radically change the tax efficiency of a wealth plan in retirement. The current proposed tax changes relating to small businesses and professional corporations are a great example. You can help your clients understand the potential impact and help them work with their tax advisor to identify solutions.

Retirement success? Your advice is critical

Today’s retirees have a lot to offer the world, and you have a lot to offer them. It’s not solely a matter of helping clients invest their assets; it’s also about helping them use their assets to live the life they’re striving for in retirement.

The needs will vary greatly. The retiree providing venture capital to a start-up will need a safety net, the individual with a family history of a long life will need guaranteed lifetime income, and the risk-averse client will need some insulation from market volatility. And many of these needs are sure to change over time.

By listening carefully to your clients’ retirement goals, understanding their challenges, and being a sound, caring voice of reason as they seek advice, you can help them confidently retire their way knowing their wealth solutions are tailored for their specific needs. That’s the true value you can bring – and the key differentiator for advisors in a crowded wealth management market.

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1 Retiring with debt, Statistics Canada, 2011