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 4 of this 5-part series, we’ll look at the importance of a lifestyle and growth conversation to plan for the things clients want to do and invest for growth potential.
The old standard of “living off less” no longer applies. Today’s retirees want to indulge in whatever makes them happy and fulfilled to live their idea of retirement to its fullest. As an advisor, it can be tough to get clients to have honest conversations about their spending habits. In fact, research shows1 that over half of all Canadians bend the truth when it comes to talking about their financial status from time to time, and 47% aren’t honest about their lifestyle, entertainment and vacation affordability. Why? 18% said they bend the truth because of pressure to keep up appearances.1
Lifestyle and growth needs include money for:
- the things clients want to do (including personal expenses and spending habits), and
- investing for growth potential — outside of a registered savings plan — to fund short- and long-term goals.
Lifestyle priorities and spending habits
It seems many Canadians with children tend to prioritize lifestyle expenses over retirement savings, particularly when it comes to their kids’ extracurricular activities. According to a survey by Canadian Scholarship Trust Plan, when it comes to these activities, parents are going to great lengths — and potentially risking their own retirement. 38% say they, or someone they know, have borrowed money** to put a child in extracurricular activities. And, 23% say they, or someone they know, have deferred their retirement or are using their retirement savings (RRSPs) to put a child in extracurricular activities.2
While they think they can afford to make these sacrifices now, how will these decisions affect their retirement? They may not save enough to accomplish their savings goals, especially since at age 65, more than 1 in 4 women and 1 in 6 men will live to age 95.3 For these folks, retirement could last 30 to 35 years.
In all life stages, whether working or retired, it’s critical to address lifestyle and growth expectations with clients early on. In most cases, they may be underestimating their spending and ability to maintain their lifestyle choices.
Once clients understand their spending habits, you can discuss how small sacrifices can help them reach their goals. When it comes to budgeting, Canadians will likely prioritize their lifestyle spending by what they consider lifestyle “necessities.” But, by making small adjustments to their spending habits, they could redirect this money to increase their investments and then access the cash to fund larger lifestyle expenses, like a vacation or home renovations.
Before you begin conversations with clients about their lifestyle and growth needs, consider how they’re spending money on their lifestyle.
- Building for the future: They’re stretched for time and money. As they go from being financially independent as a single person to becoming part of a couple, and starting a family, they’re managing competing priorities like paying off their home and managing debt, raising children, and advancing in their career. On top of this, they’re spending money on lifestyle expenses like vacations, going out to restaurants and new vehicles.
- Getting ready for retirement: They will start to see their basic needs decrease as kids move out and mortgages get paid down. But, these clients tend to spend more on lifestyle needs like home renovations, trips, etc.
- In retirement: In the early years of retirement, clients will likely be healthier and active and may have higher lifestyle spending needs as they travel, explore and enjoy life. But, they need to plan to make their money last into (a potentially long) retirement and pay for their preferred lifestyle along the way.
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.
Solutions to protect lifestyle and growth needs
Life, health and wealth solutions can help clients prepare for how their lifestyle and growth needs (and budget) will change over time — at every life stage.
Building for the future: In their early working years, an untimely death of an income earner can result in a loss of income to cover the family’s lifestyle needs. A health event at this stage could result in significantly less income and an increase in expenses. And, starting a regular savings program may be the key to helping them achieve the growth they’ll need to reach their short- and long-term goals.
| Life solutions | Health solutions | Wealth solutions |
|---|---|---|
| Term insurance offers low-cost protection for families and savings and/or permanent insurance can provide additional protection. | Critical illness insurance (CII) provides protection from the financial impact of a serious health event and personal health insurance can help with basic medical expenses (if they don’t already have employer benefits). | Consider mutual funds, guaranteed investment certificates (GICs) and segregated fund contracts. |
Getting ready for retirement: In this life stage, the need to protect income shifts to a desire to protect assets they’ve worked so hard to accumulate. A health event could result in a withdrawal from their savings to cover medical expenses, significantly impacting their long-term savings goal. With retirement on the horizon, many will begin to ramp up their savings. Now’s the time to review and rebalance investment portfolios according to the client’s goals and risk tolerance.
| Life solutions | Health solutions | Wealth solutions |
|---|---|---|
| Term insurance still offers valuable protection. But, those who have about 15 years to retirement should consider converting term into permanent insurance that will be in place until they die to help protect and augment their savings. | CII can be used as a valuable layer of protection, paying a lump sum† that can be used any way the client would like.
Now may also be time to consider long term care insurance (LTCI) to help safeguard retirement income from the future cost of an illness or personal support and care required as they age. †When the insured is diagnosed with and meets the requirements of a covered condition. |
Segregated fund contracts offer growth with insurance guarantees. They’re a great option for those transitioning from saving to receiving retirement income.
Mutual funds offer growth potential to maximize investment returns in the years leading up to retirement. Clients who are about 10 to 15 years away from retiring often de-risk their portfolios to preserve capital. GICs can be an excellent part of the conservative portion of their portfolio as they eliminate market exposure and protect savings. |
In retirement: Now, the desire is focused solely on protecting their assets since they’re no longer working to earn money. The risk of experiencing a health event becomes less of an “if” and more of a “when.” With a focus on withdrawing income, it’s important to cover basic living expenses first.
| Life solutions | Health solutions | Wealth solutions |
|---|---|---|
| Permanent insurance offers protection for savings and allows access to cash values to help pay for lifestyle or health expenses, or the policy payments. | Depending on clients’ needs and current level of health, LTCI gives clients more control over the type of care they can access in retirement. | Payout annuities can provide the highest level of lifetime guaranteed income.
Some segregated fund contracts offer the ability to receive lifetime guaranteed income. Traditional segregated fund contracts can also be used to help cover lifestyle expenses in retirement. |
Start the conversation
Ultimately, a conversation about lifestyle and growth will help clients articulate what they want, understand the trade-offs to afford their lifestyle, and build a plan that takes into account investment growth as a way to fund short- and long-term lifestyle goals.
Money for Life – Sun Life Financial’s customized approach to financial and retirement planning — can help you start a lifestyle and growth needs conversation with clients in any life stage so they can plan to achieve lifetime financial security. Your advice can make a difference; of those who work with an advisor, 83% feel they have enough to enjoy the lifestyle they want, compared to 77% of those who don’t.4
Take the lifestyle and growth needs course – get continuing education (CE credits
Available on Sun Life Financial’s Education Hub, take the Money for Life – Lifestyle and growth needs course, earn CE credits and get a better understanding of how Canadians feel about their lifestyle, prioritize their needs and use investment growth to fund short- and long-term goals at each life stage.
To access the course sign in, select Get Started Now and click on the Insights section.
Don’t have access? Register now.***
For more information about Money for Life and lifestyle and growth needs, along with tools and resources, visit sunlife.ca/moneyforlifeadvisor.
* Sun Life Financial’s customized approach to financial and retirement planning.
** Borrowed through a credit card, line of credit, personal or family loan.
*** In order to register, you must have placed business with Sun Life Financial in the past.
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1 BDO Canada Limited and Ipsos Reid, http://oakvilledebthelp.ca/lets-talk-is-keeping-up-with-the-joneses-keeping-you-in-debt/, March 2015.
2 http://www.cst.org/en/canadian-parents-are-willing-go-debt-put-child-hockey, November 2013.
3 The Canadian Institute of Actuaries, 2014.
4 2015 Sun Life Canadian Unretirement Index