Canadians are working longer.
The expected retirement age of the average 50-year-old Canadian has risen to 66, up from 62.5 in the mid-1990s.
But, four years after the crisis started, and with baby boomers beginning to turn 65, it’s time to restart the retirement conversation. After all, 40% of Canadians are over 55, according to Investor Economics. Further, these Canadians have some $1.77 trillion in assets.
“De-accumulation is just beginning to emerge as a major issue because so many advisors are focused on trying to increase their assets under management,” instead of developing a plan to incorporate an aging, and increasingly retired, population into their books, says William Jack, a fee-for-service retirement advisor in Toronto.
The conversation has to shift from whether they’ll have enough to retire to how best they can begin drawing from their portfolios.
First, you must figure out the client’s new retirement date. Start by showing what their retirement would look like if they stopped working today, and run projections based on the existing portfolio with conservative growth figures of 3%.
“I say, ‘If you stop building [wealth] here, this is what we can do for you,’ ” says Neil McIver, a principal at McIver Wealth Management Consulting Group in Vancouver. Then, if the client is 58 years old, he runs a projection based on retiring at 62, 65 and 67, and assuming a life expectancy of 95.
If no scenario meets the client’s retirement income needs or expectations, talk about what needs to be done. For instance, if the client has recently paid off his mortgage, he can redirect that monthly payment into his retirement savings. He may also have to scale back his current spending.
“In many cases, if a client is 55, the message should be, ‘You have [10 years] to adjust your lifestyle down, instead of 10 years to try to ramp your capital up unrealistically,’ ” says Scott Robertson, president of Tasman Financial Services in Nepean, Ont.
Schedule a conversation a few months later to check in on progress and discuss any lifestyle changes forced by the new retirement date.
But what if the markets crash again?
Once you’ve laid out projections, introduce two destabilizing events — one black swan (like a new market crash), and one sizable and unexpected late-in-life cost.
If revised projections show the portfolio can survive, the client will be reassured. If it won’t, focus on how you can respond.
Some ideas include using a laddered system of GICs that covers three to four years of living expenses and allows the client to leave market-tied investments in place to ride out losses.
The late-in-life expense can address client concerns about uncertain issues such as health and long-term-care costs.
“I throw a wrench in the plan, such as having one spouse enter a healthcare facility at age 87 at $4,000 a month to measure its impact on the projection,” says Michael Berton, a senior financial planner with Assante Financial Management Ltd. in Vancouver. “Sometimes the plan can absorb it, but if not, it starts a conversation about ways to protect against that expense, such as insurance.”
It will be important to revisit these projections throughout the transition into and after retirement, so adjustments can be made to income levels and lifestyle to accommodate the emergency.
Restarting the conversation with a client who’s already delayed retirement requires an understanding of the emotions surrounding the decision. The numbers come second. And don’t expect results after one meeting.
“I definitely meet more with a client going through the retirement transition,” says Ian Adams, senior financial planning consultant at ScotiaMcLeod in Toronto (see “Sequence of retirement meetings”).
For clients particularly hesitant to reset their retirement dates, or for whom delaying retirement is seen as failure, Adams suggests raising the possibility of part-time work. Also, consider consulting, rather than choosing a fixed date.
Then, you can frame that transition period as a chance for the client to take a job related to a personal interest, for instance.
“Keep the conversation positive, as an opportunity to do something you might enjoy,” Adams says.
Stress the extent to which such work will take stress off their portfolios: by delaying the need to rely on them for retirement income, you’ll alleviate the fear of running out of money.