Many clients hold on to conventional beliefs or perceptions about retirement that are not true. Your role is to help clients differentiate myth from reality so that they can realistically plan for their retirement.
“Some of these myths are inadvertently perpetuated by the financial services industry and the media when promoting retirement security,” says Nadira Lawrence-Selan, marketing and communications consultant with Hathleigh Consulting in Woodbridge, Ont. “People tend to latch onto what they read, see and hear. But one size does not fit all when it comes to retirement.”
There is no single measure of retirement security, she adds, and the circumstances of each individual are different.
Here are five myths that you should seek to dispel among your clients:
> Myth No. 1: You can start saving late and retire rich
Books and seminars promising a strategy for attaining financial independence at any age represent one of the most dangerous myths when saving for retirement, says Lawrence-Selan.
These books promote the concept that clients can achieve their retirement goals by playing catch-up in later years.
“There’s no doubt that starting to save earlier rather than later makes more sense,” says George Hartman, CEO of Market Logics Inc., in Toronto. “Your investments would benefit from the power of compounding returns and you don’t have to panic over making up lost ground when you’re older.”
> Myth No. 2: All you need is $1 million
People are enamoured by the concept of saving $1 million, Hartman says. The $1-million target is invoked in numerous books and television shows (and even a song by Barenaked Ladies) as the magic number of financial security.
But while the $1-million goal is attainable for some clients, it is unattainable for others. And that amount can be insufficient for some individuals, depending on their circumstances and their intended retirement lifestyle.
> Myth No. 3: You should invest more conservatively during retirement
It is natural for clients to want to reduce their investment risk during retirement by decreasing their exposure to equity investments and increasing their fixed-income exposure.
However, Hartman cautions, “Just because you have retired doesn’t mean you should dramatically change your portfolio.” The time horizon during retirement can be very long, he adds.
In fact, Hartman says, some people could be spending more years in retirement than they spent saving for retirement. So, clients still need to invest in growth investments to avoid outliving their money.
> Myth No. 4: You spend less during retirement
Some clients, Hartman says, could spend more during retirement. Some of the costs associated with working — such as clothing, transportation and food — will come down. However, costs such as travel, recreational activities, home renovations and gifts for grandchildren will offset those reduced expenses.
More important, says Lawrence-Selan, health-care costs can increase dramatically during retirement. She suggests reminding clients that they could become disabled or require long-term care.
Myth No. 5: Your retirement date is fixed
Clients tend to conjure up a fixed retirement date. But, Hartman says, “retirement is seldom a [single] event anymore.”
Many people choose to make a gradual transition into retirement — working reduced hours or becoming self employed. Many people are changing the pace from that of their full-time jobs, Lawrence-Selan says, and instead doing things that give them greater satisfaction.