Six out of 10 people have experienced major life events that challenged their original retirement planning goals, according to a report published by the Ontario Securities Commission. Flexibility and preparation are crucial for clients to overcome obstacles in their retirement years.
Retirement planning always involves a level of uncertainty, says Cynthia Caskey, vice president and portfolio manager with TD Wealth Private Investment Advice in Toronto. And that uncertainty is an area that financial advisors need to address more, particularly regarding the key question clients often ask: “Will my money last?”
While no retirement plan can eliminate uncertainty, you can help clients reach their goals by avoiding these common retirement planning mistakes:
1. Neglecting to plan for longevity
One of the most common fears among retiring clients is that they will outlive their money. Your job as an advisor is to minimize that risk.
“Always err on the side that a client may live longer than expected,” Caskey says. Take into account your client’s family history in conjunction with average life expectancies.
For example, Caskey’s grandmothers lived to 100 and 98, respectively. So she will be grossing up the average life expectancy in her plan because longevity is in her genes.
Advances in medical technology are turning once-deadly diseases into chronic conditions that can be managed with medication and other forms of treatment. “As a result,” Caskey says, “we’re going to be around a lot longer than we think.”
2. Failing to predict post-retirement life
Sometimes, the preoccupation with maximizing the amount of money a client can accumulate overshadows consideration of the amount the client will actually need in retirement.
“We find in our surveys, and even in our conversations, that many Canadian’s don’t have a clear picture of what they want for their retirement,” Caskey says. “So, a lot of ‘rules of thumb’ are about replacing income levels that clients have during their working years. This may or may not be relevant.”
In the first five to 10 years of retirement, clients are often trying to fulfill their “bucket list” because they have the time to achieve their goals and are still enjoying good health. Spending may not go down as expected, particularly if retirees are travelling.
You should be encouraging your clients to consider and discuss with their families how they envision their post-retirement life.
3. Including a client’s home in their retirement plan
In the past, including a client’s home in his or her retirement plan was the norm, Caskey says. Nowadays, people do not always sell their homes in retirement and, if they do, downsizing can still be expensive, particularly if they’re downsizing to a condo, which often comes with expensive monthly fees.
Clients often receive significantly less value than they initially expected from their homes, Caskey says.