Clients often make a variety of planning mistakes that can derail any hopes of achieving their goals. Your job is to help your clients avoid mistakes so that can enjoy a comfortable retirement.
“Mistakes are most often due to a lack of knowledge or inadequate guidance about planning for retirement,” says Aiman Dally, CEO of Copia Financial Solutions in Toronto. “Clients simply don’t know what’s best for them in all instances, especially when it comes to thinking about all the pieces that make up the retirement puzzle.”
Here are five retirement mistakes you can help your clients avoid:
1. Not having a written financial plan with clear goals
One of the most common mistakes clients make is failing to develop a written financial plan, says Matthew Williams, head of defined contribution at Franklin Templeton Investments in Toronto.
Williams says a financial plan must have measurable goals and strategies for achieving them. The problem, says Dally, is that many people will say they have a plan for achieving their retirement goals, but “most often it’s in their heads.” These people still lack a plan that looks at retirement from a long-term perspective.
2. Not saving enough
When saving for retirement, clients tend to underestimate the impact of longevity, Williams says. They often overlook the fact that they could live during retirement for as many years as they spent saving.
Using projections of how much annual income they will need, you can help ensure that they have sufficient money to last them for twenty or more years, Dally says.
3. Not taking a balanced approach to risk
Individuals either take on too much or too little risk, Williams says. He suggests they take a balanced approach to risk, taking into consideration their risk tolerance, time horizon to retirement and longevity.
“When clients get closer to retirement, they tend to become more conservative and invest primarily in fixed-income instruments,” Dally says. “But they must recognize that they need to invest in equities for long-term growth.”
He recommends a tiered approach, with assets required to meet short-term needs held in fixed-income; those for medium-term needs in a mix of equities and fixed income; and those for long-term needs in equities.
4. Not having a retirement budget
Clients generally do not understand how much they will spend during retirement, Williams says. They fail to consider all the costs they may incur, such as housing, healthcare, transportation and entertainment.
“One of the biggest costs that can catch clients by surprise is health care,” Dally says. Those costs could come in the form of in-home or nursing home care.
“When we are healthy, we don’t think about such costs,” Dally says. He advises that, in planning for retirement, clients should consider what costs the government will cover and how much they will need to meet any shortfalls.
5. Failing to take advantage of employer contribution matching
Williams says that some clients fortunate enough to enjoy employer RRSP contribution matching programs do not take full advantage of the offer.
“Clients should take advantage of matching contributions to maximize their retirement savings,” Williams says. For example, if an employer matches a client’s contribution of up to 5% of their salary, you should ensure that the client contributes the full 5% of his or her salary. This will allow clients to have a greater pool of savings during retirement — part of which did not have to come from their pockets.
This is the first part in a two-part series on retirement-planning mistakes.
See also: Rethinking Retirement: Longer lives are transforming financial advice