Most clients know what they should be doing to prepare themselves for retirement. The problem is that many are not very good at following through. As a result, too many clients may find themselves unprepared financially as retirement draws closer.
There are many ways in which your clients may be sabotaging their retirement plans. Here are some of the most common:
> Procrastination
Caught up in the demands of day-to-day expenses, many clients simply wait too long to start saving for retirement, says Al Nagy, an Edmonton-based certified financial planner with Investors Group Inc.
“We tend to think in the ‘now’ rather than about the future,” Nagy says. “My job as an advisor is to get my clients thinking about how the choices they make today will impact their wealth accumulation strategy. I try to get them to establish a plan and review it regularly. That helps them maintain their focus.”
Human nature is such that anything happening in the present or short term seems more important than the long term, says Tracy Piercy, founder and CEO of Moneyminding International, a Victoria-based financial literacy firm.
The key to helping clients avoid procrastination is to get them to focus on creating sustainable income to support their desired lifestyle, she says.
That approach brings long-term financial independence into the present and helps to minimize procrastination, says Piercy, adding, “We won’t succeed if we continue to ‘try’ to get people to behave in a way that is counter to basic human nature.”
> Misusing RRSPs
People often regard their RRSPs as tools for reducing their taxable incomes rather than as the retirement savings vehicles they were intended to be, according to Clay Gillespie, managing director with Rogers Financial Group in Vancouver.
Using RRSP funds to finance pre-retirement needs and desires is another frequent mistake clients make, Gillespie says. “It’s quite common to see RRSPs used as savings accounts, with the funds used to pay for non-emergency purchases.”
The use of RRSP money to pay off short-term debt can also create tax problems, while permanently reducing RRSP room.
Tomorrow: More ways clients sabotage their plans
IE