Soon-to-retire clients need advisors to help them understand all of their retirement income stream options as a new poll by the Toronto-based BMO Wealth Institute shows that many Canadian boomers feel their current savings will not be enough to support them.
On average, Canadian baby boomers are over $400,000 short of their retirement goals, according to the study, which was released on Wednesday. Specifically, while most people said they need an average of $658,000 saved to feel secure with their retirement finances, they only have about $228,000 in the bank. As a result, the study shows that 46% of Canadian baby boomers are not confident about their financial security in retirement.
To fill this funding gap, many people plan to postpone their retirement. Most survey respondents said they would like to retire at age 59, however, it is more likely that they will retire at 63.
Advisors should review every income option for their clients to make sure they retire at the best time, suggests Chris Buttigieg, senior manager, wealth planning strategy, BMO Financial Group. For example, a person’s age will often determine how much they receive in government benefits, like the Canadian Pension Plan, and retiring early could mean they receive less in benefits and therefore have to draw more money from their nest egg.
“[Advisors] can take all of those different sources of income and help their client determine what’s going to fund their needs and where there may be a shortfall or a gap based on those sources of income,” he says.
Another important source of income to consider is employment. According to the survey, 71% of Canadian boomers plan to work part-time in retirement to make up for their lack of savings. There are a few points advisors need to cover with clients who intend to keeping working in some capacity in retirement, according to Buttigieg. In the first case, if a client intend to work on a part-time basis with his or her current employer after retirement, he says, that person needs to find out how that will affect his or her company pension.
Secondly, regardless as to where clients works, it’s important that the income from their part-time job doesn’t interfere with their government benefits. Buttigieg gives the example of Old Age Security, which is clawed back if a person’s income reaches $67,668.
Furthermore, advisors need to be careful that clients with an entrepreneurial streak don’t commit too much of their savings to a retirement business venture. Clients who wish to start-up a business in retirement need to carefully consider, with the help of an advisor, how much money they need to invest in the project, says Buttigieg, and when they can expect some kind of return.
In addition to working, many boomers intend to sell some of their possessions in order to fund their retirement. According to the study, 44% of boomers intend to sell their collectibles, antiques or items they no longer use. As well, 32% of soon-to-retire Canadians plan to sell their house while 19% said they will rent out part of their home to boost their retirement income.