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Balancing growth and guarantees in retirement planning

Canadians want to grow their retirement funds, but they also want security. How advisors can help investors achieve these very different goals.


Date: June 23, 2015

For investors looking to grow their retirement funds but who also want security, retirement planning is critical, says Michael Banham, vice-president of wealth distribution at Sun Life Financial in Waterloo, Ont.

With today’s historically low interest rates and news-generating swings in equity market values, investment professionals must offer such clients solutions that capture returns but protect them from volatility, he says.

“Advisors have a significant role to play as Canadians face challenges planning their retirement,” says Mr. Banham. “Canadians want guarantees, so that their money lasts as long as they live. There is a huge opportunity for advisors to provide advice and solutions.”

According to the 2015 Sun Life Canadian Unretirement Index, a poll conducted by Ipsos Reid that tracks attitudes and expectations about retirement, 98 per cent of Canadians surveyed think it’s important that some of their retirement income is guaranteed for the rest of their lives. Mr. Banham says this is especially significant as the number of Canadians who expect to be working full time past the age of 65 has grown over the last seven years. It now surpasses those who expect to be fully retired at that age.

Three out of five Canadian workers believe they will work either full-time or part-time when they retire, while less than one third expects to be fully retired. In addition, 59 per cent of Canadians who expect to be working past 65 think it will be because they need to, Mr. Banham notes. “Data like this can’t be ignored, and Canadians need both options and the right advice to address their retirement needs.”

The Unretirement Index also found that nearly two-thirds of retirees are very or somewhat satisfied with their retirement savings, but only 44 per cent of working Canadians say the same thing.

Sun Life recently launched a suite of Guaranteed Investment Funds, or GIFs, to address market volatility while protecting gains made in the market, says Mr. Banham. These products fit well within Sun Life Financial’s “Money for Life” approach to retirement planning, he adds.

“They are designed to enable Canadians to meet specific needs during different life stages, know what retirement income they’re guaranteed to have at a particular age and protect their investment toward saving for a particular long-term goal,” Mr. Banham explains.

Sun GIF Solutions includes three series in one product: an Investment Series, for clients who want to grow assets and participate in the market, while protecting themselves with guarantees and insurance benefits; an Income Series, for clients who are ready to take immediate income in retirement and want it guaranteed for life; and an Estate Series, for clients who want to leave a legacy and have control over how their estate will be distributed among beneficiaries.

Susan Stefura is a certified financial planner and principal at Bespoke Financial Consulting Inc., a fee-only advice and planning company in Toronto. Ms. Stefura says advisors often hear from clients who want to combine growth and guarantees.

“They say ‘I want my money to go up but I don’t want to lose it,’” she says, noting that people with particularly low risk tolerance include those for whom retirement is just around the corner and those who are not sure if what they have is enough. “They want to secure [their investments] – some way, some how.”

Ms. Stefura suggests that advisors sit down with such clients and determine elements such as their objectives for their money, their time horizon, investing history and exact needs in retirement. Some options for those “petrified of loss” include buying indexed funds, choosing highly diversified investments, avoiding equities with volatility and buying annuities to cover all of their fixed expenses. When looking at products, says Ms. Stefura, it’s important to read the fine print to determine what fees are involved, whether there are upside limitations and if the investments are locked in.

Views of retirement needs and risk tolerance differ from one person to the next, adds Mr. Banham.

“Sitting down with an advisor to discuss goals will help get a broader picture of what risks one may need to take to achieve a certain goal or what risk each client is open to,” he says. “The starting point is having that initial discussion.”

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