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Advisor SunLife

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Spend, save or pay down debt? Helping clients prioritize

It can be challenging to balance long-term planning with short-term goals, but advisors can help clients by asking the right questions and building strong relationships


Date: September 16, 2016

More Canadians are taking an active role in their retirement planning.

For some, it’s simply a choice to stay on top of their money. Others are self-employed and need to set up their own retirement savings plan. Many are among the growing number of employees with a defined contribution plan, which means they need to be more involved in how the money is invested. Defined benefit plans, offering guaranteed retirement income for life, are becoming less common.

Regardless of how they’re saving for retirement, Canadians need to balance long-term planning with other, short-term saving and spending priorities such as home, car or children’s education.

The best advisors always take these competing interests into consideration when working with clients, says Mike Banham, vice-president of wealth distribution at Sun Life Financial. They also start talking about it as early as possible.

“Often Canadians put off saving for retirement to pay down debt, but the truth is, the earlier a client starts saving, the better prepared for retirement they’ll be,” he says.

If debt is an issue, advisors can help clients put together a debt management plan, says Mr. Banham, which will enable them to save and pay down debt at the same time.

“They know it’s equally as important to have a spending conversation as it is to have a saving conversation,” he says.

While planning should start at a young age, Mr. Banham says it’s most important those investors 10 to 15 years away from retirement work with an advisor and start prioritizing their retirement plan.

“For these folks, their focus is on ramping up savings, paying down debt and getting their finances in order for retirement,” he says.

The pre-retirement and retirement markets in Canada present “huge opportunities for advisors,” considering the growing number of baby boomers entering their retirement years.

About 18 per cent of the boomer generation in Canada are aged 65 and older, according to Statistics Canada. By 2024, 20 per cent of the Canadian population will be 65 and older and it will be closer to 25 per cent by the mid-2030s.

“It’s important to have conversations with clients about their desired retirement lifestyle and spending expectations well before they retire,” says Mr. Banham. That includes discussion around their short- and long-term goals as well as their financial needs, both the expected (a cottage, condo, or new car) and unexpected (a job loss, illness, divorce or supporting adult children).

“Knowing the client will help advisors understand the client’s lifestyle expectations, their tax situation, their investment style and their risk tolerance today, and how it might change as they approach and enter their retirement years,” adds Mr. Banham.

The best advisors ask open-ended questions, he says, to understand a client’s unique situation. In doing so, they build honest and trusting relationships. This, in turn, can help advisors manage their client’s retirement expectations. It can also help prevent the client from falling short of their retirement goals.

For instance, if a client has some financial commitments just before retirement, such as paying for a child’s university or gifting a down payment for a child’s house, an advisor might recommend a product that can be designed with lower market risk, such as a guaranteed investment certificate (GIC) or target date funds. This strategy ensures the money will be there when the client needs it.

For a client’s basic living expenses an advisor might recommend they be covered within the retirement income plan using an annuity, says Mr. Banham. Interest on GICs could also be used to help fund living expenses in the early years of retirement. Later, the capital from the GIC can be used to fund a payout annuity providing a higher guaranteed income for the rest of the client’s life.

Simon Tanner, principal advisor at Vancouver-based Dynamic Planning Partners, encourages his clients to have a budget – even those who are well off.

“Some of the most successful clients I come across – who achieve their goals the most – know exactly what’s coming in and going out,” says Mr. Tanner. “They are able to prioritize their spending and do more accurate retirement projections.”

It’s not about depriving them from doing what they love in life, but instead helping them budget for the lifestyle they want both before and during retirement. Mr. Tanner gives the example of a couple that may want to go to France once a year to visit family. That can be built into a retirement plan.

Clients should think about their hobbies and passions, but it’s not just about golf and travel, notes Mr. Tanner. It’s about helping clients envision how they plan to spend their regular days. Retirement could mean working part-time or never working again, for example.

“The retirement model has changed from gold watches, white loafers, sweater vests and a place in Palm Springs,” says Mr. Tanner. “It’s about the freedom to choose what you want do with the next chapter of your life.”

Advisors can play a role beyond just crunching the numbers, providing a more holistic outlook on life after work, he adds.

“We need to show our value to clients outside of rates of return and products and services, and look at the big picture.”

Advisor SunLife


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