Do your clients really understand retirement?

John and Margaret Wishart are in their late fifties and are on the verge of retirement. John, currently employed at a local manufacturing company has circled his sixtieth birthday for the past decade as the magic moment when he would walk away from work. Margaret, a high school teacher, will also be eligible for a full pension in three years or at age 61. Like many Canadians, the Wisharts view retirement as a magic time when they can devote hours to the many leisure activities that were part of a retirement plan.

The challenge facing John and Margaret’s financial advisor, Aileen Miga, was to clarify their retirement goals and then ensure that the financial plan is on-track to support the Wishart’s plans for the future. The problem, however, is that John and Margaret are very clear on what they are retiring from, but remain unclear about the life that they are retiring to.

This is not an atypical situation. Scores of aging baby boomers on the cusp of retirement have not spent a lot of time thinking about their retirement realistically. In fact, many continue to view this transition as the beginning of one very long weekend.

Financial advisors often assume that, if they get the financial planning part right, the client will automatically adjust to a happy retirement that will unfold without a lot of thought. Therein lays the fallacy of retirement planning today: a happy retirement is a product of foresight and clarity of thinking rather than financial capacity.

It’s about lifestyle, not money

Before you create a retirement financial plan with your clients, have they visualized how they wish to live an ideal week in retirement? How will they spend their time when they are not traveling the world or visiting grandchildren? Are they ready for the life challenges that may come their way in this stage of life? How will they adjust to a life without work?

In the case of John and Margaret Wishart, their financial advisor undertook to have them define their retirement goals in six different areas:

• The values that are most important to them in their retirement years
• The role that healthy aging will play, and how to anticipate and prepare for the inevitable health challenges that may arise
• The importance of family relationships and the development of a strong social network
• A balanced approach to leisure that encompassed such pursuits as social activities, solitary contemplation, physical exercise, intellectual engagement, spectator appreciation and creative pursuits
• Their approach to work in retirement, including volunteerism, self-employment opportunities and part-time work
• Their financial comfort, which considers how they wish to manage their nest egg, protect their lifestyle and create a legacy for the future

This lifestyle approach to retirement planning didn’t necessitate advisor Miga becoming a psychologist or moving outside of her expertise as a financial planner. All Aileen did was to ask the right questions and expose the Wisharts to education and information as part of the value-added service offered in her practice.

“I felt it was important to expose my clients to all of the issues that would affect their retirement”, she says. “While many of these areas were not financial on the surface, ultimately they would have a financial consequence in the Wishart’s retirement.”

Reframing the retirement discussion

The financial advisor’s role in a client’s retirement planning is often to act as a catalyst to get the client thinking about the various options available. The advisor can’t always assume that the client understands what retirement is or is not and how to plan for it.

The problem that many clients have is that they are operating under an idealized vision of life after work that has been perpetuated through the media. Not every client will want or be able to enjoy a life of leisure that is full of travel to exotic locales and sandy beaches.

Part of the ideal retirement picture that has been painted is that the earlier one retires, the happier they will be. Again, the stereotype says that the workplace is an unhappy place for most people and that life in retirement will be a salvation from a nine-to-five existence. In short, it doesn’t really matter what you do in retirement as long as you don’t have to go to work.

In your discussion with clients, you want to ensure that they have explored their options fully and that they have not simply assumed that retirement means “not working”. In fact, according to the American Associations of Retired Persons, 85% of aging boomers in the U.S. will still expect to receive some income from the workplace in retirement.

Increasing numbers of North Americans are now considering second careers, graduated retirement or self-employment as an option to permanent and prolonged leisure. As a result, financial advisors can no longer assume that the planning goal is to get the client successfully to retirement financially so that the client doesn’t have to work.

Do all clients understand this? Absolutely not, but then their advisors often don’t consider it either. The more you get your client to clarify their retirement vision, the easier it will be for you and the client to develop a financial plan that is more relevant to their transition.

Your new roles as a retirement planner

You are in the best position of any professional to truly help your client plan for the future, but only if you move your discussion away from purely financial considerations and towards other lifestyle considerations.

This approach suggests three new roles for advisors:

• Life transition educator

  Through creative education programs, articles, seminars etc. you can expose your client to information that will be helpful in getting them to understand areas of retirement that they may not have thought of. Remember, however, that you are still a financial planner and there is a fine line between creating ideas or thoughts and actually offering concrete suggestions that go beyond your expertise.

• Providing access to other professionals in your community

  Advisors often use this as an easier way to give your clients information in those areas where you don’t have direct expertise. As your client’s retirement specialist, you don’t take on the role of being the expert in all areas; rather, you create resources for your clients that include other experts.

• Acting as your client’s personal financial advisor

  This role allows for other advisors who can provide specialized advice to your client in retirement, but leaves you in the position of chief advisor or the person who puts it all together for your client. This role, which most advisors aspire to, will only fall on you if you have taken a broader view of your client’s retirement picture than simply the financial considerations.

John and Margaret Wishart now have a clearer idea of what their retirement life might look like, thanks to their financial advisor. “I have always wanted to spend more time volunteering at the community center”, says Margaret. “I am not ready to pack it in and I am going to do everything that I can to stay involved.” John is looking at starting his own business, using the skills that he employed in the workplace over the years. “I would rather think of this new phase of life as the start of my Second Life,” he says, “and I am not really ready to ‘retire’ to a hammock for many years!” Barry LaValley is the President of The Retirement Lifestyle Center and a partner in The Life First Approach. His book, Put the ‘Life’ into Your Practice, is a guide for Canadian Financial Advisors on the wealth management approach.