Life, Part Two: Helping clients create a vision for life in retirement

Saving and planning for retirement is difficult. We see this difficulty every day in our interactions with clients, friends and family. From saving for a house, to starting a family, to paying off school debts, there are multiple (and very real) reasons that Canadians are not saving enough or planning for their future. Now, it’s not that Canadians don’t recognize there is a problem. In a recent Fidelity retirement survey, nearly 80% of Canadian households said that they know they’re not saving enough for retirement.

While Canadians might know that they need to save more, this doesn’t make your job as a financial advisor any easier. We can offer up solutions for our clients to help them be better prepared so they can have the retirement they want. But we can’t force them to take action.

Many have tried to overcome the inertia. The financial services industry, academics and other experts have all produced amazing amounts of research and practice management training to help advisors attempt to solve this retirement inertia.

Yet, I am convinced in all of the research and practice management solutions, there is something missing. It has nothing to do with tools or formulas. Asset allocation and withdrawal rates don’t factor in at all. In fact, it is less a mathematic equation than it is a matter of human interaction.

I believe the big difficulty that Canadians have with retirement is the uncertainty. They just don’t know, or can’t envision, what their life in retirement will be like. General ideas abound—more golf, less work, no work, spending time with family, travelling. Those are great ideas, but they are not a lifestyle. Without a personal vision of retirement, clients have no real knowledge of the range of choices open to them, let alone the actual choices they may wish to make. And they have no effective way of knowing what their financial needs in retirement will be.

Now, creating a retirement vision might sound touchy-feely, but it is based on strong business fundamentals. Research shows that advisors who help their clients with retirement planning gain more clients and assets than those who don’t. So, consider this column a practice management piece on a non-financial issue. Or, to put it another way, an economist’s attempt at being touchy-feely.

I have outlined a few ideas that I think might work. If you have any other suggestions that have worked with your clients, please send them along. I will use them in future columns.

The first step in creating a retirement vision is the same first step in any good financial planning exercise—taking stock of income and expenses. Of course, for retirement, you have to project these inflows and outflows forward. Asking your clients questions about their current lifestyle will give you a good understanding of what they will need in retirement. Some expenses will decrease in retirement and others, such as additional travel, will need to be added in. The exercise can’t stop there. It is essential to add expenses that don’t recur every month or even every year, such as major house repairs or renovations. It is also essential to remember that a client’s out-of-pocket health expenses rise dramatically with age. The income exercise involves the client’s envisioning ways to deal with these expenses on a projected retirement income and thinking through the income-constrained choices he or she may be required to make.

Another great way to help clients think about retirement is by making use of a resource that you already have—your retired clients. Transitioning into retirement can be hard for some, and those about to take this step would certainly welcome any useful pointers and ideas to help them have the best retirement they can. Most retirees I know are pleased to talk about their lives and experiences. Having a small group of your retired clients talk about their retirement experience with your yet-to-be-retired clients can be eye-opening for those who haven’t walked through the retirement door.

A third suggestion is for your client to try a fake retirement. For a couple of weeks or even a month, the client and his or her spouse can live as though they were retired, keeping track of their expenses, doing only the activities they expect to do in retirement and recording how they feel about the experience. If a client has always dreamed of retiring to a small town, faking retirement would involve living in a small town for a month to get the flavour of how a small community functions in comparison to a large city. The theory behind faking retirement is that the only way any of us can really understand a new or different experience is to live it. Think of the fascinating books that have been written by authors who put themselves into an utterly new and different environment in order to understand the feelings and attitudes of people who live in that setting.

This technique may not work for everybody. More than one try may be needed. But for some, it will be a beneficial experience. And it will result in new and more relevant conversations between you and your client as to how much must be saved and invested in order to achieve the retirement he or she wants and needs. Your client might even find that he or she doesn’t want to retire at all!

Retirement savings rates, accumulation rates, withdrawal rates and retirement income replacement rates are all important tools in the retirement planning process. But they need a foundation — a vision of retirement that is the client’s own.

Peter Drake is vice-president, retirement & economic research, for Fidelity Investments Canada. With over 35 years of experience as an economist, he leads Fidelity’s research efforts in examining retirement in Canada today.