Planning for clients working post-retirement

(September 27, 2005) Some people just can’t get away from work — even in retirement — yet not all advisors take this into account when they construct retirement plans for their clients, experts say.

In addition, a number of popular retirement online calculators don’t allow consumers to include post-retirement employment.

But looking at a study released by Statistics Canada last week, post-retirement employment is something more financial firms might want to emphasize. According to the study, more than 20% of those who retired between 1992 and 2002 at the age of 50 or older went back to work, while another 4% said they looked for a job, but hadn’t been able to find one.

Bruce Cohen is a pension expert, author of The Pension Puzzle, and has seen his share of retirement plans. He says many advisors rely on software that doesn’t account for post-retirement employment. “Working in retirement can make a huge financial difference in a person’s financial planning and yet there are a number of financial tools that don’t account for that,” he says.

Given today’s reality of people working past retirement, and the increasing trend of governments ending mandatory retirement at age 65, that could be an oversight. “Any advisor that is using financial planning software that does not allow the individual to work in retirement is being irresponsible,” he adds.

Alan Cameron a financial planner with Investment Planning Counsel of Canada (IPC), agrees with Cohen, describing advisors who don’t include work after retirement in their plans as being guilty of a glaring shortcoming. While IPC does factor in post-retirement employment, he wonders how many other firms do since many of the people that come to him are surprised by his approach.

Factoring in these extra wages after retirement can make all the difference. In one instance, a single income family earning $40,000 a year came to Cohen asking for help. The couple was told that in order to meet their goals, they would have to save $10,000 a year if the wage earner was to retire at 55. However, the wage earner had the option of returning to work on a part-time basis for three days a week.

The first financial planner the couple visited didn’t factor the part-time work into his calculation because “everybody says they are going to work in retirement, but nobody does it,” recalls Cohen. “I found they only had to save $2,000 a year which is much more doable.”

Cohen, who himself is semi-retired, has built an online calculator that includes work after retirement, which is available on the Fiscal Agents website.

“I don’t think it is a realistic view of retirement when people live so much longer, when they are healthy and in many cases they enjoy their work to have some arbitrary date in the future to stop working,” says Cameron.

His views are inline with the Statistics Canada study, which found that 22% of retirees returned to employment because they did not like retirement, 19% mentioned the intrinsic rewards offered by work and 14% felt they were needed or wanted to help out. Overall, 55% cited at least one of these three non-financial reasons for returning to work.

Indeed. As Cameron reminds his clients, retirement is a lifestyle choice if you plan well. “If somebody says they would like to retire at 55, what they are really saying is they would like the choice of whether or not to work at 55.”

Filed by Mark Brown, Advisor.ca, mark.brown@advisor.rogers.com