Skip to main content
Open this photo in gallery:

It’s not safe to assume that today’s young people will need 70 per cent of their pre-retirement income post age 65. They may need less if they plan to keep working longer, or more if they have expensive retirement goals.Drazen_/iStockPhoto / Getty Images

Are you a professional financial advisor? Register for Globe Advisor and then sign up for the new weekly newsletter on our newsletter sign-up page. Get exclusive investment industry news and insights, the week’s top headlines, and what you and your clients need to know.

Save 10 per cent of what you earn, invest 70 per cent in stocks and 30 per cent in bonds and keep six months of expenses in an emergency fund. Rules like these worked well for many baby boomers, but don’t necessarily apply to younger generations. In fact, with people following so many different paths today, some advisors say the very concept of rules that apply to everyone isn’t relevant.

“Some of the older money rules I learned initially that don’t totally apply [anymore] prioritized settling down,” says Julie Petrera, senior strategist, client needs, Canada, at Edward Jones in Whitchurch-Stouffville, Ont.

“Older generations would have an order of operations on how they wanted to do things – get married, buy a house, have children, save for retirement. Now we’re seeing that be more fluid.”

Buying a house may be less of a priority in the face of eye-watering prices, rising interest rates and high levels of student debt. Saving for retirement may have dropped down the list, too, replaced by saving for a series of sabbaticals or travel breaks from work.

It’s also not safe to assume that today’s young people will need 70 per cent of their pre-retirement income after age 65. They may need less if they plan to keep working longer, or more if they have expensive retirement goals.

As for saving 10 per cent from every paycheque, that may not work for people with fluctuating salaries. Sometimes they’ll need to use everything they earn, and at other times they’ll be able to save more than 10 per cent.

Furthermore, Ms. Petrera points out that because there’s still a pay gap between genders, this rule will on average lead to women, who tend to live longer, saving significantly less than men.

“Our job is not just to give advice, but to discover what’s important to each individual. What do they value? What are they afraid of? What are their goals?” she says.

“The advice that we’re giving [today] is very different than the advice we would have given in the past because it’s customized. … Discovery is so important, and so is rediscovery.”

Asset allocations need fine-tuning

Three years ago, Rod Mahrt, senior portfolio manager with the Mahrt Investment Group at Wellington-Altus Private Wealth Inc. in Victoria, worked with his team to analyze the performance of every asset class over the past century.

“We reached the conclusion that the traditional 70/30 asset allocation that worked so well for past generations is not going to work for today’s generation,” he says. “It’s not going to work for the next 30 years. It’s not even going to work for the next 10 [years].”

Mr. Mahrt points to what we’ve already seen happen with bonds, which haven’t turned out to be a safe haven during the current stock market volatility. Bond alternatives that may prove more protective include real estate, infrastructure and low-volatility hedge funds, he says. As a result, he believes independent advisors who can build unconstrained portfolios will be able to best serve investors.

In addition, younger clients are introducing new investment rules themselves as they look for different things from their investments. Mr. Mahrt says many are purpose-driven, determined to put their money where it can have a positive impact on the environment or on the socio-political landscape.

In anticipation of the transfer of wealth from a generation that more or less followed the rules to one that’s rewriting them, Mr. Mahrt has added two people to his team. They work with baby boomer clients’ children and grandchildren on debt and investment management and lay the groundwork for inheritances to come.

Mr. Mahrt also facilitates intergenerational conversations to discuss different perspectives on money and develop solutions that work for each family.

Context changes everything

Sometimes old rules can still work, adapted to new contexts, says Janine Purves, senior financial advisor at Assante Capital Management Ltd. in Richmond Hill, Ont.

For example, building emergency savings is still a good idea, but maybe six months of expenses shouldn’t be sitting in a savings account earning next to nothing. Even as interest rates on high-interest savings accounts creep up, keeping two to three months liquid and investing the rest may be a better move.

“That two or three months’ buffer is actually even more important now [given the prevalence of self-employment] ebbs and flows … but, going beyond that, you still need to learn to invest,” Ms. Purves says.

The “untouchable” emergency fund is another rule that has to go. Ms. Purves recently worked with a client who racked up credit card debt because they were reluctant to withdraw from their emergency fund. The result was $300 a month in interest charges that offset entirely the $300 they were trying to save in their tax-free savings account.

Ms. Purves says to always ask “Is that the right rule for you?” before following it. Rules should be adopted or based on each person’s specific situation and remain flexible because situations change.

She adds that talking about money intergenerationally – sharing good habits and mistakes – can make for a smoother wealth transfer and one in which the older generation doesn’t feel they have to control money from beyond the grave.

“You’re obviously going to be a lot more comfortable with passing things along, knowing they’re going to be taken care of,” Ms. Purves says. “It costs you a lot more money, or there’s a lot more engagement or challenge in processing a will or trust in the estate when you have too many strings attached.”

For more from Globe Advisor, visit our homepage.

Follow related authors and topics

Authors and topics you follow will be added to your personal news feed in Following.

Interact with The Globe