This past year was a time of renewal for Globe Advisor. The hub was relaunched with a new version of the ProStation tool and we welcomed our first full-time editor to focus on producing engaging content on a daily basis for financial advisors.
To celebrate the year, we combed through approximately 250 in-depth articles published on the hub in 2019. Throughout this holiday season, we will feature some of the best work we produced during the past year.
Each day, we will highlight 10 of the top stories dealing with a specific theme or subject area. To start, we’re focusing on retirement planning, which remains one of the most important tasks for advisors.
Advisors spend a lot of time thinking about how much money their clients will need when they’re no longer working. Some advisors project clients’ retirement spending based on the well-known “four-per-cent rule,” which suggests withdrawing four-per-cent of a portfolio every year during retirement, adjusting withdrawals for inflation to avoid running out of money.
Capital preservation is top of mind for most retiring Canadians, but some advisors say investors are looking at the issue of funding their retirement through the wrong end of the lens. Rather than ensuring they don’t run out of money, investors and their advisors should worry more about creating a steady income throughout retirement that keeps pace with inflation.
For people who have a defined-benefit pension plan through their employers, years of compulsory saving may eliminate much of the uncertainty around how much to set aside for retirement. But these pension plans are only part of an overall financial picture and can be subject to change, underscoring the need for advisors to prepare their clients for all possibilities.
Financial professionals have another retirement planning tool at their disposal with the advanced life deferred annuity (ALDA), which was introduced in this year’s federal budget. The ALDA is designed to help investors worried about running out of money in retirement – and defer some taxes along the way.
Advisors have a lot of experience building portfolios for people ready to leave the work force in their 50s, 60s, or even their 70s. But what happens when a client walks through the door with a plan to retire in their 30s or 40s? It’s rare, but not unheard of among younger people today seeking to be part of the “financial independence, retire early” movement.
For many Canadians entering their golden years, retirement brings up visions of a simple time filled with leisurely activities, relaxing trips and lounging about. But for many retirees, living that life turns out to be much different. Many people face an “existential crisis” upon retiring, finding the novelty of not working wears off quickly while they struggle to maintain a strong sense of identity when they’re no longer tethered to an occupation.
For the growing number of Canadians who choose to – or must – continue working into their retirement years, managing their finances is becoming more complicated. These clients must now navigate the complex world of juggling employment income at the same time they make decisions about pensions, retirement savings, government-support programs – and take a range of new tax wrinkles into consideration.
Clients who go to their advisors with lofty, near-term financial or retirement goals but a portfolio that doesn’t quite come close to meeting those expectations may be sitting in an unfavourable spot. However, they can benefit from a firm understanding of what led them to this point, a reality check and a clear path forward. This occurrence is not uncommon. Situations in which a client has plans to retire in a couple of years but hasn’t saved enough happen more often than advisors would like.
Planning financially for retirement requires taking many uncertainties into consideration. One of the greatest is the cost of health care. Although some health-care costs are covered in Canada, there are many – ranging from medications and massages to nursing homes or at-home care – that need to be paid out of pocket.
An increasing number of Canadians are putting their retirement savings at risk as they step up to help their adult children pay for rent, groceries, cellphone bills, or even down payments for a home. In turn, advisors now have an emerging role to play in helping these Canadians find the right balance between supporting their kids and not hurting their futures.