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Other contributors to retirees not working include disabilities and health-related issues that increase with age.Stuart Monk/Getty Images/iStockphoto

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Pre-retirees often get a healthy dose of sticker shock when they first realize how much they need to save now to enjoy a comfortable standard of living later.

For those who start planning only in their 40s or 50s, that amount may be well north of $1,000 to $2,000 a month, says Frank De Lio, senior executive director and financial advisor with Experior Financial Group Inc. in Richmond Hill, Ont.

“The knee-jerk reaction to that sticker shock is often a belief their only option is to work longer to retire – or never be able to retire at all,” he says.

The overwhelming feeling many clients feel initially during the retirement planning process is one explanation for the recent findings in the 2022 Fidelity Retirement Report. While the survey found 60 per cent of pre-retirees plan to work to some degree in retirement, only 17 per cent of retirees are actually doing at least some part-time work.

So, why do less than one-fifth of retirees follow through with work plans?

Betty-Anne Howard, financial advisor and certified financial planner (CFP) at Assante Financial Management Ltd. in Kingston, Ont., says most of her clients have realized quickly that “it’s just not worth it” and have found ways to cut expenses and live on less income instead.

Many find they prefer volunteer work and supporting charities and not-for-profits instead of taking an often low-paying, high-stress job, she says.

“They aren’t really interested in going back to what they used to do and want something else in their lives to give them purpose and meaning, even if it doesn’t pay money,” Ms. Howard says.

She will often refer pre-retiree clients to resources such as government-funded employment agencies to explore the type of work they might be interested in doing further. That can also act as a well-needed reality check for what jobs are actually available, she says.

Other contributors to retirees not working include disabilities and health-related issues that increase with age, says Jason De Thomasis, CFP at De Thomas Wealth Management in Richmond Hill, Ont.

“When we’re young, we don’t think we’ll ever need long-term care or suffer from a disability, but the statistics say otherwise,” Mr. De Thomasis says.

“Reviewing and implementing potential critical and disability insurance options should always be part of client discussions – especially when they’re younger and able to qualify at a much more affordable rate.”

Taking the ‘bucket approach’

Mr. De Thomasis urges clients to build a sound holistic financial plan that focuses on more than just investment returns and considers scenarios beyond not being able to find work post-retirement. Those include market crashes, large unforeseen expenses, the premature death of a spouse, a prolonged decrease in income and prolonged elevated inflation.

“Many people think they have a retirement plan, but, actually, only have money in the stock market such as stocks or mutual funds. That’s a huge problem,” he says, pointing out the impact of the sequence of returns on retiree portfolios, and that most people are using the past 10 years as a gauge, which have been mostly positive.

“When you show a client a 5 per cent annualized return over a 10-year time period with regular withdrawals, a difference in the sequence of returns can either extend the portfolio another 10 years or cause it to be zero,” he says.

When reviewing the investment component of a retirement plan, Mr. De Thomasis takes on a bucket approach.

“It’s not ground-breaking, but it’s a prudent method to help clients meet their income needs and not be affected negatively by volatile markets, such as what we’ve seen in 2022,” he says.

“Advisors and planners should not use long-term averages as a guide to investment decisions in retirement.”

Other options to consider

When retirement planning projections show that a client will come up short of their goal, Scott Sather, president and CFP at Awaken Wealth Management Ltd. in Regina, discusses four ways to meet those goals – save more, earn more, wait, or take less.

Earning more is the option that always looks good on paper, allowing retirement savings or pensions to grow for a few more years while clients keep working.

“Sometimes they see their spouse or friends enjoying retirement and choose the ‘take less’ option instead, adjusting their lifestyle needs to accommodate or, in some cases, just starting retirement and hoping for the best,” Mr. Sather says.

Retiring from a career at the highest income of their lives to accept a usually much lower income isn’t the most attractive option, but age and lifestyle will also play into their decision, he says.

Those who choose to retire between 55 and 65 may be more likely to continue working in some capacity, as are business owners and professionals such as physicians or lawyers. An avid golfer may choose to take a job at the clubhouse to offset some of those expenses while still enjoying being around the game.

When retirement plans that include working don’t actually pan out, Mr. De Lio advises clients to downsize their homes as a way to make up for the shortfall.

“We’ve shown pre-retirees successfully how downsizing or using a reverse mortgage can help create cash flow in retirement without jeopardizing their estate, so they can still leave something behind for their children or grandchildren,” he says.

With housing prices still at high levels, Mr. De Lio has also seen more adult children moving back home with their retired parents.

“They help pay for expenses like groceries and utilities, and in exchange, they live without having to pay for rent or a mortgage,” he says. “This could be another reason fewer pre-retirees end up working at retirement.”

Whatever option clients may choose, having a proper financial plan that focuses on all areas – investments, taxes, cash flow, insurance, health, and estate – is the key to success, Mr. De Thomasis says.

“When clients are aware of the pitfalls and have a plan in place they understand, they can enter retirement with their ‘eyes wide open’ and make the necessary adjustments when required,” he says.

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