This year should have been when Jerry Hartman sold his business and spent six months travelling to places he and his wife have never visited like Australia, Russia or Africa.
“I had originally thought that when I turned 65 in May [of 2021] I would retire,” says Mr. Hartman, owner of Cigar Studio, a cigar shop in Toronto. “But I’ve kept going because my business is booming for all the bad reasons: with COVID, people are at home with more money and, because they’re not travelling, they’re turning to the domestic market for their cigars instead of buying them in Cuba or the United States.”
Mr. Hartman’s last-minute change of plans confirms what many financial advisors know from experience: anything can happen in the last few years before retirement that could affect when, how and how well a client can retire significantly. That’s why advisors need to guide their clients through this transition in their lives.
“If someone wants to retire at 65, they should get serious about the planning process at age 60 and there should be a plan in place at least three years before retirement,” says Jordan Damiani, senior wealth advisor at Meridian Credit Union in St. Catharines, Ont. “If you don’t have a plan at that point, then you might miss out on opportunities to maximize the resources available to you.”
Even the best-laid plans will likely need some fine-tuning as the retirement date approaches. In cases in which not enough money has been put aside, advisors will need to press clients to make some tough decisions about their finances and lifestyle in retirement. In other cases, advisors may need to assure clients they’re in good shape.
“[Many] people underestimate how financially healthy they are,” Mr. Damiani says. “They haven’t factored in things like government benefits and they’re surprised to see they’re on the right track, financially, when we go through the numbers.”
Whether Canadians are on solid financial footing, they need to plan for their life after work during the home stretch before retirement, especially as they get close to the exit date.
A question many people ask as they get close to retirement is how much money they need to support their post-work lifestyle.
“The most important thing I ask of every client is, ‘Do you know how much you’re spending today, and what you’re spending it on?’” says William Goldstein, a financial planner and founder of Lifestages Financial Planning Services Ltd. in Whistler, B.C. “If you don’t know this today, then how will you know what you’ll likely be spending in retirement?”
To help his clients get a better sense of their spending in retirement, he asks them to subtract what they’ve saved over the past few years from their total net income in the same period.
“The numbers don’t lie: income minus savings equals spending,” Mr. Goldstein says. Many people believe they’re saved more, but forget the one-time expenses that can add up.
Once clients understand the numbers better, they can start planning for what they need to save each year leading up to retirement, he says. It’s also time to start thinking about matters such as an actual retirement date, when to start drawing down from a registered retirement savings plan, when to trigger payouts from provincial and federal pensions and, for some people, an employer-sponsored pension.
This knowledge has made a big difference for Lisa Schwartz, 59, a TV production company executive in Toronto who started working with Mr. Goldstein on a retirement plan about five years ago. Ms. Schwartz, who recently separated from her husband, says she considered postponing her retirement age by three years to 68 so she can put away more money.
Mr. Goldstein showed her that three more years of work would translate into an extra $5,000 or so a year in income.
“When he broke it down that way, I was able to decide that, sure, I would like to have more money, but I also want to enjoy my retirement sooner rather than later,” she says. “I’m very active – I run, I bike and hike – and fortunately, the lifestyle I want doesn’t cost a lot of money.”
Not everyone has such a clear picture of what retirement life will look like, Mr. Goldstein says. For clients considering two or more possible retirement lifestyles, he presents different scenarios backed by financial modelling. For example, what if they wanted to buy a sailboat, go to the Caribbean, or sell the house and live in a condominium? He also asks clients about their plans for leaving money for children or charitable causes.
While it’s hard to anticipate every event that can potentially derail or accelerate an impending retirement, making sure clients have a contingency plan can make all the difference, says Mr. Damiani at Meridian.
This could include building in a “safety wedge” – such as a certain level of cash or bonds in an investment portfolio – should a client’s retirement date coincide with a downturn in financial markets.
“For some people, maybe they’ll decide to work longer or, if the markets are really strong, they might retire early,” he says.
Preparing clients mentally for their impending retirement is an important part of this plan, says Mr. Damiani. Business owners can find it hard to separate their identity from the enterprise they built and will need a lot of support during this transition.
“It’s not one conversation that’s needed; it’s a series of talks,” he says. “I remind them that they’ve created financial security not just for themselves but also for their family, and now they’re at the point when they really get to enjoy the rewards of all their hard work. It’s tough because a lot of people genuinely love what they do for a living, but the reality is they can and likely will find a different challenge in retirement.”
Mr. Hartman is certainly looking forward to the challenges – and adventures – of life in retirement. Like Ms. Schwartz, he created a retirement plan with Mr. Goldstein’s help and is ready to put it into action when the time is right.
“The plan we put together is very dynamic and has a lot of what-if scenarios built into it,” Mr. Hartman says. “The knowledge we gained from creating this plan has been invaluable in helping my wife and I know what we can do and where we can go as we hit retirement and post-retirement.”