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Young adults who have aggressively scrimped and saved for years for a down payment on a home are financially exhausted when it comes to saving for retirement, says an expert.EmirMemedovski/iStockPhoto / Getty Images

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Two years of pandemic-related uncertainty, the rising cost of home ownership, and an unrelenting appetite for all things crypto is contributing to a troubling new trend of Canadians being unable to plan effectively for retirement, advisors say.

A recent Co-operators Group Ltd. survey of financial professionals shows that more than four in five participants (85 per cent) blame a “culture of now” mindset for preventing people from seeing retirement planning as a priority.

The vast majority of survey participants also observed that retirement planning strategies such as registered retirement savings plans (RRSPs) and tax-free savings accounts (TFSAs) are under-leveraged and understood poorly, while RRSPs are often seen as an investment tool of the past. At best, many clients rush to make RRSP deposits before the deadline, leaving other parts of their financial plan unattended.

Recently, Chad MacKenzie, financial advisor and certified financial planner (CFP) with Mackenzie Insurance Group Inc. at Co-operators Financial Investment Services in Edmonton, had to urge one of his clients to slow down and take a step back to see the bigger picture.

“She just thought making a deposit would save money on her taxes. But she had never actually mapped out her goals or sat down with an advisor before,” says Mr. MacKenzie, who was also polled for the study. “We started asking more questions to determine what makes the most sense for her business objectives.”

Everyone should have a financial plan that is as unique as their DNA that can support their individual story, he says.

“For some people, a TFSA might be a better fit. In other cases, home ownership may not actually be in the client’s best interest,” Mr. MacKenzie notes.

How home ownership ties into saving for retirement

Mr. MacKenzie is among the 76 per cent of survey participants who said Canadians in urban centres feel home ownership has become out of reach. As a result, they’re increasingly looking for do-it-yourself investment strategies to replace the idea of a home as the central asset.

“They’re putting more money into investments to build up long-term security,” he says. “But they’re also looking for more liquidity than before as the pandemic has brought on a lot of additional challenges [such as] uncertainty around what the supply chain will look like and how it will affect jobs.”

An increasing interest in the world of cryptocurrency and other blockchain assets such as non-fungible tokens is often fuelled by the illusion that day trading or investing in highly speculative assets is “easy” and a “sure thing,” says Cindy Marques, CFP, co-founder and chief executive officer of Money MakeCents Inc., a financial coaching company for Canadian millennials.

“There is a creeping belief that any savings deficits today can be easily made up for tomorrow by essentially gambling on a high-risk asset rather than making steady contributions into a well-balanced portfolio,” Ms. Marques says. “I typically see this type of thinking from young adults who have aggressively scrimped and saved for years for a down payment on a home.”

By the time they start house hunting, the aggressive competition in the real estate market forces them into making a bid much larger than they anticipated, resulting in a total liquidation of every single dollar available, she adds.

“They’re financially exhausted afterward. They feel like they’ve already spent the past decade saving, and now they deserve a break,” she says. “A concept like retirement feels so far away and intangible that there’s no point in worrying about it now.”

Ms. Marques counsels her clients to delay saving for a home rather than delay saving for retirement – even though this is usually approached in the opposite order.

She makes her case by showing prospective homeowners financial projections of how their lives might look if they chose to rent and earmark their potential down-payment toward retirement instead in what she calls a “financial freedom fund.”

“I tell them to think of the cash flow freedom they could have if they didn’t need to worry about making any further retirement contributions,” she says. “From that point, their savings efforts can be put toward a down payment, which is more easily accomplished now that they are older, further along in their careers, and earning a more comfortable salary.”

Ms. Marques says this approach has had great success as clients end up feeling a lot more confident and optimistic about their financial future.

The emotions behind investing and saving

Meanwhile, Mr. MacKenzie says a significant factor in clients’ ability to secure their financial futures lies in tapping into the emotional component of their relationship with money and not letting stigmas of shame or guilt hold them back.

He notes 80 per cent of financial professionals polled in the Co-operators study have seen clients overcome by doubt after a financial mishap or loss, which then leads to indecision and inaction.

That can be mitigated through initiating deeper conversations with clients to understand their values better, he says.

Since the pandemic started, he has seen more clients gravitate toward experiences rather than possessions.

“Clients who didn’t feel that way before the pandemic are now focusing on making memories and pursuing a work-life balance rather than slaving away to fill up the bank account,” he says.

“Material possessions only give you temporary enjoyment. Once that initial hit of dopamine wears off, it’s just a thing. It’s just a house. It’s the memories we develop around those things that give us happiness for years to come.”

He says if advisors can help clients tie this awareness into what they buy, it will help them make better financial decisions in the long run.

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