Many investors find it hard to think ahead to the day when they will leave work and their steady paycheque. In the final decade before retirement, however, reality often sets in, focusing their attention and often bringing them to financial professionals.
For an advisor facing a client who expresses a desire to retire in 10 years, it's time to help people take stock of where his or her finances are, where they need to be – and how to get them there, says Michael Banham, vice-president of wealth distribution at Sun Life Financial in Waterloo, Ont.
"There really is no one-size-fits-all approach to retirement," he says. "What is important is Canadians sitting down with an advisor to have the discussion, to look at the full financial picture including assets, wealth accumulation, protection and legacy planning."
The question of how to retire in 10 years can be a major concern for clients, adds Mr. Banham, and "advisors have a pretty unique advantage of understanding not only where you are financially, but what it takes to get you to where you want to be."
Canadians are facing the 10-year challenge today in record numbers. According to Statistics Canada, 4.7 million Canadians are between the ages of 55 and 64. "This creates a significant opportunity for growth when these individuals sit down with a financial advisor to chart their course to retirement," Mr. Banham says.
The 2015 Sun Life Canadian Unretirement Index, a poll conducted by Ipsos Reid that tracks attitudes and expectations about retirement, found that fewer than one-quarter of Canadians surveyed rate the growth of their investments as good or excellent. Mr. Banham says that in such cases it's important for advisors to help investors look at the big picture.
"By offering solutions that address growth with guarantees, clients can feel comfortable knowing that their advisor is covering off wealth accumulation for retirement savings, protection of their assets and the chance to leave a legacy," he says.
Danielle Park, an independent financial analyst who is president and portfolio manager of Venable Park Investment Counsel Inc. in Barrie, Ont., says that most people who are 10 years away from retirement want to know how much money they're going to need once they leave work. She suggests that clients look at what capital they've saved and what it can safely yield.
"It's not a magic black box, it's math," says Ms. Park, the author of Juggling Dynamite: An insider's wisdom on money management, markets and wealth that lasts. Those who don't think they will have enough for retirement with 10 years to go must either reduce their expectations of their retirement lifestyle, plan to work longer or save more than they're currently saving, she says. That can mean adding a second stream of income, such as renting out space in their home or taking on another job, as well as simply spending less today.
It's important to carefully conserve your principal, says Ms. Park. "In reality, people have a very low risk tolerance," she notes, adding that risk resilience is better if you have no debt and have a regular income flow. "You may have to downsize your whole expectation."
Ensuring that a client's retirement funds will last is critical, says Mr. Banham. In 1980, the average life expectancy at age 65 for Canadians was almost 80 years old for men and 84 years old for women, according to Statistics Canada. Now the average life expectancy at age 65 is almost 84 years old for men and almost 87 years old for women. One-quarter of 65-year-old women and 17 per cent of 65-year-old men will live past 95. The Unretirement Index found that working Canadians are 2.5 times more likely than retirees to believe they will outlive their retirement savings.
Advisors have a wide variety of products and solutions at their disposal to help people achieve their financial needs, including products that and in particular, provide a guaranteed income in retirement, much like a pension, says Mr. Banham. He believes predicts the demand for products that provide guaranteed retirement income will rise as people transition and live in retirement. Some of these products are specifically designed to bring confidence to those planning to retire in a few years by allowing them to stay invested in the market and take advantage of potential market growth, while having the assurance of a minimum guaranteed level of income for life.
Mr. Banham points out that advisors are uniquely positioned to ask the right questions that will make a difference. "Many people don't know what they don't know," he says. "A financial advisor is trained to fully understand the steps it will take to get them to where they want to be."