Sometimes we think that our advice as advisors caters to all in the same fashion. In fact, we can lose sight of specific factors and elements that may apply more directly to specific client groups. I’m not just speaking about families. There are some client groups we should not overlook such as women, young people and so on.
Recently, I’ve been hearing a lot about how, as a society, we should begin to redefine retirement. That caused me to consider how our industry treats retired clients. Too often, I fear we treat them as less valuable or desirable than other clients. Clients we need to replace.
The changing context
People are living longer. By 2046, the number of Canadians age 85 and older could triple to almost 2.5 million people, according to Statistics Canada. This is one of the fastest-growing age groups, with a 12% increase from 2016. Some are calling this a longevity revolution.
As people live longer, they’re starting to think differently about retirement. Do they want to lie on a beach possibly for three decades? How will they continue to feel relevant, have a deeper purpose? How do they feel about social connections once they’ve left behind the social circle of the workforce?
It turns out that many retirees are continuing to work, perhaps in the same role or sometimes pursuing a passion project. Part time, full time or between cottage time, and sometimes from the cottage. Some are doing it because they want to, others because they want or need the financial buffer.
There is no longer a one-size-fits-all retirement.
The growing opportunity
As of 2021, the 7 million people aged 65 and older in Canada accounted for nearly one fifth of the total population (19%), up from 17% in 2016.
In contrast, from 2016 to 2021, the number of children younger than 15 grew at a pace six times slower than the number of people aged 65 and older. In 2021, there were 6 million children, representing 16% of the total Canadian population.
Statistics Canada concluded that older Canadians are a growing economic and politically influential group. They are staying healthier, active and involved for longer. Given the data, we should treat them with respect. They will need planning and advice, and may be our best clients, for much longer.
Our default language
Whenever I hear advice geared to retired clients, I hear dry conversations about tax planning and words like decumulation. Leading up to retirement, we hear the words accumulation. Sound familiar?
To start with, I don’t like that we brand people as being in the decumulation or accumulation phase. I know we mean well by using terms like decumulation, but I find it negative and intimidating. Dictionary definitions include the disposal of something accumulated and a decrease in amount or value. Very stark. The word suggests that when clients enter the decumulation phase, they should start worrying about when they’ll run out of money and perhaps that it’s the beginning of the end.
We also begin taking conversations about vulnerable clients more seriously, despite the potential for a client to be vulnerable at any age. Our language changes significantly when clients retire.
In the new world of longevity, clients entering the new and improved retirement years are switching gears, pursuing a passion or using their time and money to travel and do exciting things they never had time to do when they were working or had young children.
This will also impact how long a client’s money needs to last and the rate at which they’ll need to decumulate, and even suggests we should perhaps reconsider the age at which registered retirement income funds (RRIF) and other requirements kick in.
The new retirement
For advisors and firms, the new retirement reality suggests a new and different approach to clients nearing or in retirement.
For advisors:
- We need to talk to clients about their retirement plans and lifestyle. Their hopes and dreams for the next phase. Don’t make assumptions that retired clients will be watching TV or even relaxing on the beach. They may in fact be pursuing new business opportunities or making and spending money very differently than their parents.
- Advisors should learn more about pension plans. Many clients have defined contribution pension plans (DCPP), and others have defined benefit pension plans (DBPP). Pension rules are complex and not necessarily intuitive, and there is a significant opportunity to help advise clients on how and when to start collecting their pensions and plan their retirement income more generally.
- We need to understand the ins and outs of government retirement benefits. There is more optionality in government retirement benefits than most Canadians are aware of. The amount of Canada Pension Plan (CPP) and Old Age Security (OAS) benefits varies considerably depending on when you start collecting. Be sure to understand the nuances so you can help advise clients when they should start collecting.
- Looking at the big picture. Once advisors understand a client’s goals, help them devise a retirement income plan that incorporates pensions, government benefits and other savings, and considers any new income streams. Which sources should a client tap and when?
- Respect retirees as a client segment. The data tell us that retired clients will be an increasing portion of our country’s population, and therefore an ongoing important part of our business. Going forward, retirees will demand different advice and new respect.
- Be sure your continuing training as an advisor incorporates the new view of retirement and it’s not just about decumulation. Instead, learn how to talk to retiring or retired clients about their hopes and dreams for the future. That future may last for decades.
The bottom line
Advisors can help clients plan for a longer retirement. We need to ensure that your retirement planning tools and processes reflect the increased longevity we have been gifted. Use language that reflects the new retirement reality. People who are retiring are likely to be doing a variety of different, often exciting, things in Keeping Life Current.
