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Retirement savings: When it’s not enough

Facing a savings shortfall can be challenging, but strategic planning and adjusted expectations can keep retirement goals within reach.


Date: July 30, 2015

It is a challenge that financial advisors are sure to face during their career: informing clients that they don’t have the necessary funds set aside for retirement.

Given recent discussions of a “retirement crisis” in Canada and the intention of the Ontario government to bring in its own provincial pension plan to supplement the Canada Pension Plan (CPP), it’s an issue that is top of mind for advisors and investors alike. According to Statistics Canada, less than one in four private sector employees has a registered pension plan, which can make the prospect of a retirement savings shortfall seem all the more daunting.

The good news is that for most Canadians, there is still time to make necessary adjustments to ensure they can make their retirement dreams a reality, says Kari Holdsworth, vice-president of individual wealth at Sun Life Financial in Waterloo, Ont. Ms. Holdsworth says that clients frequently realize retirement savings are falling short when it ceases to be a faraway notion, often five to 10 years from their expected retirement date. “But there are still actions that they can take to try and recover.”

To get a plan in motion, Ms. Holdsworth recommends that advisors sit down with retirement-challenged clients and identify current and future sources of income – like RRSPs, government programs and employer-sponsored plans – as well as their liabilities.

With more and more Canadians entering retirement with mortgages or personal debt, the first step may be to thoroughly examine a client’s debt situation and capacity to service it, she says. “If they will have debt at the point of retirement, they need to be sure they have sources of income to continue to pay it down.”

Beyond debt reduction, there are a number of strategies clients can utilize to ensure that they meet their post-employment goals, advises Ms. Holdsworth. These strategies may include trimming their home or lifestyle costs. “One thing that they can potentially do is downsize their house to either lessen their expenses or create some capital that they can put into other solutions,” she says.

People may also need to cut planned spending in retirement. “They may need to adjust their expectations of lifestyle,” says Ms. Holdsworth.

Just as it is easier to build savings for retirement earlier in life rather than later, the options available to advisors can get tougher as clients get older, says Cherise Berman, an accountant and certified financial planner with Bespoke Financial Consulting Inc. of Toronto.

“We certainly do run into that situation,” she says. “It really depends on what stage they are at as well, whether they can adjust their current spending, their savings, their expectations.”

Rather than rely on one strategy, Ms. Berman has found that most of her clients benefit from a combination of adjustments that are intended to boost their portfolio.

“Usually it is trying to save more, possibly downsize the house, although I find that a lot of clients really want to try and stay in their home as long as possible,” she says. “It’s also about cutting their current spending and what they want to spend in retirement.”

The exercise of charting household spending can be “an eye opener” for clients, says Ms. Berman. “They are quite surprised and they can’t believe [what they are spending]. If there are gaps in meeting their retirement goals, they look for ways to really reduce their current spending.”

Another option clients may consider to improve their retirement fortune is to move up the risk-return spectrum with regard to their investments. It’s an approach that seems to fly in the face of the prevailing wisdom to reduce portfolio risk as people near retirement, but it can be an option for clients who are comfortable going that route. A client’s risk tolerance is a key consideration for advisors, says Ms. Holdsworth.

To balance the demands of clients for security and peace of mind pre-retirement with the often very real requirements for higher growth, she recommends that investors consider managed solutions such as Sun Life Granite Managed Portfolios from Sun Life Global Investments.

“The idea behind the managed solutions is that no single manager can be an authority on every asset class. The Sun Life Global Investments Portfolio Management Team selects best in class investment managers from around the world who bring the necessary expertise to each portfolio,” explains Ms. Holdsworth. “The portfolios focus on diverse investments and the Portfolio Management Team actively monitor variables like economic indicators, market fluctuation or outlook to take advantage of new market opportunities. Consumers can select a fund that has a combination of asset allocations designed to meet varying risk profiles.”

Ms. Holdsworth says that managed portfolios have grown in popularity in the investment industry since the 2008-2009 financial crisis, which shook the confidence of many investors. “The risk appetite has decreased and I think there is an appreciation that there is so much going on in the global economy,” she says. “The idea of leaving it to the experts is the approach that gives people the best prospects for success.”

Canadians’ concept of retirement and when it should happen is also changing. According to Sun Life’s 2015 Unretirement Index, an Ipsos Reid survey that explores Canadians’ attitudes and expectations towards retirement, 32 per cent of respondents expect to be working full-time at 66, while 27 per cent expect to be working part-time at that age. Only 27 per cent expect to be retired at age 66.

It is a trend that Ms. Holdsworth sees gaining momentum. Delaying retirement “can be for financial reasons, but also because people are living longer and healthier and want to integrate productive work into their retirement lifestyle.”

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