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The changing needs of the boomer investor

Advisors must address the boomer client’s complex financial reality: aging parents, debt, boomerang kids and big inheritances on the way.


Date: September 30, 2015

As they approach retirement, today’s baby boomers are seriously in need of financial planning advice.

They’re earning peak salaries yet they’re spending robustly and are saddled with debt. They’re caring for aging parents and supporting grown children while anticipating a tidal wave of inherited wealth. All these factors add up to mean that boomers – those Canadians born in the period just after the Second World War through the mid-1960s – have a complex blend of needs and responsibilities.

“Boomers face significant opportunities for both investment and retirement planning,” says Rocco Taglioni, Senior Vice-President of Distribution and Marketing for Individual Insurance and Wealth at Sun Life Financial Canada. “Advisors need to find the adequate mix of solutions to build the best and most comprehensive plan that addresses the big picture.”

Many boomers have built their wealth in the last 10 to 15 years, says Mr. Taglioni, with early boomers (65+) increasing their net worth by 70 per cent over that period and late boomers (55-64) experiencing an increase of 50 per cent.1 “Oftentimes with the increase in net worth comes a stronger need to truly understand how a retirement plan needs to work,” he explains. Because many boomers will live longer than any generation so far, “the need to plan for a longer life and possible health events is extremely important.”

The 2015 Sun Life Canadian Unretirement Index, a poll conducted by Ipsos Reid that tracks attitudes and expectations about retirement, found that 98 per cent of Canadians want some form of guaranteed income in retirement. Mr. Taglioni says there is a 20 per cent chance that a Canadian aged 65 today will live to be 952, a “startling” fact that should encourage advisors to factor both longevity and health into planning for boomer clients. Traditionally, plans have set the horizon at a life expectancy of 85. “For at least one in five Canadians, this simply won’t be enough,” he says.

Considering that few Canadians have written financial plans, advisors must have “tough conversations” about what boomers want their retirement to look like, he warns. “The earlier the better.”

Ian Black, a registered financial planner at Macdonald, Shymko & Company, a fee-only financial advisory firm in Vancouver, says that advisors have to “constantly adapt” to demographic trends, especially those affecting the growing pool of boomers. They have higher expectations in terms of consumption in retirement than their Depression-era parents, for example, and need to start working on how to support that.

Many boomers are simply overstressed with time-management issues and commitments in their lives and are looking for advisors to help them manage their affairs so they can step away somewhat from their investment decisions. “They need to get things in place,” says Mr. Black – the earlier the better. “If you’re close to retirement, there’s not a lot you can do to change what retirement’s going to look like,” he adds.

Mr. Taglioni notes that opportunities for boomers include the fact that they are often at the highest salary range in their career. “They should be taking advantage of this by making optimal contributions to savings,” he explains. If they have a workplace savings plan, they should be maximizing what they put in to ensure that they are getting employer-matched dollars to accelerate their savings.

It’s critical to find products that best suit the client, whether mutual funds, stocks, bonds or guaranteed investment funds (GIFs), he says. A GIF can be an excellent savings and growth vehicle, while offering an added layer of protection through an insurance product.

Some challenges for boomers include the fact that they may be paying down the final few years on a mortgage, which limits their ability to save. Boomers are also “feeling the pinch” of helping elderly parents, paying for in-home assistance or long-term care, while taking on lines of credit or dipping into savings to help “boomerang” kids pay for extended educations.

“Unlike their millennial children, time is not on their side,” says Mr. Taglioni, although he notes that many boomers are risk-averse as investors because they don’t want to relive the losses of the 2008 financial crisis. “They want products that offer a guarantee or the right investment mix for a truly diversified portfolio.”

Economists says that boomers in Canada are set to inherit an estimated $1-trillion dollars from their parents over the next 20 years, the largest intergenerational transfer of wealth in Canadian history. With the prospect of receiving large inheritances or life insurance proceeds around the corner, it’s important for boomers to start considering the potential tax implications on the transfer of assets, says Mr. Taglioni.

Advisors should be having that conversation with boomer clients while their parents are still living, he suggests. “This transfer of wealth has the potential to drastically change the funds available in retirement for many boomers, providing they appropriately plan.”

Mr. Black cautions that boomers should not “pre-count” inheritances before they come, especially given the fact that people are living ever longer and costs associated with medical and long-term care for the elderly are rising. If the parent has considerable funds, one option is to “gift” some money to help boomers pay down debt, although that can trigger capital gains for the parent and should also be done with an advisor’s involvement.

Many boomers are learning about estate planning by watching their parents “in action,” says Mr. Black, or from dealing with the messy aftermath once they pass away. Because of this, boomers may be looking for cleaner ways to set up their own estates and will appreciate advice on issues such as powers of attorney and wills.

“Have the tough discussions with your boomer clients, not only about their own savings but also whether they have had the sometimes difficult conversation with their own parents about their legacy plan,” adds Mr. Taglioni. “It is never too early to start planning and having these discussions with your clients, but it is also never too late to provide them with some lasting advice.”

1 Median net worth by age figures from Survey of Financial Security, Statistics Canada, modified February 2014.

2Canadian Institute of Actuaries, 2014

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