RETIREMENT PLANNING BY LIFE STAGE For many, retirement planning is the holy grail of financial planning. What do we mean by this? Retirement planning is a goal with great significance to which many dedicate almost their entire financial lives but it is actually a goal that can be very difficult to achieve. No one has a problem conceiving the dream of retirement, for instance escaping winter in a hot, sunny climate, or playing golf every single day, or helping out by looking after grandchildren. Yet many have a problem understanding that to get “there,” one must begin “here.”
Why Does Retirement Planning Present a Challenge?
There are a number of contributing causes
as they often are in a life stage planning
that make retirement planning a challenge:
approach because we feel there are many
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a lack of disposable income that can be
variables associated with retirement planning,
directed towards saving;
and age is just one. One person may start
-
thinking about retirement when they’re 30 and
the belief that pensions in place will be
more than sufficient for needs;
another when they’re 45. We prefer to focus
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on the process based on the financial maturity
changes in employment that see income
levels drop temporarily or permanently;
of the individual.
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debt;
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a lack of defined goals;
The stages we will use to structure this course
unanticipated increased expenses for
are:
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medical care; -
providing financially for children
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The Thinking Stage: This is a period when retirement is still a
or aging parents;
fairly abstract concept and there are
-
other financial priorities. However,
living beyond one’s
means while employed; -
it is a period of time in
unexpected events such
which the advisor
as divorce or death of a
can lay some
spouse; -
important
failure to distinguish life
groundwork.
stages --- in short, retirement
Insurance products
planning at 48 is not the same
are essential at this
as retirement planning at 68!
point to both create and protect assets.
This course will address this final point by suggesting three stages at which retirement planning can occur and the different approaches suggested for each. We have not classified these stages strictly according to age
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The Anticipating
Stage: Retirement is on the horizon – even if it is distant! Goals are being set so that it becomes easier to align financial plans with goals and perform a preliminary reality check. Insurance needs become focused on
how insurance can produce income
or
build
an
estate
while
still
should inform every recommendation you make or action you take on their behalf.
providing protection for the asset pool that has been created. -
The Experiencing Stage: Retirement
This relationship is made more onerous by
has arrived and it will be experienced
certain conditions:
as a series of stages in which physical
-
and cognitive abilities determine what
cautious when dealing with the elderly (or the
is possible. Early, mid, and late
very young) to ensure they understand your
retirement each bring their own needs
proposals and that they do not enter into contracts
for insurance.
that may be challenged at a later date by family
client age: you must be very
members; It is important to recognize, too, that not all
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people will spend the same amount of time in
newcomers may completely lack knowledge of
each stage. You might find that your client
many financial concepts that Canadians
Matthew moved quickly from the Thinking
understand and take for granted. Ensure you
Stage into the Anticipating Stage; but Cheryl
don’t make any assumptions.
went right from Thinking to Experiencing.
-
Therefore, these stages are meant to provide
prevent an understanding of what you
an outline of the process, what should be
recommend: it is essential a client understands
happening when, and how to best react to
what he or she is agreeing to.
when the client is new to Canada:
when the client’s language skills may
client need as a result and provide, at all times, recommendations based on suitability.
Suitability is of paramount importance. Suitability is properly assessed for every
Your Role as Advisor
individual (treating couples as an individual
The advice you are able to provide clients
unit) based on the circumstances of that
throughout their financial lives is based on the
individual. If you find every fact-finding
high degree of knowledge you have acquired
interview for insurance need arrives at the
about insurance products and financial
same outcome, chances are you are not
services. This is a reminder of your role as a
following suitability principles. Suitability is
fiduciary with clients of all ages. You have a large degree of responsibility for them because of this fiduciary relationship, and it
THE CONCEPT OF FIDUCIARY GOES BACK TO
ROMAN TIMES AND IS DEEPLY ENSCONCED IN LAW.
3
the result of comparing many personal
increasingly concerned about agents meeting
characteristics of the client against a product,
suitability requirements. Ensure you follow
its cost, and its intended use.
suitability principles as you work with your clients through their stages of retirement
Suitability should not be glossed over or taken lightly; insurance regulators are becoming
planning.
CHARACTERISTICS OF THE LIFE STAGES These characteristics give an idea of where the clients are on the retirement planning continuum. Identifying where they fall is the first step you must take to begin to formulate the advice you will provide. Thinking Stage
Anticipating Stage
Experiencing Stage
Age range
Late 30s to late 50s
50s to mid-60s
early 60s +
Psychological indicator
Not ready to visualize
Can imagine what
Retired! Thinking has
life in retirement; too
retirement might be,
to switch from
many competing
and how time might
accumulating to
demands for time,
be spent. Seriously
spending. Many
money, and attention.
thinking about how to
psychological
fulfil those goals. Fear
pressures often
starts to build that
experienced through
retirement income will
loss of social
be insufficient.
interaction at work, and the need to find a purpose to life.
Assets
Primarily the principal
The principal
A residence or two,
residence, probably
residence, ideally with
ideally both mortgage-
heavily mortgaged.
a lower mortgage;
free; after age 71
Pension plan at work
may have a
RRSP contributions
may be in place as
secondary residence;
can no longer be
well as an RRSP.
may have non-
made unless to a
registered
spousal plan if the
savings/investing
spouse is younger
accounts in addition to
than 71 and continues
RRSP.
to have an RRSP. Any funds in excess of requirements would go to non-registered accounts.
Retirement savings
Some retirement
RRSP retirement
RRSP is converted to
savings in an RRSP
savings; still
RRIF; locked-in plans;
Red Herring
or through the pension
contributing to the
non-registered
plan at work.
pension plan at work.
accounts.
May receive windfall
Windfall could be
Windfall could occur
in the form of
received in the form of
from: receipt of an
severance that can
severance (can
inheritance; by sale of
fund a retirement plan
equivalent job income
the principal
but this is offset by the
be replaced at this
residence in order to
loss of income until
age?) or inheritance.
downsize; from life
job is replaced
insurance benefit on death of spouse.
Accounts that should be in place
RRSP; TFSA
RRSP; TFSA; choice
RRIF; locked-in
of locked-in accounts
account or accounts.
to accept funds from registered pension plans.
Greatest threats to retirement
Absence of saving
Delay in saving and
Overspending; risk
and poor debt
reluctance to face the
tolerance is so low
management; divorce.
music: that retirement
that investment
income will be
returns are lower than
insufficient for
the rate of inflation.
dreams; divorce; risk tolerance may be so low that investment returns are lower than the rate of inflation.
Greatest opportunity for retirement
Retirement is so many
It is not too late to
Making the choice of
years away that
begin serious saving
retirement age as late
compounding can
and investing
in life as possible.
have a real and
including through
significant impact on
segregated funds and
savings. Regular
to buy insurance
savings, even in
products like long-
relatively small
term care insurance
amounts, can take
that can have a real
advantage of that.
impact on the size of
Investing can lean
the estate. Using
towards riskier
windfall as a source of
products since there
capital to fund
are many years
insurance products
before the invested
such as an insured
money is actually
annuity or to acquire
needed.
seg funds.
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