Without proper advice, clients nearing retirement are prone to making mistakes that can create unanticipated challenges during retirement.

Some clients do not fully understand the extent of planning that goes into retirement, especially in areas such as investing, taxation and income generation, says Heather Holjevac, a financial advisor with TriDelta Partners in Oakville. “They tend to underestimate the value of getting good, independent advice to keep them on track,” she says.

You can help your clients avoid common retirement mistakes, such as:

> Investing too conservatively
It is normal for clients to become more conservative s they draw closer to retirement. However, Holjevac says, you must make them aware of the hazards of investing in low-risk, low-return assets such as guaranteed investment certificates (GICs). When you take into account inflation and taxes in a low interest-rate environment, clients could end up with a negative real rate of return by investing in a GIC that pays 2%.

The bigger risk for these clients, Holjevac adds, is “outliving their money by being too conservative.”

Tina Jakma, an advisor with T. Jakma Financial in Richmond Hill, Ont., recommends conservative investors move up the “risk scale” and invest in instruments such as dividend-paying stocks.

> Having too-high return expectations
Make sure your clients plan for retirement using realistic projections.

Some clients, Jakma says, overestimate the potential growth of their assets during retirement, using projected rates of return as high as 7% to 8%. Depending on these growth rates to meet retirement goals can lead to a shortfall funds available during retirement.

> Low-balling their retirement needs
“Some clients underestimate their income needs during retirement,” Holjevac says.

Clients must consider health-care costs such as in-home and nursing-home care, which can be expensive. Clients should understand which costs will be covered by the government and which will not.

Jakma recommends that clients consider establishing a line of credit while they’re still working in order to get access to funds in the event of a shortfall — but use it cautiously.

> Retiring with too much debt
An increasing number of clients are retiring with debt, says Holjevac. These often are clients who did not start working with an advisor until age 60, to help them manage their debt.

Working with an advisor earlier would allow for an examination of their income and expenses and possibly consolidate their debt prior to retirement to reduce debt-servicing costs.

> Giving away too much, too soon
Jakma points out that some clients begin sharing their wealth with their children too early in order to avoid probate fees. That scenario can leave clients with less money than they will actually need in retirement.

> Not having an estate plan
Clients must understand that taxes will have a profound effect on investments and retirement plans, Holjevac says.

Discuss estate planning with your clients. Ensure they are aware of probate fees, taxes on deemed dispositions and other expenses related to estate-planning, which can be a burden on the client’s family. Jakma suggests your clients consider having insurance to cover these expenses.