As your clients age and prepare for retirement, they must be made aware of the expenses they might incur when they are no longer working. Many clients believe their expenses will be lower during retirement. But that is not necessarily the case.
“Clients do not understand the options they have and the implications of certain life events as they age,” says Heather Holjevac, senior wealth advisor with TriDelta Financial in Oakville, Ont. “They must plan for contingencies, as they have no control over the curve balls life might throw at them. Often, by the time they think about having the conversation, it is too late.”
For example, Holjevac says, some clients might decide to sell their home and give the proceeds to their children too early — without thinking about their future need for money. This can put them in a tough position should one of the spouses become ill and need access to more money than they anticipated.
When discussing expenses with your aging clients, you should tell them stories based on your experiences with other clients to help them better understand what they could face, Holjevac says.
Here are some of the issues regarding costs that you should discuss with your aging clients:
> Some expenses drop, some rise
As clients age and head into retirement, certain costs related to working, such as commuting, clothing and eating out will drop significantly. However, says George Hartman, CEO of Market Logics Inc. in Toronto, your clients might choose an active retirement lifestyle that involves travel or a hobby (such as golf or sailing), which can be costly.
The costs of these activities can end up being greater than the savings your clients incur from not working. Plus, your clients might choose to live a healthier lifestyle or get more involved in social activities, which also can add to their costs.
Most people anticipate these costs as part of their normal retirement expenses. But few diligently think about them in dollar terms.
If clients decide to continue to live in their homes, they also have to think about ongoing maintenance costs, which might include upgrading their homes to accommodate their health condition as they age.
> Cost of unanticipated events
Long-term care costs, such as those for health care, accommodation and assisted living, are among the biggest unanticipated expenses, Hartman says.
People often forget about dental costs, Holjevac says, which are not covered by provincial healthcare programs. It is important to note that most of these costs go up each year.
While you can anticipate and plan for health-care costs, no one can truly anticipate the effects of an unexpected life event, such as being struck with Alzheimer’s disease, says Holjevac. That is why it is necessary to have a contingency fund to deal with such unanticipated events.
> Emotional costs
In addition to financial expenses, Holjevac says, there is also an emotional cost to aging. “Clients must keep themselves engaged mentally,” she says.
They should keep in touch with their friends and remain mentally active. For example, they may take up reading or start a hobby-related business.
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