Special Feature

Report on RRSPs

Prepare your practice for the upcoming RRSP season. In this special feature: talking to clients about life goals; strategies using bonds, ETFs and RRSP loans; spousal options; changes to the Canada Pension Plan; and much more.

The boomers are determined to “stay alive” in retirement, and many are renewing their engagement with the workplace to do so. You can help your clients plan for that transition

By Jade Hemeon | Mid-November 2011

Peter Drake, vice president of retirement and economic research at Fidelity Investments Canada ULC, is 68 years old and calls himself a "failed retiree." Eight years ago, the fit, energetic, silver-maned Drake retired from his demanding job as chief economist at Toronto-Dominion Bank. He was looking forward to working as an independent consultant; and for a year and a half, that's exactly what he did, analyzing economic statistics, compiling reports and making presentations.

But once the novelty wore off, Drake felt bored and underutilized. There was nobody with whom he could spontaneously bounce around ideas or discuss work issues. He had been accustomed to going to a downtown office to work, and felt isolated in his suburban house. Looking for reasons to get up from his desk, too often he'd find himself in the kitchen.

Eager to get back in the saddle, Drake revived his contacts and began his hunt for a job, which culminated in his current position at Fidelity. Now, he travels the country, helping financial advisors and their clients deal with the changing realities of retirement, devising strategies to meet the challenges of the longer lives we are living and the mounting volatility in financial markets.

"There's a great deal of travelling and a lot of variety in my work, which is seriously full-time," says Drake, who conducts seminars across the country. "I'm doing analysis, writing, presentations and media work. I enjoy the communications, whether it's writing, television or a live audience. Working in retirement is a no-brainer."

Drake is part of a growing wave of people who are reaching or have passed the traditional retirement age but are not retiring. As baby boomers approach the traditional retirement age, many are feeling uncomfortable with the traditional view of retirement. They are also concerned about their increasingly vulnerable retirement savings. Advisors can play a key role in helping their clients who want to keep working, either full- or part-time, exploring their options and mapping out a new path to their "golden years."

"It's important to ask the questions and brainstorm the solutions. And this is where a financial advisor can help, as it all ties into financial life," says Eileen Chadnick, a certified life coach and principal with Big Cheese Coaching in Toronto. "Do a reality check. Will the client be motivated to work solo, and get out there and generate business? Do they have the marketing and computer skills? By asking the questions, they get the internal reaction. And this can help determine direction and steps that need to be taken."

For many boomers, retirement is like a mirage that is perpetually receding on the horizon. Many Canadians may have thought they would retire at 58, 60 or even 65, but have found it difficult to save enough due to the increasing costs in other life stages, such as buying and maintaining a home and raising and educating children. A recent poll by Canadian Imperial Bank of Commerce found the closer Canadians are to retirement, the less confident they become that they have saved enough. Only 21% of survey respondents aged 55 to 64 felt they could retire on their savings.

In addition, a growing number of Canadians are heading into retirement with debt. They are uncomfortable about the damage wrought on their equities holdings by the financial meltdown of 2008 and the more recent market reaction to the European sovereign-debt crisis and the global economic slowdown. Meanwhile, fixed-income investments such as bonds don't pay enough interest to match inflation.

The solution for many is prolonging their working life and delaying the withdrawal of cash from their retirement plans. Of those who have already retired, many are returning to work, either in a capacity related to their former profession or by embarking on a brand new career. A recent poll by Royal Bank of Canada found that among retirees returning to work, 41% said it was because they needed the income — up significantly from 32% last year. And the number of those surveyed who are retiring debt-free has shrunk to 56% from 61% last year.

"Retirement is a journey, not an end point, and people are looking for ways to make it fulfilling," says Jason Round, senior vice president in the financial planning division of RBC in Toronto. "For some, that may mean working in some capacity, whether it's out of financial need or for other reasons."

Sherry Cooper, executive vice president and chief economist at Bank of Montreal in Toronto, published a book called The New Retirement in 2008, in which she wrote about boomers becoming more productive in the final third of their lives. They are redefining retirement as a time of energy and creativity, and working well beyond age 65. Cooper now says this trend has accelerated because of losses suffered in the stock markets.

"To the extent that people contemplating retirement have jobs, they may want to hang on to them — especially if they are good jobs and they enjoy doing them," Cooper says. "There are all kinds of financial and mental reasons for doing so, including purposefulness, activity and the ability to deal with people of all ages. Work provides more than a paycheque, although the paycheque is important."

A BMO poll found a variety of reasons why people are working in retirement, including being mentally active (71%), keeping in touch with people (73%), earning money (61%), being physically active (56%), keeping busy (51%) and avoiding boredom (49%). Cooper says a job later in life might pay less income than had been earned in previous occupations, but if it can delay or reduce dipping into retirement savings, that can make a huge difference in whether those savings can last a lifetime.

Longevity is one of the key reasons why Canadians are rethinking retirement. Canadians are living longer and healthier lives, which means they need to plan for a retirement lasting 30 years or longer. According to Statistics Canada, there is a 90% probability that at least one member of a 65-year-old couple will live to age 80, and a 40% chance one partner could live to 90. There are currently 6,530 centenarians in Canada, and a 100-year-old man recently completed the Toronto Marathon.

"I look at planning to age 90 as a minimum and if there is a likelihood of longevity, I will push it out to 100," says Peter Andreanna, a certified financial planner with Continuum II Inc. in Mississauga, Ont. "People need to complete a financial plan to determine how much they need to save, how much they can take out and when they can start, and how long it will last."

Rates of return on the non-guaranteed portion of investment portfolios are one of the big uncertainties that retirees must contend with, particularly at a time when the number of years they may need to live off their savings is increasing. In formulating financial plans for clients, Andreanna projects a conservative growth rate for retirement savings of 5%. And once clients are retired, he advises a withdrawal rate of no more than 3%-4% annually to avoid the possibility of clients outliving their assets. These estimated rates of return may require clients to work longer and save more to assemble the needed pool of retirement assets, supplementing retirement income in the early years with part-time income or downsizing their lifestyle.

"Some clients have chosen to work longer, while others have gone through a gradual process of reducing the amount of time worked," Andreanna says. "The gradual transition often makes for a healthier retirement lifestyle."

Time in retirement has been extended to the point at which it could make up one-third of your clients' lives, possibly lasting for as many years as the time spent working. This creates a new paradigm in which it is the traditional concept of retirement that is actually being "retired."

"The old retirement was about completion, winding down and stopping; retirement was a resting arena," says Chadnick. "The new retirement is about fresh starts and new life paths. If people are not active and engaged, if they stop growing and creating, they lose their zest for life. That can lead to feelings of depression, boredom, worthlessness and, ultimately, illness."

Boomers extending their working life may decide to stay in the same career and work less, or they may "recareer," says Chadnick. If these clients are planning to stay in the same career, they may want to think ahead and train an assistant or mentor new talent to make the shift. Or these clients may want to continue to use some of their existing skills and networks but become consultants or start small businesses.

"If it is about meaningful work, it starts with the inner game, asking what needs to be expressed that did not get to be expressed in your previous career," says Chadnick. "Once you know your values, strengths and desires, that becomes the compass or guiding light that illuminates the path of possibilities. Then, you have to look at what the world needs, and find the intersection."

Av Lieberman, president of the Retire-ment Education Centre Inc. in Waterloo, Ont., launched this retirement and research organization after he was unexpectedly downsized from his sales and marketing job at a mid-sized insurance company at the age of 50. While Lieberman floundered after the initial shock of the job loss, within two years he had founded the centre and was offering his expertise to corporations in teaching their employees how to navigate the withdrawal from full-time employment.

Now, at age 68, he continues to draw on his personal experience to advise clients. He says he will never retire. He says planning is essential so that clients can "retire to something; not just from something.

"Part-time work in retirement is the wave of the future for many people," Lieberman says. "They may take three to six months to recharge their batteries after retirement, but a growing number are taking up some work for pay or volunteering to meet needs that were formerly filled by work."

Chadnick says there are a host of careers that did not exist a generation ago, and many people are finding opportunities that suit their interests in such areas as web design, healing and therapeutic professions, coaching, pet services, house-sitting and culinary and travel experiences. Your clients may want to start up small businesses or they may prefer to work for someone else.

For many people, it is about creating a diversified portfolio of activities, Chadnick adds, a concept that advisors and their clients are familiar with. That may include a little cat-sitting, a few hours a week working at a local boutique or hardware store and joining a theatre group. It may involve going back to school for a degree or accreditation, or acquiring new skills in accounting or computer technology.

"When you put all your eggs in one basket," Chadnick says, "you are vulnerable if one thing is taken away. Everyone has their own special recipe."  IE