Clients who are about to retire must prepare for a series of life-changing adjustments as they shift to a new daily routine and the financial reality of living on their accumulated wealth. As a financial advisor, you can help your clients prepare for these changes as their retirement date approaches.
This process starts with a discussion about how your clients envision spending their retirement years. “It’s important to be clear about the costs of their desired lifestyle,” says Noel D’Souza, financial planner with Money Coaches Canada in Toronto.
Even relatively well-off retirees have to watch their spending when they retire, says D’Souza. For example, a client earning an annual salary of $100,000 may have to adjust to living on $60,000 — a sharp drop from what they were once accustomed to.
While no amount of preparation can fully quiet any anxiety about retiring, you can offer clients the following tips to help them manage the transition:
> Note sources of income
Work with your clients to list all of their income sources — such as company pensions, personal savings, Canada Pension Plan and old-age security benefits — and note when income from these sources comes into play.
“They might need to fill the gap before [some benefits] kick in,” D’Souza says.
> Anticipate the loss of employee benefits
Once an employee leaves the workforce, he or she may lose some employee benefits such as coverage for dental care and prescription medication.
In those cases, D’Souza says, advise clients to look into whether they can purchase extended benefits through their employer’s insurance provider or shop around for a different package.
> Create a “wish list” fund
Your clients may have a “wish list” — for treats such as a lifetime trip or a vacation home. Encourage these clients to set money for such indulgences aside, in an account that’s separate from the one used for daily expenses, D’Souza says.
Clients can plan to pay all costs associated with the “wish list” item from that account and not have to worry about cutting into their budget for living expenses.
> Account for the various stages of aging
As the average life expectancy increases steadily, many seniors fear they will outlive their savings. Another cause for concern is the failure to consider the overall arc of their retirement.
The client may spend the first 10 years of retirement encountering only minor ailments, but might experience a gradual decline in their mental and physical health over time.
“You’re not going to be spending and acting the same way throughout your retirement,” D’Souza says. “Retirement is not one monolithic thing that looks the same all the way through.”
So, your clients will need to have an “aging plan,” D’Souza says, which accounts for their housing situation in the later years of retirement. They should consider whether they plan to downsize, move into a retirement home or live with family.
See also: Withdrawing retirement assets
Photo copyright: halfpoint/123RF