When clients visit a financial advisor to discuss their retirement plans, they usually want to talk about their financial data as well as their aspirations, hopes and dreams for that phase of their lives. But you also should be using this opportunity to bring up the mistakes that your clients may make during the retirement planning process – and how you can work together to help your clients avoid them.

In fact, there are a variety of common mistakes that clients can make that stem from inadequate planning, lack of understanding, not enough reliable information about their own finances or just simple human nature.

“The main issues we see are that not only are people not financially prepared for retirement,” says Robert Luft, investment advisor and portfolio manager with Luft Financial in Vancouver, which operates under the HollisWealth Inc. banner, “they’re not emotionally prepared [for it, either].”

Many problems related to retirement planning come from people not being able to envision what their lives will be like when they are older, says Darren Coleman, senior vice president, private client group, associate branch manager and portfolio manager with Coleman Wealth in Toronto, which operates under the Raymond James Ltd. banner.

Coleman recently returned from visiting the Massachusetts Institute of Technology’s AgeLab, which studies the policy implications of changing demographics. One of the key lessons he learned from that visit, he says, is that “people cannot visualize themselves past age 74.

“Mortality tables paint a picture of couples living for three decades into retirement,” he adds. “But [clients] don’t believe they’re planning for it.”

As a result, clients start making mistakes – many of which are financial in nature – which soon snowball. “One mistake leads to another, which leads to another,” Coleman says.

Similarly, there’s a whole list of steps that Luft notices many clients fail to take.

Thus, here are some of the top mistakes that these advisors and others see clients make – and some suggestions for addressing these challenges:

lack of cash-flow planning. Most Canadians are “woefully unprepared” for a fixed retirement income, says Luft. In fact, it’s daunting for many people even to take a look at their expenses. The details can be overwhelming; even Luft admits: “I’m not a big fan of hearing how much you spend on Starbucks or bread.”

There’s a more practical way of looking at cash flow, though, advises Aurèle Courcelles, director, tax and estate planning, with Investors Group Inc. in Winnipeg: “Ideally, you should [help your clients] separate their discretionary and non-discretionary spending.”

unrealistic expectations. When a client decides to work with you, you should “set their expectations for the yield of the portfolio,” says Luft. In particular, helping clients to keep calm during downturns is important, he adds: “Managing money during a redemption is like managing a pension plan. Volatility is your severe enemy.”

disregarding inflation. Retirees and clients approaching retirement should pay attention to which type of spending is sensitive to inflation and which type is less sensitive to it, Courcelles says.

This should be done for both non- discretionary expenses (such as food, clothing and rent or housing costs) and for discretionary expenses (such as travel or entertainment). You should advise your clients to keep an eye on where they’ll get the money for discretionary expenses that tend to rise quickly, and to consider keeping a special pool for these items, Courcelles says.

too much debt. Debt is going to prolong the working lives of many Canadians, Luft says: “And I’m thinking of the 30- to 50-year-old crowd that wants to consume more now.” (See story, below.)

Prudent retirement planning for your clients means having a good look at their debt before it either spirals out of control or it looks like it will never end. That means having enough room to keep up payments should interest rates rise, which they will eventually.

“You should be able to cover your payments in terms of paying twice the prevailing interest rate,” Luft says. “In other words, if you pay $1,000 a month to cover loans that are at 3%, payments should be made as if the interest rate were at 6%.”

inadequate tax and estate planning. Canadians are embracing tax-free savings accounts (TFSAs), but they aren’t deploying them effectively, Luft says.

Clients should use TFSAs to invest in products that will maximize returns rather than holding guaranteed income certificates, he recommends. As well, couples should make better use of income splitting – and, he adds, should always keep their wills up to date.

overgenerosity and joint assets. It’s nice – and often advantageous, from a tax perspective – for clients to give money to family members while those clients are still alive. However, you need to make sure clients have enough to live on, Courcelles says.

Meanwhile, Coleman adds, putting assets into joint ownership with heirs in order to avoid probate fees can cause problems later on because the heirs’ capital gains will be taxable.

© 2014 Investment Executive. All rights reserved.