confused man

The ever-changing market conditions of this past year have undoubtedly given Canadians much to think about when it comes to retirement.

Retirement uncertainty may be the reality for many, as one in five Canadians over the age of 50 does not know how much they need to save to retire comfortably, and only one-quarter of Canadians have a detailed plan for what their retirement will look like.

The challenging economy, marked by inflation and market volatility, has had a significant impact on Canadians’ finances over the past six to eight months. As a result, half of Canadians who aren’t retired say they’re considering delaying their retirement, and one in six retirees are thinking about going back to work.

These findings, from a recent survey by Pollara Strategic Insights on behalf of Mackenzie Investments, show there is a knowledge gap among Canadians over the age of 50 about the realities of retirement.

This presents an opportunity for financial advisors to fill this gap and help clients develop a clear understanding of how much they will need to retire comfortably and how their finances function in retirement.

This demographic is also a massive segment of the market. According to research by Investor Economics, nearly two-thirds of Canadians’ financial wealth, or $3.7 trillion, is controlled by retirees or near-retirees — a figure forecast to grow to $6.4 trillion by 2030. At a time when Canadians are experiencing greater concern about inflation, high interest rates and the effect these will have on their retirement plans, financial advice has never been more valuable.

A plan through thick and thin

According to the survey, half of near-retirees said they had to reassess their retirement goals due to recent economic conditions, including reconsidering when and where they can retire and saving more for retirement. Similarly, close to half of retirees experienced at least some changes to their lifestyles, ranging from cutting spending, reassessing their investments and considering ways to generate more income.

It’s clear that the current economic climate is prompting Canadians to reassess their finances ahead of or during retirement. With a comprehensive long-term plan, though, they wouldn’t have to make many drastic changes. Reconstructing retirement portfolios can help provide income and stability and deliver growth.

If we look at those who aren’t retired yet, they can begin to systemically de-risk their portfolios to align with their retirement timelines so they’re prepared for different scenarios. And those who are already retired will benefit from a properly structured portfolio that has considered several factors, such as sequence of returns risk, inflation and downside protection.

For example, a retiree who deployed a cash-wedge strategy could have avoided having to withdraw from investments in a downmarket in 2022.

Ultimately, a well-constructed plan can help retirees and near-retirees avoid downgrading their retirement dreams, even when there is market volatility and challenging economic conditions.

Knowledge = confidence

Canadians over the age of 50 varied widely in what they considered a sufficient retirement amount. It ranged from less than $250,000 to over $1 million, and of course varies by individual circumstances. Four in 10 retired Canadians retired with less than $250,000, but now only one-tenth of those who are not yet retired feel they can retire comfortably with that amount.

The survey showed that not only are Canadians unsure of how much they need to save for retirement but also most do not understand how to draw income from their investments throughout retirement. Only one-third of retirees and one-fifth of near-retirees said they completely understand the amount needed to sustain them through their entire retirement period, including how they will be taxed.

With the majority of retirees over the age of 65 looking to consolidate to one advisor to reduce fees and have a better coordinated strategy, there is a great opportunity to fill this knowledge gap and, as an advisor, be the consolidator, not the consolidated.

Historically, the industry has focused on accumulation, but now is an opportune time to pivot and consider the unique requirements of this growing demographic of Canadian retirees. The gaps identified in the Pollara survey can be addressed with a holistic, outcome-oriented plan that is unique to the individual client’s circumstances and that includes lifestyle planning, tax optimization, estate planning and portfolio construction.

My next article will take a detailed look at portfolio reconstruction.

Ron Hanson is senior vice-president, investment strategy and portfolio solutions, with Mackenzie Investments.