This article appears in the Mid-November 2022 issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.
When setting a retirement date, several factors must be considered, including clients’ goals, circumstances and worst-case scenarios for many clients, their retirement date is the day upon which most of their financial planning hinges. While many people still plan to retire on their 65th birthday, some folks adjust their date as it approaches, while others begin planning early to retire at a much younger age.
“We call it a ‘wish date,’ but there’s no firm deadline,” said Ngoc Day, financial advisor with Macdonald Shymko & Co.in Vancouver.
Regardless of a client’s situation, the age at which they retire will affect their finances profoundly, and it is a decision only your client can make. From a financial standpoint, Day refers to the retirement date as financial “Independence Day.”
“It is the day where the client has the financial strength to walk away from work, if they want to,” Day said. From that point, work becomes optional, she said.
In Day’s experience, when a client has achieved that financial independence, or at least has a plan to get there, a burden is lifted from their shoulders. “It gives them that peace of mind,” she said.
Often, Day said, clients will continue working because they like the challenge. Others will switch to a hybrid model or work fewer days if the job allows. Conversely, a well-planned retirement also empowers the client to walk away earlier should something in their work or personal life change.
A few years ago, one of Day’s clients found that the firm he worked for was about to go through an organizational restructuring. The client, who was a high-level executive at the time and had already achieved financial independence, decided to retire early rather than get to know the new CEO and adjust to their way of working. The client was able to spend his last few months with the firm training a successor.
“That date is a moving target, in a way,” Day said. “There is no ‘65, I am done’.”
The retirement date also depends on the client’s priorities and their circumstances, said Zainab Williams, founder of Elleverity Wealth Management in Milton, Ont.
Williams begins by asking each client what retirement means to them, and then attempts to calculate the appropriate age at which to retire based on their income requirement.
“Once you have gathered the answers to how your retirement will be funded, you can start to see if your retirement is sustainable or not, based on the age you would like to retire,” Williams said.
You should also consider how the goals a client wants to accomplish will affect the date. A client could defer their retirement because they want to help their children buy their first home, for example. Or they may want to delay their retirement until they pay off their mortgage.
Getting an early start on retirement planning allows for flexibility if your client needs to adjust their strategy. For this reason, Williams also recommends creating various scenarios.
For example, factor in health concerns that may occur when a client is older, especially if they have a family history of certain health problems. A debilitating illness could derail a client’s plan and drain their savings quickly if they are not prepared.
Christine Timms was an advisor with CIBC Wood Gundy in Toronto until she retired in 2016. Timms said she is grateful she began planning her retirement years in advance, and she was always adamant that her clients do the same.
“People are always wondering when they can afford to retire,” Timms said. It’s not just about the date, she said, but what a client is willing to give up.
For example, if your client wants to retire early, are they willing to downsize their residence to do so? “There are a number of things to consider, so the sooner you start thinking about it, the better,” Timms said.
Timms also is happy she waited until she had a significant financial buffer before she retired, especially given the recent downturn in the capital markets. For example, for some clients, an expected inheritance could be a factor in their planning, but Timms encouraged planning for the worst-case scenario, so clients can enjoy retirement even if that worst case becomes reality.
While most people retire only once in their life, financial advisors have the opportunity to learn from what their clients have experienced and how it affects their lives — before and after retirement.
“Being able to provide real-life examples helps your clients see the need to look ahead,” Timms said. “You can’t plan for everything, but you can create awareness about some possibilities and what that can impact.”