One of the main goals of retirement planning is to ensure your clients have saved enough during their working careers to last the rest of their lives. But as life expectancies increase, making sure clients do not outlive their money is becoming more and more challenging.

People are living longer. The average life expectancy in Canada is 80 years for men and 84 for women, with an increasing number of Canadians hitting the 100-year mark. In 2001, Statistics Canada recorded 3,795 centenarians; in the most recent census, in 2011, the number was 5,825. By 2061, the number of centenarians is expected to reach 78,300.

“On average, life expectancy in the developed world, including Canada, has improved by approximately 2.5 to three years per decade,” says Johnny Li, associate professor of statistics and actuarial science at the University of Waterloo.

The odds of living longer are greater for the wealthy. High-income earners often are the first to gain access to medical breakthroughs and generally can afford a more healthy lifestyle than other demographic segments of the population. Affluent people are better positioned for extraordinary improvements in life expectancy, Li says.

In this environment of increased longevity, helping your clients maintain their quality of life in later years has become an increasingly important part of financial planning.

– Rethinking retirement

Increased longevity means traditional notions of retirement – retiring at age 65 with a pension and dying of natural causes 10 years later – are no longer valid.

Longer life expectancies have made the defined-benefit (DB) pension plan, the cornerstone of traditional retirement, unsustainable. Many pension plan sponsors are replacing DB plans with defined-contribution plans, placing the onus on planholders to take responsibility for ensuring they have adequate retirement income.

These changes are not restricted to retirement. Clients’ entire life trajectories are changing, says Ric Edelman, chairman and CEO of Edelman Financial Services LLC in Washington, D.C., and an outspoken advocate of preparing for the longevity trend. Clients’ lives are becoming more cyclical than linear, he says. Traditionally, lives proceeded sequentially: school, then work career, then retirement. But shifting economic and employment trends are changing this pattern.

In the future, people will go to school, go to work, go back to school, then re-emerge in a new career.

“Many [occupations] that exist today will become extinct as they are replaced by technology, and new occupations will emerge,” Edelman says. “So, people are going to have to reinvent themselves.”

You need to help your clients plan their lives with these trends – and increasing longevity – in mind, Edelman says. You may have to help your clients plan for further education mid-career to keep up with advances in technology. Some clients may have to prepare to continue working well into their golden years.

Many retirees have started this process already, in what many people call their “encore act.” Retirees are asking themselves what they can do to stay active, whether it’s volunteering, working for a non-profit organization or using their accumulated experience to start a consulting practice.

Some clients will work into old age out of interest or to stay active, while others may do so out of financial need. Your role as an advisor is to help ensure that your clients who work beyond retirement age are doing so out of choice and not out of necessity.

– Become an “aging coach”

Social and emotional skills, like career planning, are becoming more important in helping today’s clients plan for retirement. And the importance of these skills will increase as people live longer.

“Retirement planning with your advisor is no longer about trying to figure out how to get a 30-year-long weekend or the seven years of bliss after you leave work,” says Barry LaValley, president of the Retirement Lifestyle Centre Inc. in Nanaimo, B.C. The role of the advisor is shifting toward that of a coach, what LaValley calls an “aging consultant.” Advisors will need to be available to help their clients cope with issues related to living longer.

“I think a lot of advisors are not prepared to talk about life issues,” LaValley says. “They’re only prepared to talk about money issues. And I think that, ultimately, those [advisors] will fall by the wayside. If I just want to talk to you about money, I can get that for free on the Internet.”

St. Petersburg, Fla.-based Raymond James is adapting to the longevity shift. The firm recently partnered with the Massachusetts Institute of Technology’s MIT AgeLab and its founder, Joseph Coughlin, to train Raymond James advisors to look beyond financial plans and portfolio strategies to meet the evolving demands of clients’ longevity.

The program, delivered in six modules, defines the client/advisor relationship as a collaborative process. It includes a variety of approaches that encourage advisors to connect with clients on an emotional level, making the connection between clients’ health needs and financial planning.

As an introduction to the program, the MIT AgeLab identifies three questions clients should ask themselves:

– Who will change my light bulbs?

– How will I get an ice cream cone?

– Who will I have lunch with?

You can engage your clients through these questions more effectively than if you simply asked: “Have you thought about your future cash flow?” says Frank McAleer, director of retirement solutions with Raymond James in St. Petersburg.

The light bulb question works as a metaphor for housing needs, and forces clients to ask themselves: “Will I be able to maintain my home?”

The question about buying an ice cream cone raises the questions: “Will I have transportation to go where I want and, further, will I live in a community in which I can participate in activities that I love?”

The lunch question asks clients to imagine how they will maintain a social life.

“The ability to have a social network is almost like oxygen,” McAleer says. “When you lose that it can become depressing.”

To coach clients on their quality of life, you and your clients will need to consider how your clients can use their money to cultivate a social life in later life stages – whether that means moving closer to family members or finding a retirement home.

Your clients may not think you handle these issues, McAleer says. “But we want people to know that we’re here to help manage their life,” he says. “These are sensitive concerns, so advisors need to pivot the conversation so clients understand the financial concerns of housing, transportation and their social life.

“Make sure you know who the caregivers are,” McAleer adds. “Who are the geriatric specialists, what are the automotive services, who are the remodellers who can make [clients’] home livable for 20 or 30 years. You really need to build that network.”

– Financial products

Most of your clients will have invested in RRSPs throughout their working lives, and older clients will have converted these accounts to registered retirement income funds (RRIFs). But for many clients, RRSPs and RRIFs, even when combined with government and private pensions, may be inadequate to take them through a long retirement.

In some cases, insurance products can provide a safety net, says Cynthia Caskey, vice president and portfolio manager with TD Wealth Private Investment Advice in Toronto.

That is why many advisors are taking steps to obtain their insurance licence to expand their product offerings, so they can become better equipped to help their clients face longevity.

Annuities, for example, are an important tool to consider whenever there is doubt about whether a client may outlive his or her savings.

“That’s one of the key tools that we’re going to be looking at for clients,” Caskey says. “It’s really to make sure that we’re able to stretch their dollars as long as possible.”

Like pensions, annuities are geared toward making payments for a client’s entire lifetime, Caskey says.”The payments are guaranteed and may be taxed advantageously,” she says. “There is power in stretching those income dollars and peace of mind in knowing that payments continue for as long as [clients] do.”

Moshe Milevsky, associate professor of finance with the Schulich School of Business at York University in Toronto, recommends starting the annuity conversation with your clients when they reach their 50s, then ensuring all of their annuity purchases are complete by their late 70s – although needs will vary among clients.

“You can tailor the [annuity] contract to what you need,” Caskey says. “You also can have a joint annuity, so the payments can be for as long as [both spouses] are around. [This strategy] is geared toward a couple.”

Many products can be purchased online. But you can provide valuable advice in helping your clients find the product that best suits their needs. You can help ensure that your clients buy the right amount of coverage at the best price.

Clients may be hesitant to buy annuities, Milevsky adds, because guaranteed payouts are at historical lows, thanks to low interest rates. Your clients will need your help in deciding whether to lock in rates at a low interest rate or wait until the rates increase, Milevsky says. You also can provide advice on whether to use registered funds or non-registered funds to buy an annuity.

A new annuity product designed to deal with the longevity issue is available in the U.S., Milevsky says. An advanced life deferred annuity (ALDA) is purchased when your client reaches age 65; the annuity’s payouts begin at age 80 to 85. The late payouts help to keep prices low.

“And there’s discounting for mortality,” says Milevsky, who hopes ALDAs become available in Canada soon.

– Manage portfolios efficiently

Working with older clients who are expected to live much longer may require that you spend more time discussing life planning and longevity issues with them. That can leave less time for managing your clients’ individual portfolios.

One way to manage your time more wisely, Caskey says, is to use managed portfolios on a discretionary basis.

“This doesn’t mean that clients are not still involved [in investment decisions],” Caskey says. “But it means that they are not required to agree to each security purchase. You leave that up to the investment professional.”

In an environment of increased disclosure on fees, you will need to spend more time demonstrating your value to your clients by providing advice to them.

– Plan for maximums

Milevsky has a final word of advice for you in helping your clients plan for longevity. When making financial plans, Milevsky says, you and your clients should think in terms of maximum possible lifespan rather than life expectancy, which is based on averages.

Says Milevsky: “At a swimming pool, you wouldn’t ask the lifeguard, ‘What’s the average depth of this pool?’ Instead, you would say, ‘What’s the depth of the deep end?'”

He warns of the dangers of planning only for average life expectancies: “Fifty per cent of people outlive their life expectancy, so 50% of your plans will fail; 50% of your clients will be unhappy.”

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