Advisor explains what he's done to help prepare his clients financially and emotionally
Over the past three to five years James Brown has been noticing something that demographics and statistics are all backing up: his clients are living longer. The Senior Investment Advisor at iA Private Wealth explains that while the average age of his clients is currently 68, he’s seen that number creep higher lately as more clients have entered their 90s and even passed the 100-year milestone. With that longevity comes a host of factors for Brown to manage, from the financial realities of a retirement that lasts decades longer than anticipated, to the emotional realities that come with staring down that much unstructured time.
A recent study from Manulife highlighted how challenging the prospect of a 40+ year retirement can be, from a financial and a psychological perspective. Brown admits that he’s facing those challenges head on, helping clients to plan for a period of decades without employment income and the likelihood of high health care expenses at the end. He’s also helping them prepare for the psychological realities of retirement, where people who spent their lives working now confront the somewhat daunting prospect of filling their days and finding meaning outside work. Doing that work means laying groundwork at the outset, which begins by showing clients a plan that has them living to 95.
“Some clients can be in disbelief that they’ll live past 90, but we’ve always done our retirement projections to show up to age 95,” Brown explains. “I can then point out useful information, be that from Statistics Canada or otherwise, and I can point out how many of our own clients are living into their 90s. So we use data to explain this to our clients, and we’ll be using them more going forward.”
Despite the growing age of his client base, and the expenses that come when they need long-term care, Brown is happy to say that no client has hit a crisis point in their decumulation. One of the core pieces of his plan for their drawdowns late in life has been the value of his clients’ homes.
Brown is based in Vancouver and many of his clients have seen significant gains in the value of their home as a result of that city’s real estate boom. He notes that clients in other Canadian cities that have experienced this boom can use that home value to cover the high costs that come late in life. The core issue that tends to arise out of that, though, is when clients’ heirs expect a large inheritance, only to learn that five years in long-term care has eroded most of that nest egg.
Even if the home can be used as a final cash injection if a client needs to move to an expensive assisted living facility, Brown stresses the importance of managing drawdowns for clients during their more active retirement years. In the first few years of a client’s retirement, Brown meets with that client more frequently, coaching them on the mental shift that comes with going from accumulation to decumulation.
Cash flow, Brown explains, is a very useful way of making the realities of decumulation more tangible for clients in retirement. He notes that often the total lump sum of their invested savings is challenging to picture, but by translating the mixture of drawdowns and investment income into a picture of how much will come into their accounts each month, the financial realities of retirement are easier to grasp.
Those meetings will also involve discussions about CPP, OAS and OAS clawback, as well as legacy and inheritance plans. Due to increases in longevity, many clients may receive an inheritance during or in the immediate leadup to their own retirement. Brown can help make sense of that issue. Tax planning is key to this whole process to ensure that clients receive a workable take home income without facing a burdensome tax bill.
Using cash flow on a monthly basis can also help retiring clients reckon with perhaps the more deep existential question that they face of how, exactly, they will spend their time. Visualizing retirement in terms of months can help them understand just how many days they now need to fill. Brown uses those deeper conversations to try and encourage other forms of meaning that many clients can find in their lives. He notes that many of his clients will flail about early in retirement, trying different expensive hobbies to fill their days, which can impact both the emotional and financial sustainability of their retirement. In his capacity as an advisor Brown encourages them to find hobbies that offer a sense of fulfillment.
Often those hobbies might be better turned into part-time jobs. Brown notes the example of a client who’s an avid boater, who ended up getting a job at his marina over the summer months. While the income is relatively inconsequential, it allows that client a positive social outlet, a sense of fulfillment, the joy of time spent by the water, and results in a slight decrease in monthly drawdowns.
He mentions another client who entered the self-storage business after retiring, and now runs a thriving business that fills his days with purpose and joy. While many retirees may initially balk at the idea of returning to work, there is a degree of advantage that comes from working a job where the money isn’t the object. He’s even seen other advisors stay on as employees when they sell their book of business.
In managing both the financial and psychological aspects of a longer retirement, Brown stresses that an advisor’s role should focus on helping their clients make a mental shift, from accumulation to decumulation and from work to something new.
“The sooner we started talking about it with people, I think that adjustment became a little easier. And I've noticed the clients who have just sprung retirement on us, they struggle the most opposed to the ones where we have long standing conversations about their plans,” Brown says. “You can read all the textbooks but you never quite know what it's going to look like because every retirement is different.”
