Are advisors failing the decumulation challenge?

As the greying of the population continues, planning for retirement income is more critical than ever

Are advisors failing the decumulation challenge?

While today’s advisors are well equipped to help clients on their retirement-saving journey, the industry has not yet come to grips with what comes after, according to one advisor.

“I think that retirement income planning is the biggest challenge people face once they decide they want to retire,” says David Little, senior wealth advisor at Blue Oceans Private Wealth. “The people who come and see me or attend any of my workshops literally don't have any idea what retirement income planning is, nor how many sources of income they will have to manage once retired.”

The problem, according to Little (pictured above, left), is that while there’s so much focus on saving for retirement, people don’t recognize the sharp pivot that can come when it’s time for them to start enjoying their wealth. In fact, academic research has shown that the habits that help make investors successful retirement savers may actually hold them back from fully reaping the benefits of financial freedom.

At Little’s practice, each client is provided with a wealth legacy retirement income plan. That formalized plan, which tracks people’s investments and income for the rest of their life, is updated every year.

“There's nothing similar between retirement savings and retirement spending. They are two totally different animals,” he says. “From the people that I see, it appears there aren’t many advisors that strictly focus on retirement income planning.”

Nest Wealth, the Toronto-based robo advisory technology firm that focuses on business-to-business solutions for wealth firms, unveiled its Wealth at Risk module in 2021 specifically to help advisors address clients’ decumulation challenges. Since then, the firm has seen an exceptional response from firms who want to fill that gap in their capabilities.

“Most advisors have a rule of thumb that they try and apply. They might have two or three different scenarios, and they’ll try two or three different strategies to solve for that,” says Randy Cass, founder and CEO at Nest Wealth (above, right). “They can either provide that as a solution to the investor, or just wash their hands and say ‘I don’t have expertise in this area,’ which is probably where individuals are most exposed.”

In an analysis of data from the 2021 census, Environics Analytics found that 19% of the country’s population was over the age of 65 in 2021, compared to 16% under the age of 15. Compared to the previous census snapshot taken in 2016, Canada’s population under the age of 65 grew by just 2.6%, compared to nearly 18.3% for those over 65.

In 2021, the Canadian population included more than 9,500 centenarians. A 2020 report from Statistics Canada estimates the average life expectancy in Canada is around 80 years for men and 84 years for women. Under the most recent projection assumption guidelines released by FP Canada, the average 65-year-old Canadian of either sex has a 25% chance of surviving up to the age of 98, and 10% odds of living up to 101.

“People are most exposed to incredible amounts of risk if they aren’t drawing down their assets in the right order at the right time, and taking full advantage of their options when it comes to Old Age Security or certain benefits,” Cass says.

Cass argues that an advisor who can help clients navigate the last quarter-century of their financial life, extend their monetary horizons, and maximize their annual income by a certain age can add objective value to their relationships. The ability to show the financial impact of a tax-optimized decumulation strategy versus other approaches in hard numbers, he adds, is something advisors weren’t able to do prior to the existence of the Wealth at Risk module.

“We're actually having monthly webinars now to educate advisors on the value here,” he says. “We've also just released WAR as a separate module, which means that people can now have access to use it without needing to have access to other parts of the Nest Wealth technology ecosystem.”

Having a tool to assist investors with their decumulation needs could be game-changing for advisors to grow their business. More importantly, it could provide much-needed peace of mind to hundreds upon thousands of retirees looking to make the most of their final chapter.

“You could be sitting in the middle of the ocean on a cruise ship, see something going on in the stock markets, and all of a sudden be physically unable to enjoy yourself,” Little says. “My job is to make sure that doesn’t happen. We provide the education and documentation, projecting it out and showing how a year like 2022 doesn’t need to impact the steady stream of retirement income their portfolio is built to provide. It brings a great deal of comfort to our clients.”