Do advisors lack the tools and time to help retirees?

CEO of retirement navigator explains why he thinks advisors aren’t answering their clients most important question about retirement well enough

Do advisors lack the tools and time to help retirees?

The largest and wealthiest generation in Canadian history is retiring, and they’re asking their advisors three questions about retirement.

“Their first question is ‘am I going to be okay,’” says Doug Dahmer, CEO of Retirement Navigator. “Their second question is, ‘what recipe should I follow for drawing down on my assets so I pay less tax’ and the third question is ‘how does my approach to investing have to change now that I’m drawing down on my assets.’

“As an industry we do such a sh***y job of answering the first question, nobody gets satisfactory answers to the second and third questions.”

Dahmer argues that most advisors offer an algebraic answer when their clients ask if they’ll be okay in retirement. They look at what’s been accumulated, run some numbers, and tell their clients what they can spend on average every year. That approach, Dahmer says, fails because it doesn’t acknowledge the different stages of retirement and doesn’t give clients enough agency in their retirement decisions.

The approach Dahmer takes begins with a piece of software called Retirement Designer. He gives that tool to his clients and they use it to organize their goals, thoughts, and plans. It forces them to think about what they want to do in retirement, when they want to do it, and how big they want to go.

From there Dahmer leads his clients through multiple conversations—with takeaways and homework assignments in-between—forcing them to think about trade-offs and unforeseen costs. He asks them what they’re willing to sacrifice, what role they see homeownership playing in retirement, and asks them how prepared they are to live past age 85 or 90.

Rather than giving them a set amount to spend each year, Dahmer can chart the ‘peaks and valleys’ of a retiree’s cashflow needs. By getting a deeper picture of their current financial lives, he can predict when a new car purchase might be needed, or the roof might need a repair, and work to ensure his clients have adequate cashflow at that time.

Tax planning is key to that ‘peaks and valleys’ approach. Dahmer believes that when clients are in retirement, advisors need to use their tax planning skills. That’s because retirees have a far more diverse array of cashflow sources than they did when they were working. For example, in a valley year, when less cash is needed, Dahmer sees value in getting that cash from a less tax-efficient withdrawal source, such as a RRIF. Paying a higher tax rate on less cash is less onerous than saving the whole RRIF until a client is in long-term care, and the high withdrawals they need are being taxed at over 50% sometimes.

Dahmer believes that many advisors are unable to make these ‘peaks and valleys’ cashflow plans, because they “have neither the tools nor the time.” He believes that using a software tool and developing soft skills can help advisors do a better job.

The software forms an objective base for the retirement discussion. Dahmer’s clients use it to ‘prototype’ their retirement goals and needs, allowing for test cases and failures so they can learn what they need to give up to get what they really want. From that base, Dahmer can then facilitate highly targeted and probing conversations which inform the final retirement strategy he builds.

“For most of the clients we’re working with, this process ends up finding between $300,000 and $500,000 in incremental cash, just from making better choices of where their cashflow comes from,” Dahmer says. “That stems from thinking of retirement as a designer. We model things out and ask how each choice interacts with one another, so we’re not overweighting one aspect of our plan against another. Even seemingly little things, like going from two cars to one in your mid-70s, those have big impacts in terms of cashflow requirements and costs.”