How to help clients transition into retirement

Holistic planning approach best equipped to deal with modern complexities, according to estate planning expert

How to help clients transition into retirement

Simple stock and bond selection is no longer a value-add for advisors; not when robos can do the same job quicker and at a fraction of the cost. This has shifted the focus on to holistic financial planning as the area where professionals can have the biggest positive impact of clients. Nowhere is this more important than during the transition to retirement.

With the tax minefield and the process of converting savings to retirement income, the need for advisors to continue their relationship with clients, to meet their retirement lifestyle goals, becomes critical.

“People’s lives are now more complex than their parents or grandparents,” said Carol Bezaire, VP tax and estate planning, Mackenzie Investments. “We like to refer to retirement as the third stage of their life. They have worked, saved and are now entering that stage. Times have changed, we have increased longevity, but we are also seeing more family members dependent on others. The latest statistics from Stats Canada showed that the average age a child now leaves home permanently is 34. That can have an impact on when parents think they can retire and if they think they can afford it.”

For Bezaire, when it comes to retirement planning, things haven’t just changed for individuals, as the landscape has also evolved for advisors. “Things have changed significantly with new regulations and demands from clients. Advisors used to be focused only on accumulation of wealth, but now it includes how to decumulate. Advisors really have to look at the needs of their clients, understand their desired lifestyle, know the family, their children and round out the relationship. They need to recognize how to help clients get to that retirement lifestyle. We are seeing advisors have a more holistic approach, with an eye towards the desired retirement lifestyle and growing their clients’ investments towards that.”

Many investors have a lack of understanding when it comes to the complexities surrounding retirement. Mackenzie Investments has, therefore, been focused on spreading awareness of some of the issues with their recent retirement initiatives, one of which was a retirement awareness survey. The survey found that many Canadians have little knowledge of the logistics surrounding retirement when it comes to managing investments, how they will be taxed and how to convert RRSPs to RRIFs. Because of that, Mackenzie is helping the advisors they work with by having investment presentations for clients and prospective clients, where they emphasize the three prongs of retirement income that investors will receive: government, employer and savings.

“Education seminars open the conversation and allow you to look at investments with future retirement plans.  In addition, we have devoted a section of our website to retirement planning where we have posted a number of articles,” explained Bezaire, when talking about Mackenzie’s retirement initiatives. “We have created a whole new website with information and RRSP and RRIF calculators that advisors and investors can use. We also assist advisors with any questions they may have as they support their clients who are going into or are in retirement.”

One of the big issues that Bezaire said advisors need to be aware of is understanding tax implications as individuals enter retirement. “One thing we do in Canada is fail to take advantage of all the deductions that are available, as the income tax rules are very complex. Advisors need to understand their client’s cash flow requirements and help them make decisions like: which savings bucket to draw from, when should they convert their RRSP to a RRIF, should they withdraw from their TFSA, can they income split to save on tax. Then there is Old Age Security, which, if a client’s income goes over the threshold, can result in benefit claw backs. It is important to remember that it is different for all individuals.”

When it comes to converting a RRSP to a RRIF, Mackenzie’s survey found it is one of the most misunderstood areas for investors. It is another aspect that Bezaire says advisors need to be on top of for their clients. “An RRSP is an accumulation vehicle. When it converts to a RRIF, the individual needs to create a new account, then the advisor will move the funds over, but this is tax deferred. With a RRIF, a minimum withdrawal must be taken each year, determined by age and amount in the RRIF. The lower the RRIF holder’s age in the year of withdrawal, the smaller the amount the individual is required to withdraw. Investors are required to withdraw the minimum even if you are still working. Talking to an advisor about the right time to make these decisions is important.”

Bezaire added that there is more to consider with the transfer from an RRSP to a RRIF. “Another thing to remember is an RRSP must be converted to a RRIF by the time the individual is 71. If the individual is still working, it may be possible to use a younger spouse’s age in order to withdraw a lower amount and potentially save on tax. Also, when a RRIF account is opened, individuals need to have a new beneficiary designation because the one from the RRSP doesn’t carry over.”


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