Having a ‘roadmap’ to ease retirement worries is key amid these uncertain times

A recent survey shows 45 per cent of Canadians say the pandemic altered their retirement plans. Some have changed their lifestyle, and many have been knocked off course by the pandemic’s economic impact.erikapellini/iStockPhoto / Getty Images

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The COVID-19 pandemic has been keeping Canadians up at night – and not just because they’re worried about their health.

Bank of Nova Scotia’s annual Worry Poll, published in December, found that three in four Canadians(75 per cent) are worried about their finances. Then, Scotia Global Asset Management’s (Scotia GAM) Investor Sentiment survey released in late January reported that almost a third of participants (32 per cent) are more worried about whether they’ll be able to fund their retirement than they were a year ago.

As a result of these increasing concerns, now is the time for advisors to have in-depth conversations with anxious clients to help them get back on track with financial goals, and review or refresh their long-term plans, experts say.

The financial plan is the key to establishing confidence among clients, says Jeff Bartja, managing director, investment distribution and partnerships, globe wealth management, at Scotiabank in Toronto.

“When people have that roadmap and can see the path from where they are [today] to where they have to go for retirement, it takes the worry away,” he says.

Advisors can take some of the emotion out of the discussion, and “stop [Canadians from] hurting themselves by taking a knee-jerk reaction to short-term issues.”

The Scotia GAM survey also found that 45 per cent of Canadians say the pandemic altered their retirement plans. Some have changed their lifestyle, and many have been knocked off course by the pandemic’s economic impact.

Carissa Lucreziano, vice president, financial and investment advice in the personal and small business banking division at Canadian Imperial Bank of Commerce (CIBC) in Toronto, says her bank’s research shows Canadians have been focusing on short-term and practical goals during the pandemic rather than larger ambitions such as retirement planning.

“Priorities over the past two years have changed. Canadians may have changed their outlook on how they want to spend their retirement,” Ms. Lucreziano says. “An advisor can help navigate through how those new goals affect future lifestyle.”

If a client decides they want to change their retirement date, the advisor can help rework the plan to answer the “can I?” question, Mr. Bartja says.

“If a client says, ‘I was thinking this date and now I’m looking at now instead,’ I don’t think it’s our role to tell them whether they should or shouldn’t,” he says. “But I think it’s absolutely the advisor’s place to say, ‘If that’s what you’re looking at, these are the things you should consider.’”

Wilkie Kam, portfolio manager and senior investment advisor with the Wilkie Kam Investment Advisory Team at BMO Nesbitt Burns Inc. in Vancouver, says for clients whose finances have been damaged by the pandemic, a review of how they’ve been financing their expenses is in order.

“Have they used up their [registered retirement savings plans] or [tax-free savings accounts (TFSAs)]? Will they be getting less [Canada Pension Plan] in the future? Have they racked up some loans during the pandemic to cover expenses? If so, they need to look at how to put these savings back into the TFSA and how much are they paying in interest in loans,” Mr. Kam sys.

As clients’ incomes go back to normal, they need to fill the gaps, he says.

The news of conditions in continuing care homes during the pandemic has also affected long-term retirement planning for some, Mr. Kam adds.

“Maybe they want to live in their own home or hire more domestic help. That will change the money they will need for retirement,” he says.

How inflation plays into retirement planning

Rising inflation has also heightened clients’ anxiety levels.

“The key is to keep the client’s vision on the long term and retirement as opposed to inflation rates this year,” says Mr. Bartja, adding that inflation should be worked into the overall long-term plan.

“We don’t want to be in a place where people are timing markets or asking us for predictions,” he says.

But Mr. Kam points out there’s merit in considering the inflation rate in financial plan reviews because those made in the past few years were assuming lower rates of inflation than are now expected. Rising interest rates should also prompt discussions about debt reduction.

Reviewing the day-to-day budget can help with inflation, Ms. Lucreziano says. As the pandemic wanes, savings can be had by eliminating spending heightened by the pandemic, such as streaming service subscriptions.

For older clients who are already in retirement, inflation can also eat away at income. If conservative investments aren’t keeping up with inflation, Ms. Lucreziano says advisors can help seniors decide whether staying in those investments are appropriate, depending on their risk tolerance.

“The advisor can display visually what that [investment] looks like today and over time, how that’s going to affect their savings and day-to-day expenses so the client can make an informed decision,” she says.

On top of inflation is the spectre of recent market volatility.

Mr. Kam says that while market gains have been phenomenal the past two years, with interest rates headed up, returns are going to be different. So, it’s a good time to consider reviewing a portfolio’s asset allocation.

“Has the client been too aggressive in investing in stocks? If they’re approaching retirement, do they need to scale back the equity investments and move into something that’s more stable?” he asks.

Some fixed-income investments, such as corporate fixed income high-yield bonds, could provide a hedge against stock market movement to the downside, he says.

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