* Survey identifies conflicting retirement planning goals
* Advisers should look for a variety of solutions
TORONTO Feb 18 Financial advisers need to sit
their clients down and have a tough talk about what they really
want in retirement and, more importantly, what they're prepared
to give up, according to a recent Bank of Montreal (BMO.TO)
The report, titled "Retirement income planning: Can we have
our cake and eat it too?" was aimed at the bank's 2,000
financial planners and investment advisers who are facing the
first wave of baby boomers heading into retirement.
It looked at the results of a survey that asked 604
retirees and 523 who were nearing retirement about their goals
and concerns related to retirement income.
Nearly all of them -- 93 percent -- said that having enough
money to maintain their current lifestyle was a key goal.
The respondents also said that being able to cover
unexpected expenses was a priority, as were not outliving their
savings and having a life-long income stream.
While these are reasonable goals, they can conflict with
each other when it comes to retirement planning, Tina Di Vito,
head of BMO's Retirement Institute, said in an interview.
Without some concessions, it would be nearly impossible for the
average retiree to balance both sets of goals.
"When you're spending money from your portfolio instead of
adding money, the decisions you make can be critical and can
mean the difference between having the wonderful retirement
you've planned and having to reduce your lifestyle," she said.
For instance, 69 percent of those within five years of
retirement said they would prefer to have a life-time income
stream -- available through an annuities or a host of other
guaranteed income products -- even if that would mean
sacrificing the growth of their capital.
But 67 percent of the same group said that having the
financial flexibility to deal with contingencies -- perhaps
unexpected health care costs or cash to fix a leaky roof -- was
more important than a predictable retirement income for life.
So putting all of their money into an annuity might not be
the best plan for many people, because it is not going to give
them flexibility or liquidity, Di Vito said.
Those who put all of their money into equities might have
more liquidity and growth prospects, but a market crash like
the one in 2008 could significantly reduce their nest-eggs.
TRADE OFFS AND CONCESSIONS
The biggest concerns identified were unexpected costs,
followed by outliving assets, not keeping up with inflation,
healthcare costs, and unpredictable returns.
For those worried about inflation -- people are living
longer than ever and a 30-year retirement is not uncommon --
income products can be bought that are indexed to inflation,
but they will cost more than a plain vanilla annuity would.
"This is why we say it's important to understand that you
have to make some concessions," Di Vito said. "If you
absolutely want the flexibility or the extra protection, you
will have to pay for it, which means that there will be less
money left over for you to spend."
Ultimately, there is no one solution that will address
everyone's retirement income needs, she said.
Once a client's goals have been clarified, advisers can use
a variety of products and strategies to help meet those goals
-- short-term needs might be addressed by more conservative
investments with guaranteed returns and liquidity, while
long-term needs might aim for growth, or perhaps stability.
"It's going to be about making decisions, making
concessions, thinking about what is the most important thing
that you want to cover off," said Di Vito, "and it does not
have to be all or nothing."
The survey was conducted on behalf of BMO by Leger
Marketing through an online panel between Nov. 24 and Dec. 1.
(Reporting by John McCrank; editing by Rob Wilson)