* More Canadians want to retire gradually, not abruptly
* Advisers must plan for several income scenarios
* Taxes, insurance may determine strategy
By Andrea Hopkins
TORONTO, March 26 Retirement planning once meant
plugging a client's 65th birthday into a spreadsheet and going
from there. But with more Canadians than ever saying they plan
to retire gradually, financial advisers are faced with a growing
set of unknowns as they help clients plan for their golden
"It's becoming totally different. People are no longer
retiring as much as they are redirecting," said Jill Chambers, a
certified financial planner at Integrated Wealth Management in
"They are going from a predictable full-time salaried
position to something totally different. It isn't just a line in
the sand: 'Today I'm a worker and tomorrow I'm a retiree.'"
A majority of Canadians say they plan to work after
retirement or transition to retirement with a gradual easing of
workload. Experts expect the trend to continue as people live
longer and healthier lives, making work possible, and carry more
debt into retirement, making work necessary.
A survey released in January by Desjardins Insurance found
75 percent of Canadians planned to transition into retirement
over time, rather than stopping work suddenly.
And while financial need seems an obvious reason to work
longer, the survey showed just as many of those who felt
financially secure wanted a gradual retirement as those who felt
"The traditional notion of retirement - of packing up your
office at the end of your last day and completely changing your
life - is ending," Angela Iermieri, financial planner with
Desjardins Group, said of the survey.
A similar survey by BMO Financial Group, also released in
January, found 81 percent of Canadians plan on working in some
capacity during their retirement. Some 39 percent plan to start
their own business after age 65 - with 75 percent motivated by
the need for income and 62 percent citing a desire to stay
While the trend has an obvious upside in that clients may
need to draw on less retirement savings in the early years of
retirement, advisers must plan for a range of possible outcomes
and expenses beyond the traditional planning scenarios.
"Because there is no fixed date, it makes the financial
planning process more complex," said Marlena Pospiech, senior
manager at BMO's wealth planning group.
"At that point it is really important - despite the
ambiguity and vague goals - to try to be as clear as possible in
envisioning the various possibilities and perhaps modeling
different scenarios as opposed to one scenario with one fixed
date," said Pospiech.
With software, an adviser can run through what retirement
will look like if a client's income drops by 75 percent, 50
percent, or 25 percent after retirement, as well as what their
expenses will look like if extra insurance is needed or travel
is a priority. Seeing a few scenarios may help clients focus
their planning, even if retirement remains decades away.
The first priorities Vancouver financial planner Erika
Penner considers are health insurance and taxation. If a worker
leaves his or her company and signs back on as a consultant or
contract employee, health benefits may be gone - so workers
should look into extending group benefits if they can.
Penner also notes that if a partly retired client earns too
much money in retirement, the government may claw back Old Age
Security (OAS) benefits or take back so much income in taxation
it may not be worth it to continue.
"The question you have to ask a client is: 'Why are you
wanting to do this?'" said Penner, a certified financial
planner. Some people simply want to stay active and engaged, in
which case volunteer work may suffice. For some, the money isn't
important, in which case they may shrug off the OAS claw-back.
"If they decide if they still want to work, they have to
look how to structure their finances to be as tax efficient as
possible, so that their income isn't going to be taxed at the
highest tax bracket," Penner said.
The common dream of launching one's own business in
retirement brings its own challenges, including the risk of
spending retirement savings without getting a successful
enterprise off the ground, Pospiech said.
The BMO survey found 47 percent of those planning to start a
business in retirement planned to use a portion of their
retirement savings to fund the enterprise.
With enough time to plan for such a transition, advisers can
help a client shift assets to maximize flexibility, collapsing a
Registered Retirement Savings Plan into a Tax-Free Savings
Account, setting up a prescribed annuity or simply ensuring an
untapped line of credit is in place before it is needed.
"They definitely need to think long-term about what's going
to be needed for that (future) job," said Penner. "You have to
look at a variety of products and scenarios."
For Chambers, transitional retirement planning means helping
clients clarify what they want from retirement long before they
get there - the better to avoid the paradox of retiring too
early and then trying to get back into the workforce.
"You need to answer two questions: what are you retiring
from, and even more important, what are you retiring to? What
are you going to be doing? And until you have really good solid
answers to both questions, you're not ready to retire."