Why Canadians still lack retirement plans, how advisors can help

IG Wealth Management’s annual retirement study was released last week with a few stark highlights for Canadian advisors and savers. The study found that 42 per cent of Canadians were saving up for their retirement without an actual retirement plan. 45 per cent claimed to be confident that they knew the amount of money they would need when they retired, but only 26 per cent said they took inflation and changing economic conditions into consideration in their retirement plans.

Christine Van Cauwenberghe thinks that the study exposes a gap between an investment portfolio and a financial plan in the minds of Canadians. The head of financial planning at IG Wealth Management explains that while millions of Canadians are saving for retirement, many may only be contributing to their RRSPs or their other investment accounts and calling it a day. What they should be doing, she believes, is finding comprehensive answers to the core question of retirement planning: ‘will I be okay.’

“The data shows us that a fair number of Canadians have started planning for retirement, they just don’t know how much they’re going to need in order to retire,” Van Cauwenberghe says. “We’ve had clients at IG Wealth Management that have millions of dollars in assets and their first question to us is still ‘will I be okay?’ Because they don’t know whether or not they have enough for their particular situation…I think a lot of Canadians are losing sleep and don’t have financial confidence, not necessarily because they’ve saved the wrong amount of money, it’s just that they don’t know what the right amount of money is for them. It’s incumbent on advisors to educate clients as to the difference between the two and show them what a good plan looks like.”

The ongoing struggle with high inflation, Van Cauwenberghe says, brings the question of ‘will I be okay’ into focus for many Canadians. It forces people to estimate what daily necessities and retirement dreams like travel may cost in the future. It’s an area of acute need where advisors can demonstrate their value in the short and long-term. As Canadians grapple with the prospect of high inflation for longer, advisors can talk through plans for if their income doesn’t rise to match that rate and for when they transition to retirement and stop earning. Those plans can be instrumental in the eventual success of someone’s retirement.

Despite the value an advisor can bring to a retirement plan, Van Cauwenberghe notes that the study highlights some of the inertia among Canadians currently saving for retirement. Because we have a fair bit of guaranteed retirement income in the form of OAS and CPP, as well as a historically strong housing market, many Canadians think that simply contributing to their RRSPs will be enough for retirement to work out. She views this more laissez faire attitude as potentially dangerous and something that can lead to disappointment. It’s an attitude borne, in part, out of past generations’ circumstances that are less prevalent today.

One of those circumstances is the prevalence of defined benefit pension plans. Where Canadians in previous generations had defined benefit pension plans, Van Cauwenberghe notes that many Canadians now have defined contribution plans or no plans at all. Moreover, people move between employers more frequently and often take gig work, which means employer sponsored plans of any kind are less commonly available. The lack of pension income, therefore, needs to be planned for.

So does the management of any major debt. Because of historically low interest rates for much of the past decade, Van Cauwenberghe notes that many Canadians have retired without fully paying off their homes. Now that interest rates are higher, many of those Canadians may be regretting the decision not to pay off their home while they worked, as higher monthly mortgage payments could impact their lifestyles.

All of these issues drive home the importance of the work advisors do. Van Cauwenberghe says that at IG Wealth Management, the approach has to involve clear communication to clients about what a plan looks like and what its benefits are. With that clear understanding laid out, advisors can inform clients about their progress and what decisions need to be made along the way to keep up with their plans. That process of clear communication can also help bring in younger investors who may not see the immediate value of a plan or recognize that they need to begin to prepare for their retirement.

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While advisors can go a long way to moving more Canadians into more robust retirement plans, advisory firms can also take actions to ensure more of the market is covered. IG Wealth Management, Van Cauwenberghe says, has taken steps to segment their business by client assets, allowing clients of various asset levels to access planning resources. While entrepreneurial advisors are empowered to serve mass affluent, high net worth, or ultra high net worth clients, they have a team of corporate employee advisors ready to serve clients below that mass affluent threshold of around $250,000. They are also planning to roll out a self service option that gives investors access to Conquest so they can get assistance building their own financial plan.

Whatever the asset base of the clients they serve, or their level of perceived knowledge or comfort with investing, Van Cauwenberghe believes that advisors need to look at this study and understand that they still have planning work to do.

“Advisors should not assume that the clients who have invested with them necessarily know how much they will need. Just because someone comes across as confident making investment decisions doesn’t mean they have confidence in terms of their own personal goals,” Van Cauwenberghe says. “It’s important to sit down with clients and outline what the financial plan actually is, to talk about their personal goals and customize them with clients to give them more financial confidence.”