Demographic and economic factors mean income strategy 'more important than ever'
With the number of people nearing retirement at its highest level ever – Statistics Canada reports 21.8% are close to retirement age ‒ Dynamic Funds is building out its ‘Retirement Income Centre.’
"A convergence of demographic and economic factors – extended average life expectancy, higher inflation, and market volatility – is understandably concerning for many retirees and pre-retirees, so an effective retirement income strategy is more important than ever," says Mark Brisley, managing director of Dynamic Funds.
The conversation around the retirement gap or the retirement income gap probably started as early as 2000, he says, when everyone started to prepare for the fact that “this baby boomer demographic cohort was going to start to turn 65 in 2011 and there was supposed to be this massive shift,” he says. While it never really occurred because the front end of the boomers retiring in 2011 didn't create a massive retirement wave, for the last two or three years, “we've been talking about the fact that the last of the boomers are turning 60 this year and the early stage of Generation X is now in their early to mid-50s.”
With all the focus on wealth accumulation, it identified a need for efficient, sustainable, and effective income planning or income structuring for people entering retirement. The lack of awareness was evident not just with investors, but even financial advisors and this shift from accumulation to decumulation really needs to start five to seven years in advance, he says. “Those who embrace it, and educate themselves on it, are going to be well-rewarded with a sustainable retirement income.”
The centre was created as a resource portal for issues that needed to be addressed, specifically around retirement income portfolio construction. “We're not trying to tackle the subject of retirement, we're really focused on the portfolio construction piece,” he says.
To do so, whether Canadians are participating in an employer sponsored pension plan or not, the question is how much time “do you really spend looking at your annual statement, your pension plan? And how much time do you actually think about how that's going to translate to your investment needs,” he says. Most need a financial advisor who takes all of the inputs that will generate income for their retirement ‒ savings and assets ‒ and structuring them in a way that addresses what he calls the “4Ms” ‒ minimizing tax and drawdowns and maximizing cash flow and purchasing power ‒ through the retirement years.
For those who access the centre, the primary materials deal with key retirement challenges, based on current macroeconomic conditions. When it was launched, “we were talking about a very low interest rate, low yield environment in the market. Now, the language on the site talks about the challenge of inflation and the erosion of purchasing power of money.”
One key area, he says, is retiring Canadians need to be aware of the importance of professional financial advice.
“We do believe the best way to access financial products is through the advice channel. We're not big proponents of do-it-yourself,” he says.
