With 10,000 American baby boomers turning 65 every day, plus 1,200 Canadian boomers, there is fast approaching a major sea change in how this generation handles their investments.
When you’re working, things are somewhat automatic. Your employer deposits your paycheque into your bank account perhaps every second week, conveniently withholding income taxes at source. Perhaps you’ve automated your savings program and pension contributions.
In short, you are in wealth accumulation mode, and so likely is your financial adviser, since he or she is also probably personally in the same mode.
But once you turn 65 or cease to draw a full-time salary, you are now in the “decumulation” zone. We devoted a column to decumulation in the September issue of MoneySense, in which we highlighted a new undertaking by John Por called the Decumulation Institute.
Last week, I attended the second meeting of this group, which includes Malcolm Hamilton, the retired actuary who continues to be quoted by this magazine and others. Except for John and Malcolm, most of the attendees didn’t wish to be identified or quoted directly.
In his progress report, Por said that by the year 2022, some $2 trillion in financial assets held by various Canadian financial institutions will be converted into retirement income. Over the next 15 to 20 years, he says 1,500 Canadians will retire each working day. Record keepers on average roll over about 30% of defined contribution pension assets at the retirement of the members of those plans.
Por’s research shows that bank-based advisers are “poorly trained in discussing retirement income issues,” in part because of the focus on wealth accumulation. Por says a mindshift is required to go from investments to income.
From the perspective of individuals preparing for this shift, a number of things have to be considered. These include adjusting lifestyle expectations, considering longevity risk, saving more money, taking more investment risk or simply postponing retirement.
Por has created a website at decumulation.ca and begun work on Decumulation Workshops that may help DC pensions, financial advisers or possibly their clients prepare for this transition.
It was Por’s pioneering work on decumulation that prompted me to include on my own new Financial Independence Hub sections on both Wealth Accumulation and Decumulation, as well as Longevity & Aging.
In my experience, relatively few financial advisers have made this leap. One that comes to mind because he’s written a book about it is Daryl Diamond of Diamond Retirement Planning. The second edition of his book, The Retirement Income Blueprint, expertly maps out the terrain. Rogers Group Financial’s Clay Gillespie is another who has a similar focus.
Both of them are listed in the Getting Help section of the Hub (and in MoneySense’s online directory of fee-only planners). A third, who is also contributing articles on decumulation for the site, is Doug Dahmer, of Emeritus Retirement Income Specialists in Burlington. He provides a number of tools and even games that let you play “what if” games on life expectancy, inflation, timing of government benefits, tax rates etc.