Savings and Retirement Projections

By Dave Faulkner

Keep it Simple… but not too Simple!

Recently, I had a discussion with a new RazorPlan user. He told me in the six weeks since he started using RazorPlan, he had seen a significant increase in client engagement and a major improvement in case size and closing ratio when meeting with new prospects.

My first instinct was to point out the benefits of keeping things simple when discussing financial recommendations with prospects and clients. He agreed, but pointed out that some advisors can take simple too far.

To illustrate his point, he told me a story about a recent appointment he had with a new prospect to discuss their savings and retirement plans. Here’s the true story, told from the perspective of you, the advisor. (The names of the clients are made up to protect their privacy.)

Meet Roger and Bea

You were referred to Roger and Bea by their son Cecil who is a client of yours. A few months ago when reviewing Cecil’s life and critical illness insurance, you learned that his parents had recently retired and that they were dealing with a local investment firm to prepare a “retirement plan”.

Over the summer months, you attempted to arrange a meeting with Roger and Bea, but they were always busy enjoying the summer weather. You remained in contact by sharing various articles on savings and retirement strategies.

At the end of August, you contacted them to arrange a meeting after Labor Day to which they agreed, even though they did not feel there was anything you could help them with. After all, their current investment advisor had already prepared a retirement plan for them.

You met them at a local coffee shop the following week during which you discovered their situation was not very complex. Both Roger and Bea were 65 and drawing CPP and OAS. Roger had $500,000 in a balanced RRSP and Bea had a fully indexed defined benefit pension plan paying $2,800/month.

They showed you the retirement plan that their current advisor had prepared for them, a simple RRIF projection at 6.5% return. This so-called “retirement plan” suggested that the Roger and Bea could withdraw $2,500/month after-tax indexed at 2.5% inflation for 20 years, assuming a marginal tax rate of 30.5%.

After explaining that this was not a retirement plan, you pointed out to Roger and Bea that a RRIF projection, although adequate for running “what-if” withdrawal scenarios, was too simple to be used to plan retirement income.

A retirement plan needed to consider proper tax rates, greater longevity and incorporate other assets and income sources. It should also provide a clear explanation of the options available, so that Roger and Bea could make informed decisions about the lifestyle they envision and how their assets would be distributed by their estate.

A retirement plan should be simple, but not too simple

Using your iPad in the coffee shop, you entered Roger and Bea’s financial information into RazorPlan and calculated their maximum after-tax retirement income to be $7,000/month, assuming a moderate growth portfolio earning 5% and a life expectancy to age 90.

You then reviewed the charts screens on your iPad with Roger and Bea, so they could see the Cash Flow, Financial Assets, Income Tax, Risk Management and Retirement Options. This allowed you to demonstrate the value you provide to your clients and to answer any questions they had regarding your process and compensation model. The entire meeting ran about 30 minutes.

Recognizing the value of your advice over what they are currently receiving, Roger and Bea met you at your office the next day to sign an engagement letter and the forms to transfer the RRIF from their now ex-advisor.

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