Advisors say putting savings in bucket segments like short-term, mid-term and long term helps younger clients understand what the money is there for.Drazen_/iStockPhoto / Getty Images
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Joe Lee-Owe says basic financial planning, saving, and investing for retirement can seem old-fashioned and not interesting to millennial and Generation Z clients, but he tries to show them that it works.
“It sounds super antiquated and boring, but it’s very reliable,” says Mr. Lee-Owe, financial advisor and partner at Lee-Owe MacLeod Wealth Management Inc. in Calgary. “There’s no magic to it.”
He tries to drive home the message that it’s important to start saving and investing for retirement sooner rather than later by focusing on simple concepts such as compounding interest.
“Again, there is nothing exciting about it. But your interest grows on top of your interest. So, the younger you start, the better,” Mr. Lee-Owe says.
Getting younger people to start thinking and saving for retirement can be challenging as it’s a very long way off for them, but there are strategies advisors can use to help them understand its importance.
Mr. Lee-Owe says that to be able to help younger clients, advisors need to be client-centric.
“Younger clients are asking a lot more questions and doing their due diligence. They’re consumer savvy,” he says. “You need to win trust with the client.”
One way to get them to focus on saving for the future is embarking on goals-based planning and helping them figure out how to get there.
“The No. 1 thing I do is discuss that they should start saving so they have some money on hand in case things go sideways. Then, they don’t have to depend on credit cards or a line of credit,” he says. “That’s long before we even start to talk about things like [registered retirement savings plans (RRSPs)].”
The next step is to help them pay off any debt and then Mr. Lee-Owe makes investment and saving recommendations such as a tax-free savings account (TFSA) or RRSP.
“No matter what they do – open a TFSA, buy stocks or invest in bitcoin – it’s about building that habit,” he says. “It doesn’t have to be a high amount, it’s just about creating that consistent habit.”
Elke Rubach, principal of Rubach Wealth Holistic Family Advisors in Toronto, says she starts by helping young clients understand their cash flow and the effect of their spending. She then advises them to purchase insurance.
“Young professionals have high income earning potential but their income is not protected. All their work, goals, and dreams could crumble,” she says. “They say they are too young to think about that, but I tell them they’re insurable now and it will cost [them] more later.”
Focus on how they want to live
When discussing building retirement savings, Ms. Rubach asks clients what kind of lifestyle they want when they need to draw on those savings.
“Once you know how much money they may need, you can reverse engineer their investments and put them into buckets – short term, mid term and long term,” she says.
This segmentation is helpful because it’s difficult for a 25-year-old to know what they want to do in retirement, Mr. Lee-Owe says.
“The key for me is that we don’t spend a lot of time talking about what they’re actually going to do,” he says. “With the simple segmentation of short term, mid term and long term, they understand what the money is there for.”
It also builds a sense of accomplishment, he says, because once they see their short-term savings grow, they can start to build on that.
Meanwhile, Christine Williston, certified financial planner and advice-only money coach with Money Coaches Canada Inc. in North Vancouver, B.C., takes some of the pressure off younger clients by advising them to save enough money so they can maintain their current lifestyle in retirement.
For example, someone living in a modest apartment should aim to save enough so that they could live in that same apartment in retirement. Once they move to a home, have two cars, and go on annual vacations, they should save so they could maintain that lifestyle in retirement.
“This removes young people from the massive pressure of thinking they’re behind everyone else in saving for retirement,” Ms. Williston says. “As your lifestyle improves, so should your expectations for retirement and, therefore, so should your savings for retirement.
Ms. Williston says that if a client is resistant to saving for retirement, she will use a bit of “shock and awe,” showing what their retirement might look like based on what they have saved.
“Sometimes, [depending] on what is set aside and what their retirement income will be, every vacation disappears, every dinner out disappears and sometimes, they won’t be able to pay their rent or buy groceries,” she says.
At the same time, it’s easy not to think about retirement, she adds, because people have today’s issues to deal with top of mind.
“It’s hard to grasp something that is happening in 30 years. But if you break it down to the nitty-gritty and say, ‘This is the problem you are building. I know it’s 30 years away, but the fix starts now.’”
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