How do I know if I'm saving and investing too much?

FP Answers puts your investing questions to the experts. This week our expert is Vickie Campbell, a certified financial planner and CIM in Ottawa.

The questions were compiled by financial journalist Julie Cazzin.

Question: My wife and I are 50 years old and we are investing 50 per cent of our net income for retirement. We top up my 14-year-old son's registered education savings plan (RESP) every year, but all our other money goes into registered and unregistered accounts. We've paid off the mortgage. How do I know if I'm saving too much for retirement? And, if we are saving too much, is there such a thing as a spending plan? Should we just invest more conservatively and keep up our savings? My wife and I would love to spend more of our income, but are paralyzed by the fear that we won't meet our retirement goals. — Paul and Roxanne

FP Answers: Congratulations on establishing and following such a disciplined savings strategy. This is an excellent basis for a sound financial future. It may come as no surprise to know that you are not alone in wondering if you have saved enough for retirement. Switching from savings mode to spending mode can be challenging, whether it's before, during or after retirement.

Here are some things to consider when determining if you are saving enough.

First, figure out what your predictable future income streams will be from things such as:

Old age security (OAS), which is received at age 65 if you are a Canadian citizen and have lived in Canada for more than 10 years;

Canada Pension Plan (CPP). You can contact Service Canada at 1-800-277-9914 or online to project what your pension will be;

And any other pension plans, including defined-contribution (DC) or defined-benefit (DB) pension plans from all employers. Contact your employer's human resources department for info regarding any employer pensions you may be a member of.

Then, estimate your future expenses by:

■ Reviewing your expenses from past years to project your future expenses;

■ Determining your fixed expenses, which can include property taxes, utilities, insurance, food and clothing, car maintenance and gas, and transportation;

■ Talking about your expected discretionary expenses through retirement. These may include travel, gifts or a large purchase such as an RV, and then setting a budget for them; and

■ Including big-ticket items such as car replacement, appliances, home maintenance/upgrades.

You have saved well and taken advantage of having a RESP for your son's post-secondary education.

But run the numbers to see if you will need additional money for accommodation and food if your son attends school in another city.

Once you project what your retirement expenses are, you can then estimate what you will need for your anticipated lifespan. Of course, we don't know how long we will live, but projecting enough income to have until age 90 or 95 will provide an estimate of how much money you will need.

Another important factor that you mention is the expected rate of return on your investments. That rate of return will vary with your risk tolerance and the type of investments you already own. Lower-risk investments with projected lower rates of return may help provide peace of mind when you feel you have enough money for retirement.

Your expenses will increase with inflation, so you will most likely want your investment return to be greater than inflation. Discussing your risk tolerance and projected returns with an investment adviser or financial planner is critical to helping you with this.

Also consider how long you plan on working. Once you have saved enough for your retirement goals, you will be financially independent and able to set up a spending plan for the extras you would like.

I don't know the breakdown of your registered to non-registered investments, but note that it's important to include tax in your projections. Withdrawals from your registered retirement savings plans (RRSPS) will be taxed. Your investment income will also be taxed.

You may find that paying for a couple of hours for a fee-only financial planner to run some financial scenarios for you and confirm that you have the right road map to a comfortable retirement will be well worth the time and effort. Having a conversation with a certified financial planner who can help you review your goals and objectives and set a strategy for your current savings and retirement planning will solidify that you are on the right path.

Finally, review your financial plan every three to five years. If you find that you are saving too much, there's no harm in spending a bit more money now while your family can enjoy it. For example, a great vacation together will build memories that you and your son will carry with you for years to come.

The key is finding the right balance of thoughtful spending now versus saving more for the future. Doing this will go a long way to ensuring you and your family are making the most of your money on an ongoing basis.

Financial Post

Vickie Campbell is a certified financial planner and CIM in Ottawa. She can be reached at Vickie.campbell@ sympatico.ca

GETTY IMAGES FILES It's important to find the right balance of thoughtful spending now versus saving more for the future, says Vickie Campbell, a certified financial planner and chartered investment manager.