National Post (National Edition)
How much money do you need to retire?
It’s important to get a clear picture of what income you live on now and what might change when you retire.
Realizing that they may end up retiring earlier than they had planned, 64 per cent of Canadians are worried they’re simply not saving enough, according to Fidelity Canada’s recent 2020 retirement survey.
Figuring out whether you can afford to retire is a tricky process, because the staying power of your assets depends on so many assumptions and events. Will your cash flow in retirement be greater than your expenses?
Many potential retirees expect to see the cost of living drop after they stop working. But that’s not always the case. If anything, many retirees often spend more – at least in the first few years of their retirement, when they’re still healthy, eager for travel and enjoying hobbies they weren’t able to pursue when they were still working.
That’s why, rather than rely on any predetermined formula, it’s important to get a clearer picture of what income you live on now and what might change when you retire.
Get a handle on those expenses
It all depends on your retirement age, your anticipated lifestyle in retirement and what you’re able to make and save as you move toward your goal.
To get a better idea of where your money goes, split your future expenses into essentials (food, shelter, transportation,
taxes) that are largely fixed and discretionary items (travel, entertainment, charity, gifts) that you can play around with a bit more.
Plan for a long retirement
The age at which you expect to retire can also have a major impact on the amount you need to have on hand, and the savings milestones you need to hit along the way. Two-thirds (64 per cent) of Canadian pre-retirees
say they expect they’ll be working in retirement, according to the 2020 retirement survey.
What’s more, the more years you work, the fewer you have to depend on when it comes time to withdraw money out of your retirement savings to live on. Your monthly government benefits, like Old Age Security and the Canada Pension Plan, can also be considerably higher if you delay starting these benefits.
Map current versus future income
While your cash flow will likely come from multiple sources, retirement means living mostly on a fixed income, without the benefit of the promotions or salary increases that you might have enjoyed when you were working.
Until you clearly define what it is you want to do in the future, it’s difficult to determine exactly how much money you’ll actually need in retirement. An experienced financial advisor can help you design a plan to realize your retirement goals, and help measure your progress along the way.
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