How much will you need to retire?
This will largely depend on the retirement you imagine. The more you want travel and dine in restaurants, the more money you’ll need. If you plan to garden and spend time with your grandchildren, you’ll likely need less.
You should also consider healthcare expenses as you age, and housing expenses once you’re no longer in your own home.
Retirement saving “rules of thumb”
For many years, people have used the “70% rule”, which suggests you could live comfortably in retirement on 70% of your pre-retirement income. However, because people are now living longer and are retired for longer, 70% might not be enough.
Another rule of thumb is saving 10% of your net income. While it’s a nice idea, while you’re paying down a mortgage or student loan, and raising children, it may be difficult. As well, the 10% rule may not factor your lifestyle into account. Some folks might need to save more or less than 10%.
What the average person has saved
Curious about what other Canadians in your age group have saved? A 2019 survey by Statistics Canada revealed the average amounts economic families in various age groups have saved in some of the more common retirement investments.
The importance of creating a budget
To get a real handle on how much you’ll need, you’ll want to create an accurate retirement budget. Be honest about your needs and wants.
List your current household expenses and projected expenses side-by-side. Will you be paying a mortgage or car payments in the future? Will other expenses be less once your kids have moved out? Do you plan to travel somewhere every year, or spend the winter somewhere warm?
Working through this budget will eventually give you an annual amount you’ll need to have the retirement you want.
Add up your known retirement income sources
If you have a defined benefit pension plan, your employer will provide you with a statement telling you how much you can expect to receive.
If you have defined contribution pension plan, it’s harder to determine how much you’ll receive, as it will depend on the performance of the investment. However this tool can help.
You may also be eligible for Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) benefits, and Old Age Security pension payments. Just be careful not to overestimate how much you’ll receive and don’t assume it will be the maximum amounts.
Starting early and taking advantage of compounding
The last thing you want to do in your retirement is wonder if you’ll have enough?
The earlier you start saving, the more time you give compounding returns to work, and the better chance you have of reaching your financial goals.