Kab tak will my retirement savings last?
You’ve spent your working life saving for retirement. Abhi time hain to spend some of that money. But how much? After all, you don’t want to outlive your retirement savings.
It’s safe to say ki hum spend kartein hain a lot more time figuring out how we’re going to save for retirement, than how we’re going to withdraw those savings. Here are some tips that may help.
Before you begin to estimate how long your retirement saving will last, you need to spend thoda time thinking about what you’ll do in retirement.
Do you plan to travel a lot or be a homebody and spend time with your grandchildren? Do you plan to downsize your home? Ya aap plan kar rahein hain to work part time in retirement? All these lifestyle decisions impact karenge how long your retirement savings will last.
Once you’ve decided on your retirement lifestyle, you’ll likely want to plan ahead and create retirement spending plan jo aapke lifestyle choices reflect karta hain.
This table shows a sample budget for an average retirement lifestyle1. For a simpler or more elaborate retirement lifestyle, your budget figures would be less or more.
| Basic expenses | |
|---|---|
| Shelter (primary home)2 | $13,975 |
| Vehicles3 | $7,047 |
| Groceries | $6,184 |
| Health and dental | $5,694 |
| Home and garden4 | $1,932 |
| Clothing and personal care | $2,951 |
| Phone and communication | $1,903 |
| Personal insurance and financial services | $1,561 |
| Local transportation | $756 |
| SUBTOTAL | $42,003 |
| Additional expenses | |
| Recreation, entertainment, reading5 | $1,824 |
| Restaurants, alcohol, tobacco | $3,237 |
| Second home | $1,706 |
| Travel | $7,803 |
| Pets | $0 |
| Charitable and personal gifts | $3,429 |
| Miscellaneous | $1,506 |
| SUBTOTAL | $19,505 |
| TOTAL (excluding tax) | $61,508 |
| Income tax | $11,018 |
| TOTAL (including tax) | $72,526 |
The above example is for illustrative purposes only. Situations will vary according to specific circumstances.
In the 1990s, financial planner William Bengen ne historical data use kiya to determine that, as a rule of thumb, for most people, withdrawing 4% of their retirement nest-egg each year would allow them to enjoy a steady income for 25 to 30 years.
However, there are some things to remember about the 4% rule:
- You’ll still have to pay income taxes from this annual amount
- Aapko adjust karna padega for the annual inflation rate (how much goods and services increase in price each year)
- It doesn’t consider investment returns on your remaining retirement savings
For many people, the 4% rule will be more like a guideline. Thode years they may withdraw more, thode years less, depending unke plans and lifestyle par.
It’s difficult to calculate exactly kitna long your money will last in retirement. However, aap estimate kar sakte hain using these steps:
- Add up all your retirement savings including registered retirement savings plans (RRSPs), tax-free savings accounts (TFSAs) and non-registered accounts. Your retirement savings bhi include kar sakta hain the sale of a business. Divide apne savings by the number of years you expect to live in retirement to get an estimated annual income amount from your savings. Remember, this estimate nahi include karega any potential future investment returns.
- Add up all your sources of monthly retirement income from company pension plans, government benefits such as Canada Pension Plan (CPP) or Quebec Pension Plan (QPP), Old Age Security and Guaranteed Income Supplement (GIS). Multiply karein this amount by 12 to get an annual amount.
- Add the 2 annual amounts together from steps 1 and 2 to get your approximate annual retirement income amount.
- Next, add karein all your annual expenses in retirement. Include mortgage, car ya rent payments, health care expenses, khana, insurance, utilities, gifts, travel, etc. And be sure to treat yourself occasionally.
- Compare apne annual retirement income apne annual expenses ke saath. Agar your annual income is higher than your annual expenses, aap good shape mein hain. If not, you may need to reduce your expenses or consider working longer and saving more.
Remember, yeh consider nahin karta someone living off dividends or a similar constant income stream.
Kya hoga if you live longer than you expected? Or inflation makes things you buy more expensive than you’d planned?
It’s important to have a strategy jo aapko withdraw karne dega some of your savings while keeping a healthy portion invested.
This chart provides some examples and shows the importance of keeping your retirement savings invested
|
Total retirement income
|
Investment returns
|
Total annual expenses/
withdrawal |
Number of years money will last
|
|---|---|---|---|
|
$300,000
|
0%
|
$15,000
|
20
|
| $300,000 |
4%
|
$15,000
|
25
|
| $500,000 |
0%
|
$35,000
|
14
|
| $500,000 | 6% | $35,000 | 33 |
The above example is for illustrative purposes only. Situations will vary according to specific circumstances.
The length of your retirement – While the average Canadian retires at age 63.5 according to Stats Canada, thode log choose to work longer. If you continue to work until you’re 70, that’s 6.5 fewer years of retirement you need to save for, ya zyaada money you can spend annually during retirement
That said, if you want to retire at age 60 or even 55, you may need to plan for 35 years of retirement or more. That may mean you need to save zyaada for retirement or spend more frugally.
Market volatility – Market ups and downs affect kar sakta hai the return on your investments and your total retirement savings. Working with an advisor is a great way to ensure your investments match your comfort with investment risk.
Inflation – Agar aapka rate of return on your investments lags behind the rate of inflation for a long period of time, as your cost-of-living increases, aapka current lifestyle banega more difficult to afford and you may have to adjust it.
Your health – As we age, it’s common for health care expenses to increase. Agar you’ve lost your employer healthcare benefits or are looking to get health and dental insurance, it’s important to look at your health and healthcare costs and how you’ll pay for them, if they increase. Looking in the future, jab you may not be able to look after yourself any longer, aap consider karna chaahenge long-term care and how you’ll pay for that.
There are several strategies jo aap use kar sakte hain to make your retirement savings last longer:
- Delay your retirement – Agar, you think you have a shortfall apne retirement savings mein, you may decide to work longer, ya phir work part-time, ya phir have a side hustle in retirement that earns you income.
- Stick to a budget – Having a budget in retirement aapko help karta hain to make your spending more predictable including planning for healthcare expenses, vacations, etc.
- Tax-efficient retirement withdrawal strategies – There are ways you can manage the amount of income tax you pay in retirement.
Now that you know more about how long aapka paisa may last in retirement, you may want to contact your advisor to:
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