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2004-12 Retirement...How Much Do I Need?

Written by Gill Campbell for Synergy Magazine,
December 2004

One of the questions we rarely voice, and one that usually gets a simplistic response that translates to 70% of your earnings.  Yes, you have been told that if you have not been saving 10% of your earnings retirement will be difficult.  In your 20’s and 30’s, you were busy and retirement was far from your thoughts; in your 40’s you socked some RRSP’s away and in your 50’s you feel you have a sense of panic and a concern that you must be on the fast track to “Freedom 85”.  Well, you owe it to yourself to work on the question for yourself.  You may be surprised to find that things are not as dire as you feared.

It is important that you take stock of what you currently spend and where your money goes.  In particular, you need to identify the expenditures you make that are associated with your working life.  This may include part of your clothing expenditures, the reason to always have a late model vehicle, commuter costs or even a significant part of your restaurant spending.  If you think through a workweek, you may identify other items that you might not need in retirement.

While most of us intended to have our mortgages paid by the time we were 50, most of us should have no mortgage payments by the time we retire.  If not, and we have been moving up-market, are we not likely to scale back as we enter a retirement phase?

As we raise families and pay mortgages, we use insurance to guard against calamity.  If we need to maintain life and disability insurance in later life it is for estate planning or a specific plan to assist a surviving partner.  For many of us these costs will be reduced in our retirement phase.

Are your vacation expenditures a function of escaping for that hard-earned holiday?  As a retiree, would these expenses continue?

By asking these questions, we are simply removing “work-life-related” expenses from your current budget.  This exercise will be much more meaningful to you than “70% of your current income” and you may be surprised at the result.

Despite the “chatter”, your Canada Pension is something you can count on.  The statement you receive annually gives you an estimate of what you CPP will be.  If you have not had maximum contributions every year, it will likely be higher than shown.  This is because a percentage of the years are taken off when the final calculation is made.

If you have a work related pension, the administrator can clarify what you might expect to receive on retirement.  Consider carefully the choice of reduced payouts in favour of survivor benefits if the choice is offered.

Then consider your RRSP.  The average Canadian man will live to about 78 and the average Canadian woman to 84 – perhaps you should plan for an additional 5 years.  You will have to convert your RRSP to a RRIF at 69.  In simple terms, you have to cash out a percentage each year of your RRIF, which increases with age.

If you work through this budget exercise of retirement expenses and income you will have an idea whether you need to adjust expectations or your savings plan.  Whatever the result it will be your own plan.

If you need help, or want to have your plan checked out, consult a Certified Financial Planner.  Many will provide initial consultation for free because they will get paid if you need any insurance, saving or retirement products.  Others charge a fee for service. 

Remember, this is about your plan and getting the answer to how much you need.  There is no universal or simple answer.  You do need to think about the life you will lead and the best way is to start by analysing how you spend your money today.

Chris offers wine with lunch
Chris offers wine with lunch

Gill Campbell is a certified financial planner and an independent insurance broker.  Please email me with specific areas that you would like me to consider in developing future columns
Gill, Chris and Kayla