How much do I need to retire?

Canadians are living longer and that means they’re spending more time in retirement. The average woman retiring at age 65 today can expect to live another 22 years, while a 65-year-old man can expect to live another 19 years. To see if you’ll be able to finance the retirement you want, ask yourself these four questions:

What will my sources of income be?

Most of us will rely on three sources of retirement income: government benefits, registered savings and non-registered savings. You might also have a company pension plan to add to your income.

Your government benefits will include Old Age Security (OAS) and Canada Pension Plan (CPP) payments. Some provinces and territories provide additional benefits for retirees. Your financial advisor can provide more information to your own situation.

Your registered savings are whatever you’ve saved in a Registered Retirement Savings Plan (RRSP), Registered Pension Plan (RPP) or Tax-Free Savings Account (TFSA). Your non-registered savings include everything else, like money you have in a savings or investment account or invested in your home.

Your company pension plan will be specific to you and the company you work for. If you’re not sure if you have a company plan, or how the plan works, speak to your human resources representative.

What will I spend in retirement?

You haven’t retired yet, so you might not know exactly what you’ll spend in retirement. You can get some idea, though, by looking at your current monthly budget and adjusting it for your retirement needs.

Go through each item on your budget and take out whatever won’t apply in retirement. For example, you might have paid off your mortgage by the time you retire. Or your children may no longer be living at home. If you’re saving a set amount for retirement each month, take that out as well.

You’ll also have new items to add to your budget, like higher prescription costs and other medical and health care expenses, or a new line item for extensive travel. Try to think of every expense that could come up in retirement that you’re not paying now. Remember to account for inflation, as the cost of living tends to increase through the years.

After you’ve deleted some expenses and added others, you’ll have a rough monthly post-retirement budget. Multiply by 12 to figure out your (estimated) annual costs. A general rule of thumb is that you’ll need about 70% of your pre-retirement income, but that figure can vary depending on your circumstances. Your financial advisor can help you determine what your goal should be.

How much have I already saved?

Talk to your financial advisor to figure out how much you’ve saved in registered and non-registered accounts. Your advisor can take you through different scenarios to give you an idea of your annual retirement income from savings, based on the amount of time you might spend in retirement.

Add to that your annual government benefits. According to Service Canada, the average combined CPP and OAS benefit is about $14,500 per person per year. Next, add any company pension benefits you may have.

How far do I have to go?

Here’s where you have to do some math. Look at your estimates for your annual post-retirement budget and your annual post-retirement income. Are these numbers close? If so, you’re in good shape. If not, talk to a financial advisor about how to increase your savings now.


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