How much money is “enough” to retire? For such a seemingly simple question, the answer is anything but simple! “Enough” money for one person to retire successfully can be vastly different for another.
While I can’t give a single answer that applies for all; I can provide some guidance on the factors you need to consider
when calculating your own “enough.”
1. How much will you spend? This is the ideal starting point for retirement planning. If we begin with the end in mind, we can work our way backwards. This will allow us to figure out how much you need in savings in order to fund that expenditure goal. Think through what you want to do in retirement and try to estimate both your fixed expenses (housing, utilities, groceries, etc.) and your discretionary expenses (such as travel, entertainment, and gifts).
2. How long will you spend for? If only we had a crystal ball to know exactly how long we have to spend on this Earth. Since we don’t have that luxury, we need to do our best to estimate. There are plenty of online resources about longevity, such as from Stats Canada, to ballpark life expectancy. You should add on a few extra years to err on the cautious side! Also consider your ideal retirement start date. You can adjust this up or down later, but you definitely need a starting point for running calculations.
3. What income sources will you have already? Most Canadians will qualify for some combination of government
pensions, such as Canada Pension Plan and Old Age Security. The amounts you receive will be dependent on a number of factors, like career earnings, length of residency, and start dates. If you login to your Service Canada account, you can find accurate numbers for these benefits! Be sure to include other consistent incomes, like part-time employment, rental income or work pensions.
4. How much tax will you pay? Income tax doesn’t go away when you stop working! Factoring in an estimated tax bill on your income sources is a must in calculating an appropriate retirement figure. Ignoring taxes on your retirement income is a surefire way to ruin your plans.
Once you have an idea of your income need, its’ duration, your existing incomes and a tax estimate, you can run a calculator to determine what you need to fill in the gap! This can be done through a number of online Financial Planning Calculators or through retirement planning software accessible by Financial Security Advisors.
“Enough” retirement funds for you won’t match anybody else’s figures. The process to finding out how much you need is, however, the same for everybody! If trying to calculate your numbers in a spreadsheet or on the back of a napkin is too daunting, now is the time to ask for help!
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