Friday, November 26, 2021 / by Mario Daniel Sconza
Don't ask us how Much you Need to Retire!
On November 24, we held a great live session on retirement planning. Arian Beyzaei of Enriched Academy and Kornel Szrejber of Build Wealth Canada did a deep-dive into sources of retirement income, how to withdraw from your retirement savings, RRSPs, RRIFs, CPP, OAS… and a lot more. It was a comprehensive session with tons of great facts, so make sure you check it out on YouTube… but don’t go there looking for an answer on how much you need to put away!
There is no magic number —nice round numbers like $1,000,000 or some multiple of your income (eg. 6X annual salary at age 50) have no basis in fact, especially not your facts. They have no way to know if your retirement hobby is going to be restoring a vintage car or watching hockey on TV all night. Either option may fit your retirement dream, but one costs a lot more.
If you really need some kind of number for reference, 2019 Federal Government data showed the average annual spend for a household over 65 (including taxes) was $64,461. As you get closer to retirement and some of the bigger bills fade away (mortgage, kid’s education) you will have a clearer picture of your needs. Tracking your annual spend now will give you a reference point and take away a lot of the guesswork. It will help also you identify expense buckets which may be going down or disappearing as you get older, and those that are likely to head upwards.
If your home will be paid off that is one big expense gone, but you will still have property taxes and repairs– they can add up quickly. Your provincial medical coverage may be adequate, but you will likely be out of pocket for dental or prescriptions; things which may have been covered under your employer health plan.
Another big-ticket item would be travel. Escaping the Canadian winter is nice option, but are you hoping to pack up the old camper van and drive to Arizona, or relax in a 2-bedroom beach-side condo on Maui? Don’t forget to consider the cost/availability of medical insurance for those travel plans, or your entire retirement nest egg may disappear with one accident or health issue.
Retirement age and life expectancy are two more uncertainties to deal with. The average Canadian calls it a day just shy of 83 years, but it is on the rise. If you are 20 now, it is expected that you will have about a 50/50 chance to hit 90! The average age for retirement is 63, so simple math (83 minus 63) tells us you will most likely need at least 20 years of retirement income.
Then again, many people don’t retire cold turkey, they choose to work part-time or hustle something on the side — which brings us to the last factor, your sources of retirement income.
If your employer has a pension plan and you maxed out that and your CPP for 35 years, you may be able to live entirely off of your pension income and not worry about saving anything for retirement. The key point is to make sure you know exactly how much you will get (don’t forget to also confirm the survivor’s benefit for your spouse). The average CPP cheque is $625/month or just over half of the $1204 maximum – check out the government’s retirement income calculator to see how much you may get for CPP and OAS.
Of course, if you have been listening to our advice, you will have been investing your savings in an RRSP and/or TFSA and hopefully developed some other passive income streams to supplement your government pension income.
How much you need to retire is a calculated, fact-based exercise done by the one (or two!) people who understand your needs and dreams – you! Read as much as you can, try our webinars, ask your financial coach, download a retirement calculator, track your spending…. but you are the one who ultimately needs to determine that number and own the plan to get there.
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