The Challenges of Retirement
It's a fact! At retirement, you'll need about 70% of your average annual gross income in your last 3 years of employment in order to maintain the same standard of living. And while this figure is widely used, it's only a rough estimate.
The income you'll need during retirement can vary between 50% and 100% of your income in your last few years of work, depending on your lifestyle and any debts you may have. What's essential for one may be a luxury to another, so you'll have to decide for yourself how much is enough. Determining the amount can be like putting a price on a prized possession.
Don't Put Off Until Tomorrow What You Can Do Today
The first thing you should do is answer a list of questions several years before you retire, not just a few months! Reexamining your commitments and family situation is like getting a medical exam—it's the best preventive measure you can take for yourself and your family.
Your Financial Balance Sheet: Ask the Right Questions!
Start with the basics. Are you single, married, or in a de facto (common law) relationship? Do you have children? Are your children still at home? Are you part of a blended family? Do you financially support your parents? Are you self-employed? Do you have a supplemental pension plan (retirement fund)? Does your plan have defined benefits or contributions?
Then, take it one step further. What are your earnings and expenses? What rate are you saving at? How much do you have saved in your registered retirement savings plans (RRSPs) and other investments? Is your mortgage paid off? Are you planning to sell or renovate your home? How many vehicles do you own? Are you planning to go back to school? Do you like traveling? Will you take a partial or full retirement? How many years are left before you retire?
Standard of Living During Retirement: Factors that May Tip the Scales
- Did you maximize your RRSP contributions early and regularly to benefit from the power of time?
- Have you contributed to a tax-free savings account (TFSA)?
- Have you accounted for expenses you'll no longer have, such as commuting and clothes for work?
- How are you planning to use your retirement?
- Will you be healthy enough to lead the life you want during retirement?
- Have you thought about the costs of leisure and healthcare?
You've answered all the questions? Now it's time to meet with an investment professional for help planning your projects.
- Make sure your savings will be sufficient to support you for the rest of your life.
- Don't rely solely on government programs, since they may change over time.
- Remember that while you can't control factors such as inflation, interest rates, stock market fluctuations, and taxes, you can still take action today to improve your standard of living during retirement.