Do the math

Now that you know the sources of income you can count on in retirement, it is important to calculate the amounts you need to save to reach your retirement goals and carry out your retirement plans. If you already have a savings plan, remember to adjust it regularly. Life changes, and so do your savings needs!

How much should you save?

To know how much you should save each year, you need to start by estimating your financial needs in retirement. Then, set realistic savings goals. The most important thing is that you start saving as early as possible. To make sure you save, make a budget and include savings. Systematic saving is always the best option.

People often say that you need to put aside 10% of your annual net income for retirement. This basic rule does not apply to every situation. The percentage of your income you should save is based on when you start saving. It can also vary depending on various risk factors that may have an impact on your retirement income, such as the rate of return on investments.

SimulR can help you determine how much you need to save to achieve the desired retirement income replacement percentage.

SimulR scenarios

Frank is 35 years old and earns $50 000 a year. He has decided to apply the 70% rule to determine the retirement income he will need. For the purposes of this example, the rate of return on savings is 5%.

1st scenario: Retire at age 60

Frank wants a retirement income of $35 000 a year, that is, 70% of his current income, starting at age 60. According to SimulR, he must save 24% of his salary each year to achieve his goal.

Frank retires at age 60

Gross replacement rate according to the age at retirement

 

Saving the amount he needs to retire fully at age 60 requires a considerable effort on Frank's part since he has not started saving yet.

2nd scenario: Retire at age 65

Frank wants a retirement income of $35 000 a year, that is, 70% of his current income, starting at age 65. According to SimulR, he must save 11% of his salary each year to achieve his goal.

Frank retires at age 65

Gross replacement rate according to the age at retirement

 

To replace 70% of his annual salary of $50 000, Frank must save nearly 24% a year if he applies for his QPP pension at age 60, and nearly 11% a year if he applies at age 65. Therefore, the age at which Frank applies for his QPP pension has a direct impact on the amount he needs to save to achieve his financial goal for retirement. His pension is higher at age 65 because of a combination of 2 factors:

  • He has an extra 5 years to save.
  • The value of his pension is 60% higher at age 65 than at age 60.
3rd scenario: Lower the income replacement percentage

Frank wants a retirement income of $32 500 a year, which is 65% of his current income. He wants to retire at age 66 but apply for his QPP pension at age 63, and for his Old Age Security pension at age 65. However, he intends to work part time between ages 63 and 66. According to SimulR, he must save 10% of his salary each year.

Frank works part-time and lowers his income replacement rate

Gross replacement rate according to the age at retirement

 

With SimulR, you can change the age at which you begin receiving a lifetime retirement benefit such as a pension under the QPP, the OAS program or a defined benefit plan. You can also choose when you will withdraw your accrued savings and even opt for phased retirement. SimulR is for everyone, especially individuals between ages 25 and 45.

To know how much you should save each year, you need to know how much savings you have and your financial goal for retirement. If you still have not set your goal, you need to estimate your financial needs and set realistic savings goals. Systematic saving is always the best option. Start saving now!

Since everyone's financial situation is unique, it is important to measure the impact of early retirement. The earlier you retire, the more you need to count on your personal savings to round out your income. In addition, some people have a tendency to underestimate how long they will live. Do not forget that 50% of current retirees live beyond their life expectancy, which is growing rapidly in our society.

SimulR and CompuPension can help you determine how much you need to save to achieve the desired retirement income replacement percentage.

SimulR is easy to use and can tell you what income replacement percentage you will need for retirement, and how much you should save to achieve your financial goal. CompuPension allows you to access your Québec Pension Plan data and gives you an accurate picture of your retirement income.

SimulR scenarios

Julie is 50 years old and earns $50 000 a year. She has decided to apply the 70% rule to determine the retirement income she will need. For the purposes of this example, the rate of return on savings is 5%. Julie has $150 000 in an RRSP.

1st scenario: Retire at age 60

Julie wants a retirement income of $35 000 a year, that is, 70% of her current income, starting at age 60. According to SimulR, she must save 45% of her salary each year to achieve her goal despite the fact that she already has $150 000 in an RRSP.

Julie retires at age 60

Gross replacement rate according to the age at retirement

 

Saving the amount she needs to retire at age 60 requires a considerable effort on Julie's part since she has only 10 years before she turns 60.

2nd scenario: Retire at age 65

Julie wants a retirement income of $35 000 a year, that is, 70% of her current income, starting at age 65. According to SimulR, she must save 6% of her salary each year to achieve her goal despite the fact that she already has $150 000 in an RRSP.

Julie retires at age 65

Gross replacement rate according to the age at retirement

 

To replace 70% of her annual salary of $50 000, Julie must save nearly 45% a year if she applies for her QPP pension at age 60, but only 6% a year if she applies at age 65. Therefore, the age at which Julie applies for her QPP pension has a direct impact on the amount she needs to save to achieve her financial goal for retirement. Her pension is higher at age 65 because of a combination of 2 factors:

  • She has an extra 5 years to save.
  • The value of her pension is 60% higher at age 65 than at age 60.
3rd scenario: Lower the income replacement percentage

Julie wants a retirement income of $32 500 a year, that is, 65% of her current income. She wants to retire at age 66 but apply for her QPP pension at age 63, and for her Old Age Security pension at age 65. However, she intends to work part time between ages 63 and 66. According to SimulR, she must save 4% of her salary each year despite the fact that she already has $150 000 in an RRSP.

Julie works part-time and lowers his income replacement rate

Gross replacement rate according to the age at retirement

 

SimulR is for everyone, especially for individuals between ages 25 and 45. It provides an overview of your retirement income. You can change the age at which you begin receiving a lifetime retirement benefit such as a pension under the QPP, the OAS program or a defined benefit plan. You can also choose when you will withdraw your accrued savings and even opt for phased retirement.

CompuPension provides more specific data for calculating your retirement income. The closer you are to retirement, the more important this specific data is. Draw up a preliminary budget including your retirement income and expenses This link will open in a new window., and use CompuPension to refine your scenario.

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