Do I have enough to retire?

As we move through our 40s, 50s and 60s, our thoughts increasingly turn toward retirement. Whether you’ve been squirrelling money away for a long time, or you still have some catching up to do, one question in particular probably looms large: “How much do I need to save for the retirement I want?”

While you may hear figures like $1m quoted, unfortunately there’s no easy answer to the question of how much you need to save for a comfortable retirement. For starters, everyone’s idea of what retirement looks like varies drastically. Some want to travel the world. Others just want to putter around in their garden.

It can also be more helpful to think of your retirement funds in terms of the annual income you’ll need to generate, rather than focusing on a lump sum target. A common rule of thumb is to aim for around 70 percent of your income. For example, if you earn $90,000 you might want to aim for an income of $63,000. This can give you a starting point for your planning.

Here’s a summary of the factors that typically affect how much you might need, some of which we’ll look at in more detail below:

• Your retirement age
• Your planned lifestyle in retirement
• Whether or not you plan to work part-time
• Other sources of income, such as CPP/OAS/GIS, an employer pension, spousal income/pension and rental property income
• Your debt and assets
• Your health

It’s important to consider the age at which you plan to retire. Subtracting your age now from your planned retirement age gives you your savings timeline. Your retirement age can also affect your CPP pension, which you can start claiming as early as age 60 and as late as age 70.

For example, if you’re aged 45 now and plan to retire early at 55, you will have at least five years before you can start drawing from your CPP. If you are thinking of your life expectancy as age 85 for your planning purposes, you will need 30 years of retirement income.

Multiplying your desired income by 30 gives you a rough sum to aim for. Retiring later obviously gives you more time to save, and potentially a shorter retirement to fund.

The first step in planning your retirement involves clarifying your retirement goals. For example, do you plan to move to a small community where your costs may be lower? Do you plan to downsize to a smaller home that may cost less to maintain? Will you spend part of the year living elsewhere, for example in a warmer climate during winter?

Common retirement planning considerations include:

• How much you want to travel
• What hobbies and interests you will focus on
• Whether you plan to downsize your home
• Where you plan to live
• Whether or not you’ll need a car
• Whether you plan to continue to work part-time

You may have done your retirement goal-setting a while ago, so it’s always worth revisiting these goals periodically and revising them if necessary.

The next step in figuring out how much you need to retire is to predict your expenses in retirement. Take a look at your current outgoings to see how much you spend now. Then think ahead to how your spending might look in retirement, bearing in mind what you plan to do when you retire.

Most people find places where they will definitely save money, such as no longer needing to pay to drive or take transit to work. Other savings may require you to meet any of your retirement goals. For example, if you aim to pay off your mortgage that will reduce your spending in retirement. On the other hand, if you plan to downsize from a house to a condo you may have to pay condo fees.

A good way to look at your retirement expenses is to create a fictional retirement budget so you can play around with different scenarios. While inflation and other factors will mean this is not 100% accurate, it will help you to envision your retirement spending.

As with any budget, start with life’s essentials: shelter, food, heat and so on. Then consider more lifestyle-focused expenses, such as travel and hobbies. Finally, it’s important to consider your health in retirement. While none of us can predict the future, you may need to plan for long-term medical expenses, specialized health care and maybe even moving to a care facility.

Next, you need to consider your income sources in retirement. As mentioned above, your retirement age can affect when you can claim CPP and other pension income. Retirement income sources commonly include:

• Income from investments, including registered plans such as an RRSP and TFSA
• CPP and OAS income
• An employer pension plan
• Rental property income

Many people continue to work part-time in retirement to supplement their income, as well as for social reasons or to keep busy. When you plan your retirement vision, consider whether you might need or want to continue to work in some capacity.

After doing all of the above, you should have a good picture of:

• Your retirement goals and the income you need in retirement
• Your likely expenses in retirement
• Your likely income in retirement

If your predicted income is higher than your predicted expenses, you are looking in good shape. If not, you may have some catching up to do or you might need to rethink some of your retirement plans.

Either way, regularly reviewing your retirement plan and savings progress every few years during your 40s, 50s and 60s as retirement approaches is a good idea to help you stay on track.

You can also crunch some numbers in our retirement calculator to help you determine how much you need to save and adjust your retirement plan if and when needed.

Seeking out a second opinion from a qualified advisor at the same time can help reassure you that your retirement plan is in good shape. And a fresh set of eyes can highlight areas where you can make some tweaks to help you save enough to retire.