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Insights & advice

How much money do I need to retire?

Key Takeaways

  • There’s no one-size-fits all number when it comes to retirement

  • No retirement looks the same, so map our (and budget) your unique plan

  • It’s complicated, but working with an advisor will help simplify the calculation

  • Don’t discount creative ways you can supplement your personal savings for income in retirement

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How much money do you need to retire? It’s a simple question with a complicated answer. While you may have heard lump sums thrown around - $500,000 if you’re a single person, $1,000,000 for a couple – a much more accurate rule-of-thumb is: It depends.

Plan for your retirement

The emphasis is on "your" retirement here, because no 2 will look the same. You could take two 55-year-old women with the same job and even the same postal code, and their vision for this next chapter will probably be very different – along with what they can actually afford. That’s because a range of factors – from how much we have saved to how much we want to spend – can all influence just how much money we’ll need to retire. Ideally, comfortably as well!

Whether you’re 25 or 55, it can be helpful to sit down and answer a few questions to help you clarify what retirement might look like to you. Here’s what you should ask yourself – and why that matters:

1) When do I want to retire?

It’s just math: The later you retire from full time work, the longer you have to accumulate that retirement nest egg. You might want to retire at 55 like your parents did, but do you have their fantastic pension? It’s also worth remembering that we’re living longer, so it’s possible you may have to make this amount last for several decades. Is this something you want?

2) Where would I like to live in retirement?

Whether you downsize, stay in your family home or even plan to purchase a second home in the sun, the choice of where you’re spending this chapter is an important part of this financial equation. Consider the expenses involved – maintaining 2 properties, for instance, or continuing to carry a mortgage – and also the potential savings, like if you moved to a place with a lower cost of living.

3) What will my expenses be?

The general wisdom is that you will need 70 to 80 percent of your current salary to maintain a similar lifestyle in retirement. That means if you made $100,000 each year, you should plan to have $70,000 to $80,000 in retirement income, for example. The logic is that you will spend less as a retiree – you’re not commuting, for instance, your bills might be lower because you’re in a smaller place, you’re not supporting a family anymore – and so you will need less each year while still being able to live the way you’re used to otherwise.

Do this calculation for your situation by looking a snapshot – 1 month of bills, perhaps – and subtracting the expenses that you won’t have when you reach that stage of life. That said: Remember to factor in new expenses you might have: These could be discretionary things like travel or new hobbies, but should also include potential scenarios like increased medical costs, help at home, or the expense of moving into more supportive housing.

4) What will my income be each month?

The least fun, but maybe the most important question of them all: Realistically, what resources will you have to draw on when you stop working? You can learn more about how retirement income works, but it’s worth remembering that for most Canadians, their personal savings are just part of a bigger retirement income picture that can include government plans and workplace pensions or retirement savings, too. Knowing exactly what this number could potentially be will help you separate wants from needs, and formulate a plan that is both attainable, sustainable, and that hopefully has some cushion for the unexpected.

And the answer is…

Figuring out how much you need for retirement can be complicated, and it can be helpful to work with a retirement planning expert, at any stage in your journey. Canada Life has experienced, caring advisors across the country, standing by to help you tackle this and other important financial decisions.

What next?

  • Figure out when you want to retire, and whether that’s different than when you can afford to retire

  • Map out what your monthly income in retirement will be, and work out how that compares to what your expenses may be

  • Speak to an advisor to create an action plan together

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