Whether you are decades away from retirement or if it is just around the corner, being aware of the planning opportunities will take the fear and uncertainty out of this major life event.
The Big Question – How much will I Need to Retire?
Recent studies reported in Canadian Business (May 2012) suggest that middle and upper middle class couples spend approximately $50,000 to $60,000 per year in retirement. If this seems a lot lower than what you and your spouse are spending now, it probably is. That is because most retirees no longer have the same level of expenses around housing – education and raising a family.
The average age for retirement in Canada for males is age 62 (females, age 61). At that age, normal life expectancy is another 22 years. Many financial advisors use a rule of thumb that says you will need a nest egg of approximately 25 times your post-retirement spending.
The average CPP retirement pension is approximately $7,600 per year or approximately $15,000 per married couple (if spouse qualifies for income at same rate). Assuming a 4% withdrawal rate and adjusted for inflation this means that a middle class couple would require a retirement fund of $875,000 to $1,125,000. If you do not qualify for or wish to ignore your government benefits you would require between $1,250,000 and $1,500,000. For those lucky enough to have participated in a company pension plan, you may already have sufficient retirement income.
Retirement Planning Tips
- Review your sources of retirement income.
- Registered plans -including RSP’s, corporate pension plans, TFSA’s ;
- Government programs – CPP, QPP, OAS etc.
- Non- registered investments – stocks, bonds, mutual and segregated funds, cash value life insurance, prescribed life annuities
- Income producing real estate – including proceeds from the sale of principal residence if downsizing.
- Eliminate or consolidate debt – One should definitely try to avoid carrying debt into retirement. If interest rates rise and your retirement income is limited or fixed your lifestyle could be negatively affected.
- Understand your government benefits – Review what government programs you are eligible for and the level of your entitlement.
- Know your company pension plan – if you are a member of a company pension plan review your pension handbook or meet with the pension administrator to understand what options are available for you. This should include reviewing the spousal survivor options;
- Protect your savings and income – consider effective risk management to avoid depleting assets in the case of a health emergency affecting yourself or a family member;
- Know your health benefits – and how to maintain them through retirement. Examine how you will pay for dental care, prescriptions, and other extended health costs.
- Review and if necessary modify your estate planning strategy – this includes wills, trusts, tax planning, Shareholder and other agreements.
Planning for a healthy retirement both financially and physically will ensure that you can enjoy a long and well deserved retirement on your terms.