As you start planning for retirement, it’s important to know how much you will need to retire comfortably. Although this is a basic question when planning for retirement, it can be very difficult to accurately calculate how much you will need in 10, 20 or even 40 years.
As a starting point, here are some factors that can affect how much you will need for your retirement. Keep in mind this list is just a start.
Your retirement goals could have a big impact on your spending habits and will form the basis of how much you need to save, so it’s important to think about those goals. How do you picture spending your retirement?
Your current financial obligations are likely different than they will be when you retire. As a general rule, financial experts say that you will need about 70 percent of the annual income (before taxes) you earned during the last three years of work to maintain the same standard of living during retirement. However, this number can vary greatly from person to person as everybody will have different retirement goals and different attitudes about money. Some people might be able to live comfortably with 60 percent of their working salary, while others might need 80 percent of their working salary to retire comfortably.
To get a rough estimate as to how much you will need, think about how you spend your money now and how you think you will spend it once retired, keeping your retirement goals in mind. For example, whether you still have substantial debts such as a mortgage or an outstanding loan, or decide to downsize your home, can have a significant impact on your spending in retirement. To help you compare your current spending with your expected spending in retirement, try our Budget Comparison Worksheet.
If you would like a more detailed estimate you can try Service Canada’s Canadian Retirement Income Calculator.
Deciding when to retire is a big question in its own right, and the answer can have a big impact on how much you’ll need to save for retirement. For example, if you want to retire by 60 and expect to live until you’re 90, your retirement savings will have to last at least 30 years, versus 25 years if you were to retire at 65.
When you retire can depend on several factors, including:
The Canada Pension Plan (or the Quebec Pension Plan in that province) and Old Age Security form the backbone of Canada’s public pension system. These programs are designed to provide Canadian seniors with a modest income in retirement, usually to supplement their own retirement savings. Therefore, how much you can expect to receive will affect how much you need to save on your own. You can try Service Canada’s Canadian Retirement Income Calculator for more detailed information.