If retirement is just around the corner, you may be wondering if you have enough savings to get you through it. Planning is the critical first step to enjoying a comfortable retirement, yet two-thirds of pre-retirees have no idea how much they’ll need in the golden years.
The closer you are to retirement, the more crucial this question becomes, as it means you are losing “wiggle room” to deal with any projected shortfall. The upside is that estimating becomes easier and more accurate as you near your target date.
Planning for retirement basically comes down to three main figures: how much you have coming in (after-tax income), how much you have going out (expenses), and the number of years you’ll spend in retirement (time horizon). While you can’t do a whole lot to pin down the last figure, you can get pretty good estimates for the first two.
Get a handle on spending
The best way to estimate retirement expense is to itemize what you’re currently spending. Use paper or an Excel sheet to begin the discipline of tracking expenses. Then decide which of these expenses will increase, stay the same or be eliminated entirely in retirement. Factor in any new expenses in your “life after work” – like a vacation rental – and voila, you have an estimate for retirement lifestyle needs. Be aware these figures will rise over time with inflation.
On the income side, estimate what you’ll get from company pensions and government programs such as CPP and OAS. Then estimate the size of the nest egg you’ll have at retirement, including RRSPs, TFSAs, taxable investment accounts and any expected inheritances, and the income it is expected to generate. This is where our team can really add value.
Prepare for Plan B
If there is a shortfall, it’s important to recalibrate now. Among your Plan B strategies are to boost your current savings rate or investment returns, or reduce discretionary spending.
Another increasingly popular strategy is to delay retirement and work a few extra years, which research shows is good not just for your wealth but also your health. According to Time magazine, maintaining a job lets you stay busy, connected and relevant – all of which reduce stress and loneliness and enhance mental and physical well-being.
Let us help you create a plan to make the most of your remaining income-earning years, so you can start to enjoy peace of mind today.