Retirement Planning

The cost of retirement

You have probably heard the rule of thumb that you’ll need 70 per cent to 80 per cent of your current household income to maintain your lifestyle in retirement. Forget the rule of thumb and take a good look at your personal retirement goals and current financial situation.

What will it cost to retire? What income will you need?

Will retirement be less expensive: one car instead of two, no commuting costs, no business wardrobe to maintain, and perhaps most importantly, no need to save for retirement?

Retirement may be more costly if you plan to travel extensively, retire out-of-country or purchase recreational property. Additional uninsured health care expenses or the need to care for an elder or other dependent can all mean you’ll need extra income.

Inflation impact

A key factor to remember is the impact of inflation. Even a two per cent inflation rate will reduce the purchasing power of your money over time. If you are concerned with maintaining the same anticipated lifestyle throughout your retirement, you’ll need to build in inflation protection. That may mean saving more for investment purposes or adjusting your current investment strategy to generate a higher return over the long-term to offset the effects of inflation.

Defining retirement income

Once you’ve determined your needs, you can assess sources of retirement income, including registered and non-registered personal savings, company pensions and government benefits.

If your assessment does not meet or exceed your income needs, you may have to adjust your saving or investment decisions. The sooner you act, the more time will allow for your investment returns to compound and grow.