This is a question that has come up frequently when I’ve discussed retirement planning with people. Thankfully, it’s not really an agreed upon rule of thumb, and a million dollars is more of a big round number than a certain amount you need to personally have saved to be able to retire comfortably.
The amount someone needs to have saved to be able to retire can vary greatly, depending on the actual individual and their unique circumstances. There may be some general guidelines to help you figure out how much you might need to have saved, but these ‘rules’ fail to account for important factors like company pension plans or other potential sources of income. To figure out how much you need to save for retirement, you need to start by answering the following questions:
What age do you plan to retire at, and how many years of retirement do you want to plan for?
What is your desired retirement lifestyle and income needs in retirement? Are you going to spend time gardening and/or spending time with the grandkids, or do you want to travel the world and enjoy life’s finer things?
Will you be retiring debt-free, or will you have a mortgage (or other debts) in retirement?
Do you have a company pension, or own a business?
What is your risk tolerance with your retirement investments, and what returns are those investments generating?
Do you want to leave money behind to your loved ones, or do you want to plan to have just enough money for the rest of your expected life, and not leave much behind?
The good news is many people who I’ve helped plan to make the leap from working to being retired haven’t had a million dollars in their retirement savings, and often have had less than half of that. Personal retirement savings (primarily RRSPs and TFSAs) are generally one part of the retirement income picture. Having a work pension, or a business that can be sold, or some other income-producing asset (rental property, farmland, etc), can also make up a large part of someone’s overall retirement income and can drastically reduce how much is required in personal retirement savings.
Many people also underestimate the current value of how much they might receive in CPP and OAS benefits over the course of their life. This is especially true if they qualify for the maximum benefit (or close to it), and if they have deferred receiving the benefit rather than taking it as soon as they are eligible to. Based on current CPP benefits, someone who qualifies for the maximum benefit and lives to age 85 will likely receive somewhere between $250,000 to $350,000, depending on what age they started receiving the benefit at, and the inflation rate (which CPP and OAS benefits are linked to). The total amount of OAS benefits someone might receive from age 65 to age 85 could also be around $175,000, and both CPP and OAS benefit totals would be higher if you live past 85, and importantly are linked to inflation. This feature is even more beneficial if you live a very long life, or inflation is high in the future. While the percentage of people qualifying for maximum CPP benefits is low, many people will qualify for 75-90% of the maximum benefit, which can still add up to a good sum of money over the long run. While the OAS benefit is not as high, many people will qualify for maximum amount of that benefit, as it’s based on years of residence rather than income.
So even though you may have well under a million dollars (or even half a million) personally saved up for retirement, you may have the equivalent of a million dollars to fund your retirement once you factor in the value of your CPP and OAS benefits, plus any pension you might have (or business you might own). This also doesn’t take into account any home equity you may be able to free up if you downsize your home, or if you expect to receive an inheritance. Since those items may be a little less certain, most people often like to exclude those from their retirement income projections, and treat them as more of a bonus or excess that can further enhance their baseline retirement income.
While this may paint a rosy picture that you can retire comfortably without too much in retirement savings, it is still crucial to keep building and growing your retirement nest egg. Depending on the income level you’ve achieved during your working years and the lifestyle you’ve become accustomed to having, you still may need a significant amount of savings to be able to fund the retirement you have dreamt of.
The vast differences in everyone’s personal circumstances are one of the reasons why working with a qualified and experienced Investment Advisor is important. This is especially true as the prospect of retiring goes from being far in the future, to a nearing reality. The earlier you start working with an advisor, the sooner you can find out if you’re on track to have the retirement of your dreams, and the more time you have to make any necessary changes if you’re not on track. Aside from helping to put together retirement income projections, an advisor (like me) can also help develop strategies to help you pay less in taxes as you draw on your retirement savings and to maximize your government benefits. Both of these strategies will help to build a tax-efficient and inflation-adjusted retirement income that should provide for you throughout all of your retirement years.
- Dennis Rubeniuk, Investment Advisor, Mutual Funds
Dennis Rubeniuk is an Investment Advisor (Mutual Funds) at Endeavour Wealth Management with iA Private Wealth Inc, an award-winning office as recognized by the Carson Group. Together with his partners he provides comprehensive wealth management planning for business owners, professionals and individual families.
This information has been prepared by Dennis Rubeniuk who is an Investment Advisor (Mutual Funds) for iA Private Wealth Inc. and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Investment Advisor can open accounts only in the provinces in which they are registered.