How much money will you spend in retirement?

One of the first things that we do at Endeavour when we take on a new client is, we go through an in-depth discovery process designed to ensure we understand what is truly important to our client before providing them advice. This process involves us diving into the details of your current financial status, looking at the numbers, evaluating your behavioural patterns with money, and listening to you tell us all about your plans, goals and dreams for the future.

An Important Step in Developing a Comprehensive Plan

All things considered, this is one of the most important steps we take in developing a comprehensive plan for our clients. Inevitably, one of the questions we ask our clients is "how much money will you need to live on per year in retirement?" The answer in most cases is (and not unexpectedly), "I don't know!" Now, traditional financial planning is loaded with standard answers to this question. Take 75% of your working income or draw up a budget subtract your debt payments and voila.  

As many of you know, I like to consider myself as an innovative thinker, especially when it comes to the world of wealth management, but the fact is I don't think you need to be all that innovative to know that there is no one size fits all when it comes to planning for your future. In the 12 years I have been in the industry, and the 35 that my family has been involved in it, we have had the pleasure of working with a wide variety of people with varying situations, ambitions, and circumstances.

No Consistency With Retirement Income Standards

The one consistent thing that we have found in working with all of these different people is that there is no consistency when it comes to what your retirement income should be – and why would there be? After all, who wants to be limited by a formula rule in a financial planning book that was written 50 years ago. So, then what is the answer to the question? How much should you be expecting to spend in your retirement?

Well to begin with, I wouldn't assume that you are going to spend less than your working years income. The fact is when you retire, you should have more time on your hands to do the things that you enjoy doing. The problem with that is, generally, the things you enjoy doing cost money. With more time on your hands you will be spending more money on these things. Now you may have less expenditures elsewhere, but it is my belief that you should be aiming for at least 100% of your working income as your retirement goal.

For some, this still won't be enough. I can think of two very important people in my life, let's call them my parents for the sake of it, who are easily spending more than their working income. The reason? I'm happy to say that they are living their life to the fullest and seeing the world. The cost of travel has come down over time on an inflation adjusted basis but that doesn't mean that it's an inexpensive hobby.

In your younger retirement years, if you are planning to make travel a priority it's not out of the question that you may spend $20-30 thousand dollars a year on your vacations. and trust me I have seen many clients spend even more. It's not necessarily cheap but in my opinion, this is one of the best ways my clients can spend their money (just my opinion of course).

Focus on Your Life Plans, Not on the Dollars

I would say that the best approach you can take in determining what you will spend in retirement is to not focus on the dollars. Instead, focus on what you want your life to be like and who you want to spend it with. Taking money out of the equation can often remove the limiting factor it holds in our minds and allows us to focus on what is truly important to us. From there, our planning group determines the dollars that are needed to make that dream a reality and for the most part, you would be surprised on what you will be capable of.

Don't let the limits in your mind force you to underlive your potential. As always, if you would like to explore this further for yourself, one of our Investment Advisors at Endeavour will be happy to chat with you and hear more about what's important to you.

- Grant White, CIM, CFP

Grant White is an award-winning Portfolio Manager/Investment ma at Endeavour Wealth Management with Industrial Alliance Securities Inc. Together with his partners he provides comprehensive wealth management planning for business owners, professionals and individual families.

This information has been prepared by Grant White who is a Portfolio Manager for Industrial Alliance Securities Inc. (iA Securities) and does not necessarily reflect the opinion of iA Securities. 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 Portfolio Manager can open accounts only in the provinces in which they are registered.