What do you need to save for retirement?
The amount needed for retirement is different for every person because it depends very much on what amount that person wants to be able to spend every year. Some people have very simple pleasures while others enjoy travelling in style. It will also depend whether the person is single or not. The spending is higher for two people, but that can be offset with tax savings from being able to split income.
The following chart is an estimate of how much needs to be saved in order to have a certain spending level in retirement. This assumes that $20,000 is provided through the Canada Pension Plan and Old Age Security. You will notice that it increases disproportionately the higher the spending is. This is because higher spending usually means a higher taxable income, so more of the savings are having to go to tax, leaving less for actual spending.
If this is giving you a sinking feeling, remember that you may not spend as much in retirement as you are right now. You may currently be supporting a mortgage that will hopefully be paid off in retirement. You may also be supporting children or aging parents. The trouble usually comes when debt gets carried away and when a person spends beyond their means.
As an advisor, I highly recommend that people set up systematic savings plans if they have a tendency to spend whatever comes in to their bank accounts. It takes discipline to say no to buying things that aren’t essential. Setting up a budget and putting in a set amount for extra things like eating out can help to manage the spending while also rewarding your hard work. Delayed gratification can be sweeter than just feeding whatever desires come up in the moment. Is a cold drink more gratifying after a hike or when sitting on a couch watching Netflix?
If you would like help planning for retirement or just planning your cash flow in general, please don’t hesitate to check out my services and contact me.