Q&A with Sarah and Cyndy – What is my retirement number?

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submitted by Sarah Chisholm, Financial Advisor
O’Farrell Wealth & Estate Planning | Assante Capital Management Ltd. 

At first the concept of a retirement number seems simple enough; a specific sum of money or a ratio of previous income to tell you how much you need for retirement. Unfortunately, there is no universal number or ratio that you can use. Every retirement cashflow is very much unique to the individual and their family. 

Take a moment to consider, if you and your spouse went to a local restaurant and ordered dinner, what would the bill be? What if your neighbors went to the same restaurant and ordered dinner? Would their bill be the exact same? That would be extremely unlikely as people have different food and drink preferences. 

Retirement planning needs to be customized to the individual or family; there are too many variables for a one size fits all number or ratio. Of the many variables, it is important to consider: lifestyle expenses, life expectancy, sources of income and risk tolerance. 

For lifestyle expenses, consider: 

  1. What do I currently spend on my lifestyle expenses?
  2. What will I do with my free time in retirement? Will I be travelling or investing in a new hobby?
  3. Are there legacy goals I would like to achieve while living or in my estate?
  4. What impact will inflation have on my cost of living during retirement?

Understanding your projected expenses in retirement helps give you a framework for your retirement planning. Another major piece is life expectancy:

  1. At what age will I retire?
  2. Am I currently healthy? 
  3. Do I have a family history of longevity?

Health can impact both the length of your life and the cost of maintaining your lifestyle. Poor health could result in high long-term care costs, or it could mean a shortened life expectancy. What does retirement look like if you live to age 80 versus if you live to age 95? Will I have health benefits coverage? No one has a crystal ball, but planning around different scenarios will build a buffer into your retirement plan. 

Now that you have an idea of your expenses and the length of your retirement. How will you fund your retirement plan?

  1. What income will I have in retirement? 
  2. Am I entitled to any government pensions or social benefits or workplace pension?
  3. What investments can I draw on or what assets can I sell?

Analyzing your expected Old Age Security benefits and your Canada Pension Plan income can be a enlightening process. Did you realize that your CPP entitlement is based on your CPP contributions throughout your working career, whereas OAS is a residency-based benefit? What other investments or assets will you have in retirement? Are you contributing to a Registered Retirement Savings Plan or a Tax Free Savings Account for retirement? Will you generate cash flow through rental properties?

The growth in your investment accounts will depend on your investment approach. What fixed income/equity allocation do you hold and what are the expected returns? What contributions are you currently making to your investments, and do you need to increase those contributions to secure your retirement plan?

Retirement is a period to relax and enjoy the fruits of your labor. Make sure you prioritize planning for your retirement so that you can truly find that peace and serenity. Consider sitting with a trusted financial advisor to track down your retirement “number.”

Sarah Chisholm is a Financial Advisor with Assante Capital Management Ltd. The opinions expressed are those of the author and not necessarily those of Assante Capital Management Ltd. Please contact her at 613.258.1997 or visit ofarrellwealth.com to discuss your circumstances prior to acting on the information above. Assante Capital Management Ltd. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.

 

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