Thinking about retirement raises lots of questions. What will I do? How much money will I need? But the most important might be “When can I retire?” While some set a specific date, others may enjoy their career too much to ever want to retire. Yet we all need to pay expenses once employment income ends. Given that we are living longer, this could last 20 – 30 years, or more.
According to the Franklin Templeton 2017 Retirement Income Strategies and Expectations (RISE) survey, almost half of pre-retiree Canadians have concerns about outliving their assets or having to make major sacrifices in their retirement. Two-thirds of those still working experience stress and anxiety when thinking about their retirement savings and investments. But respondents who have worked with an advisor to create a retirement income plan report lower levels of related stress. They are also more optimistic that their retirement will be better than those of previous generations.
According to RISE, nearly 75% of retired Canadians say they would tell pre-retirees to “save early, save often and save consistently.” That may sound obvious, but almost half of pre-retirees without an advisor are not saving for retirement. In contrast, almost 90% of those working with an advisor are saving for retirement. So while it is relatively easy today to invest on your own, RISE data suggests that getting professional advice can help you develop the retirement savings habit.
In addition to government pensions, there are various savings and investment vehicles you can use to develop sources of retirement income. Each has unique characteristics. It is important to consider them within the context of a personal financial plan that accounts for your estimated retirement expenses, taxation, and personal priorities.
|Currently part of retirement savings plan, by age group||18-34||35-54||54+|
|Traditional RRSP I fund directly (i.e. not through a workplace retirement plan)||35%||52%||50%|
|Chequing Account, Savings Account||47%||43%||52%|
|Tax-Free Savings Account (TFSA)||44%||45%||57%|
|Workplace pension plan (i.e. Defined Benefit, Defined Contribution, etc.)||25%||33%||45%|
|Workplace retirement plan I fund through salary deduction (i.e. RRSP, Pension, etc.)||27%||32%||21%|
An essential part of deciding ‘when can I retire’ is estimating the income you will need. According to our RISE survey, 90% of those still working have concerns about the cost of living in retirement. And 49% of pre-retirees are worried about outliving their assets or having to make major sacrifices to their retirement strategy. Health care and lifestyle costs are anticipated to be the top two expense concerns in retirement.
So it is important to develop estimates of your potential expenses in retirement, and update that data regularly over time. This information can then be used to create your plan for generating income to pay those costs. Use the worksheets below to start planning how much income you may need in retirement.
|Top Concerns by Age||18-54||55+|
|Health & Medical||22%||43%|
|Running out of money||36%||18%|
|Not having the lifestyle you planned||15%||7%|
Travelling, pursing hobbies and spending time with family are the top three things RISE respondents are looking forward to in retirement. Additionally, 31% of people who plan to retire are looking forward to no longer working, while 20% only plan to cut back on the number of hours they work.
However RISE reveals that, inevitably, there are gaps between pre-retiree expectations and retirement reality: