How much should I save for retirement?
How much should I save for retirement? The age old question. We often joke that a financial planner's response is always "it depends" and well...it does. If you came here for a quick onesize-fits-all solution or perfect answer then we’re sorry to disappoint because there isn’t one.
Rules of Thumb
You may have come across several rules of thumb if you’ve searched for this answer before; for example saving 10% of your income as suggested in David Chilton’s classic ‘The Wealthy Barber’. While these rules can be a good starting point, in the same way saving something is better than nothing, without context and relevancy to your personal goals they don’t provide much value.
Retirement Savings Accounts
Another component is the type of account used to save for retirement. There is a huge difference between withdrawing funds from a Tax-Free Savings Account (TFSA) for example vs. a Registered Retirement Savings Plan (RRSP). The former is not taxable while the latter is but there are specific reasons why you may want to use one over the other, or both in conjunction.
Read also: 5 Retirement Myths to Be Aware Of
What about other income you will receive? You may be entitled to both Canada Pension Plan (CPP) and Old Age Security (OAS) payments in retirement. The average CPP retirement pension is currently $8,200 per year and the maximum OAS pension for a lifelong Canadian resident is $7,360. Company pensions should also be factored in as understanding the potential future entitlement may reduce required savings.
The point is that tax, inflation and pensions, let alone extraordinary income or expenses (inheritances, home downsizing, debt, kids) and unforeseen life events (divorce, death of a spouse) make any generic retirement savings target impractical. It’s also important to remember that even the most sound retirement plans need to be reviewed and revised as life changes, that’s where working with a professional can help. Contact us for a personalized review of your financial situation and take the Essential Steps™ to a wealthier future today.
Posted In: Retirement