The latest BMO Retirement Survey finds Canadians believe they need an average of $1.54 million to retire.
It’s do-able in most cases, but that magic number all depends on how and when you want to retire.
It also depends on how well you invest, other income sources, and broader economic variables beyond our control such as inflation.
The survey finds 76 per cent of respondents are worried their nest egg will be swallowed by a higher cost of living.
The survey comes in the thick of RRSP season when Canadians are normally scrambling to make their registered retirement savings plan contributions before the March 3 deadline.
It finds RRSP contributions last year hit a record high of $7,447, but total RRSP savings are just part of most retirement plans.
Online retirement calculators can help estimate how your savings jive with your expectations but a qualified, human, advisor can give you the most accurate snapshot.
Whether you plan for retirement through an advisor or go it alone, here are nine basic factors that need to be determined first:
1. Current dollar value of total assets in your RRSP, tax free savings account (TFSA), home equity or other investments that store value.
2. Liabilities including mortgages, consumer and student debt, or any other outstanding loans. Most advisors recommend having no debt in retirement but it’s important for measuring your total portfolio value at any moment in time.
3. Other retirement income sources including employer pensions, Canada/Quebec Pension, Old Age Security or other government benefits. CPP/QPP and OAS are indexed to inflation but most employer pensions are not.
4. When you expect to retire and how long you expect to live. Unless you already have the answers you will probably need to run through various scenarios.
5. How much you plan to contribute to your retirement savings before you retire. This is where it’s better to make RRSP contributions on a regular basis instead of rushing to the deadline. You might want to boost your savings by contributing your annual RRSP refund to your TFSA.
6. Expected after-inflation rate of return on your investments. The deferred annual rate of return on many calculators is five per cent but it could be higher or lower based on your tolerance for risk.
7. How much money you need to live each year in retirement. This is a tough one but it’s better to estimate too high than too low. Some experts have a general rule of a fixed portion of pre-retirement income but if a big portion of that income goes into saving, its much lower. Be sure to subtract savings or debt payments if you plan to retire debt free.
Also, we tend to spend less on activities as we age and that can act as an inflation hedge.
8. Part time income from a side hustle might be difficult to estimate but can be a huge boost to early retirement, and act as a safety net if you need to up your income.
9. Home equity can also be a source of income in retirement through a home equity line of credit (HELOC) or reverse mortgage.
Obviously, the future is uncertain but a best-guess now can be revised over time and become more accurate as retirement nears.
