Nearly every working adult dreams of a comfortable retirement, to finally be free to enjoy life.
If you’re approaching retirement age, it’s important to check on your numbers to be sure you’ve considered all the factors. If you’re younger, it might be difficult to know exactly how much to save. Think of it this way: strive to put away as much as you can.
What age do you want to retire?
Canada Pension Plan can play a big role in retirement income, and the difference on a monthly basis between taking a benefit at age 60, 65, or waiting until age 70 to begin drawing benefits can be substantial.[i][ii] According to the government, the total amount paid is comparable for all three options. However, the value of that amount changes based on your expenses, and your ability to enjoy your quality of life at later stages.
How long will your money last?
One rule of thumb for knowing how much to take out of your retirement account each year is the “4% rule”.[iii] As its name suggests, you would withdraw 4% of your retirement savings each year. If you have a larger amount saved, your “income” from your retirement savings will be higher. The 4% rule is designed to prepare for 30 years of income after retirement. Of course, if your expenses are higher than your income, the money has to come from somewhere, potentially drawing your savings down faster – and that’s where many people get into trouble. In truth, this is just a starting point, and you should save as much as you can now.
Are you prepared for your health care needs?
An average of around $6,000 is spent on a person aged 65 to 69, moving to under $12,000 for someone aged 75 to 79 and then skyrockets to close to $25,000 for someone aged 85 to 89 for our public healthcare system.[iv] But there are many other health related expenses not covered by our public system that often catches retirees by surprise. It’s relatively easy to budget for housing, food, utilities, and other essentials, but medical care costs can vary widely and your actual expenses can be much higher or lower than average estimates.
By building a strategy for income from multiple sources, you’ll be much better prepared for retirement. Taking the time to prepare now is essential. Once you leave the workforce there might be less room for mistakes and fewer ways to earn additional income. When it’s time to retire, you’ll find that there’s no such thing as too much when it comes to retirement savings.