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Will Your Retirement Savings Last?


Determining if you’re on track for a comfortable retirement.
 
When considering retirement, investors need to ask and truly answer some all-important questions: When can I retire? How do I make sure I’ll have enough funds to last my lifetime?
 
The average Canadian lifespan is increasing, as recent trends demonstrate. In 1961, the average Canadian could expect to live to 71, about 10 years less than the current estimated average life expectancy of 81.1 Living longer means we’ll need our savings to last for more years, especially as many Canadians are retiring earlier than the standard age of 65.
 
There’s no single formula to determine if your savings will last you through your retirement years. However, there are three key questions that you should consider when planning your retirement income. 
 
What retirement age is right for me?
Setting an appropriate target retirement age is different for everyone, and rarely clear-cut. Generally, if you want to retire early, you’ll need more savings because your assets will have less time to grow and you’ll need them for a longer period. On the flip side, the longer you wait to retire, the longer your retirement assets have to grow and the less time you’ll need to rely on them. Whether you choose to retire early or wait until you’re 65 or older, deciding on a target retirement age depends on how much savings and growth you’ll be able to accumulate, in time for retirement.
 
What are my expected sources of income during retirement?
The amount you will need to save depends on your expected sources of income during retirement. Canadians typically draw from government benefits (Old Age Security and the Canada Pension Plan/Quebec Pension Plan), workplace pension plans and personal savings. Government benefits alone may not cover all your living expenses in retirement. Also, if you don’t have an adequate employer pension plan one that will combine with government benefits to provide sufficient retirement income, you will need more personal savings to ensure a comfortable retirement. 
 
Contributing to tax-sheltered savings accounts, such as registered retirement savings plans and tax-free savings accounts, are necessary investment vehicles to build your personal retirement savings. Investing early and regularly through a pre-authorized contribution plan can help you save more and compound earnings.
 
What retirement lifestyle and expenses do I expect to have?
How much savings is needed to support your retirement is based on the post-work life you envision. Typically, retirees want to maintain their current standard of living. To make sure this is possible, Canadians should aim to have between 50% to 70% of their working income in retirement.2 
 
Generally, you can determine whether this level of income is possible by calculating two numbers: Your expected retirement expenditures (anticipated living/lifestyle expenses and outstanding debt) and expected sources of income. Higher health care costs should be factored into your expenditures, as those will likely rise in your retirement years.
 
 
 
1 Statistics Canada, CANSIM, 2012
 
 

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