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  • Brooklyn Scott

How much do I actually need to save for retirement?

Experts have come up with various calculations:

You need to save 10% of your income per year. (True, if you begin saving 40 years prior to retirement)

You need to save 25 times your average annual wage (or expenses).

You need to save 70% of your current income multiplied by the number of years you require the funds to last while factoring in inflation.

The 4 % rule. (Enough that 4% withdrawn from your total savings every year after you stop working will last you through retirement)

A cool million.

So which of these is correct?

Well it depends on your personal financial situation, current income and spending habits. It depends on the year you want to retire and how long you expect to live (something none of us can predict, unfortunately). Some of us have the benefit of built-in Group RRSPs or Pension Plans through work. Others are self-employed with no retirement savings or security plan built-in.

What’s the worst thing you can do when it comes to saving for your retirement?

Procrastinating. Avoiding thinking about your future will not prevent it from happening. What you need is a plan, someone to evaluate your needs, and help you establish goals. “Research such as the CIRANO study Econometric Models on the Value of Advice of a Financial Advisor shows that those who work with an advisor accumulate more wealth and are better prepared for retirement and unexpected events than those who do not.” (The Era of Disclosure, Greg Polluck, FORUM September 2016)

Who can help you meet your retirement goals and how will they do it?

“Advisors influence individual investors to adopt more rational savings and investment practices, and that’s what leads to better investment returns. It has to do with saving practices, explicit planning of retirement income needs and so on. It has to do with the portfolio mix and making full use of tax advantaged vehicles such as the RRSP and Tax Free Savings Accounts, and escaping the trap of “reckless conservatism.””(Missing Link, Deanne Gage, Forum September 2016).

Side note: What is reckless conservatism?

It is wasting away your wealth by keeping your savings in cash-only accounts and having inflation (your spending power) diminish your hard-earned funds over time. See the blog post How Not Investing is Costing you Money for further information on this topic.

So, back to my initial question and the title of this blog post, How much do I actually need to save for Retirement?

Well if you are thirty years old, plan to retire at sixty, and live until you’re ninety, require $50,000.00 annually (in today’s dollars) for your living expenses and are counting on CPP (Canadian Pension Plan) and OAS (Old Age Security) to help offset your costs of living, you will require $1,441,767.00 in savings. If you have no retirement savings you will immediately need to begin contributing $18,237 annually towards your retirement. You want to retire earlier or require a higher annual income? That number will go up. Daunting, right? Well there is no time like the present to talk to someone about it.

If you are ready to get serious about saving for your future and establishing a financial plan, please get in touch.

Brooklyn Scott is a Financial Advisor/Mutual Funds Representative for Lewis & Jones Group/Desjardins Financial Group/Desjardins Financial Security Investments Inc. in Killarney, Manitoba.

Mutual funds are distributed through Desjardins Financial Security Investments Inc. For insurance products, Desjardins Financial Security Investments Inc. acts as a national insurance brokerage agency.

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