Before you retire, you should know how much annual income your savings, pension and government benefits will generate over a reasonable lifespan.
Clearly, a lot of people are heading into retirement without this key number in hand. In a recent Royal Bank of Canada survey of people aged 50 and up, 83 per cent said they have saved less than they think they’ll need in retirement and almost one-third think they will outlive their savings by 10 years or more.
It’s a failure of the financial advice business that so many people are feeling this retirement anxiety. Planners and advisers have the answers, but they’ve built themselves a kingdom of affluence and prestige from which many people feel excluded because they don’t have enough, or make enough, to avail themselves of these prestigious planners and advisers.
But individuals have to step up, too. Retirement on a wing and a prayer is very 20th century. Today, the complexities of the financial world demand you find out before you retire whether you have enough money saved.
You can get personalized retirement analysis from traditional investment companies and banks. But a growing number of people are finding a comfortable fit in the business of providing financial planning for an hourly or flat rate. Fee-for-service planners serve affluent clients, and those in the middle class who can afford roughly $1,500 to $3,000 to find out how their retirement finances stack up.
This analysis would include their personal savings in registered retirement savings plans and tax-free savings accounts, plus expected income from a company pension, the Canada Pension Plan and Old Age Security. Prudent assumptions about inflation and investment returns would be applied, and then an estimate made of an annual income that could be expected to last until age 90 or 95. A planner should also help you estimate your living costs in retirement, so you can see whether your projected income is sufficient.
People are spending bigtime these days – trips, cars, renovations, restaurant meals. Carve off some money to find out where you stand on retirement. Ideally, you do this with enough time to take action if your projected retirement savings won’t deliver the income you’ll need. Saving more, making career adjustments and planning to stay in the work force longer are ways to address insufficient savings.
One more finding from the RBC survey is that 55 per cent of respondents were anxious about their retirement savings. Help is out there – go get it and stop worrying.
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Rob Carrick