Canadians are worried about retirement. Fewer than half are confident they will have enough money to retire as planned, according to a Bank of Montreal survey earlier this year.
Fortunately, the reality of retirement is far, far more positive than people think.
The vast majority of Canadians appear to do just fine after leaving work behind. Seniors are more satisfied with their lives than younger Canadians, Statistics Canada finds. People over age 55 are also less stressed about money issues, according to an index compiled by the financial planning association FP Canada.
Granted, the situation isn’t perfect. Women over age 80 who live alone face particular challenges. Overall, though, the poverty rate among Canadian seniors is substantially lower than among younger Canadians. It is also among the lowest in the world.
If you’re apprehensive about your own retirement, maybe it’s time to take a new look at what lies ahead. These questions will prepare you for your golden years.
Illustration by Sam Island
Will I be poor and miserable in retirement?
“Seniors are more satisfied with their lives than those in younger age groups,” a Statistics Canada study published in 2018 concluded. Retirement has a positive impact on the older population, another study published this year concluded – and money doesn’t seem to be a huge factor in creating this sense of contentment. Health and family matter more.
Illustration by Sam Island
Do I really need $1.7-million to retire?
That BMO survey earlier this year found that most Canadians believe they need $1.7-million to retire. Thankfully, the figure isn’t quite that high. It seems most people are managing to retire on far less than pre-retirees think they will need. But exactly how much will you personally require? That depends on four key factors: when you plan to retire, the working income you plan to replace, other resources you expect in retirement and how much money you plan to draw when you retire.
Illustration by Sam Island
How much income do I need in retirement?
In retirement, many monthly expenses – the mortgage, child care costs and saving for retirement – will be in the rear-view mirror. An ideal income replacement for middle-class families is about 50 to 60 per cent of their peak working incomes, experts say. However, individual circumstances mean the question of how much to save for retirement will vary from person to person. When you’re within a few years of retirement, complete a personalized analysis of your situation.
Illustration by Sam Island
How much money do I need to save for retirement?
There is no simple one-size-fits-all answer to the question of how much money you will need to retire. The most basic advice – sock away 10 per cent of your income – might not finance a 30-year retirement. And while the federal government lets you save 18 per cent of your paycheque in a registered retirement savings plan, a better strategy might be to focus on the financial results you’re achieving.
Illustration by Sam Island
What if I’m ready for retirement – but not financially?
If you are nearing retirement age, but your savings are not on track, you have options. Option one is working longer, obviously. However, people close to retirement can also take a close look at living costs and trim back on unnecessary expenses. Switching to exchange-traded funds to cut down on investing costs could save thousands, while annuities are another option that offers stability. There are also newer products that invest in a broader range of assets than traditional annuities. The details on these products are complicated, so it’s wise to review each option carefully.
Ready to think about your (eventual) financial freedom?
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