Here’s the big question you need to ask about your finances in retirement: Based on how much I have already and how much I’m saving now, what income can I expect when I’m done working?
You can get a rough estimate of your retirement income in ten to 15 minutes using a very solid online tool available on the Government of Canada website. The Canadian Retirement Income Calculator projects your income based on the value of your registered retirement savings plan, tax-free savings account, other savings, a company pension plan if applicable, the Canada Pension Plan and Old Age Security.
The retirement income calculator could do a better job of bringing inflation into the analysis. But it handles the important work of translating what you’ve saved into how much annual income you can expect over the number of years you expect to live after retiring.
Retirement planning is mostly focused on how much people need to retire, a question with many conflicting answers. Is it 70 per cent of your working income, or maybe 50 per cent? Is it $1-million? Does it “depend?”
When you set standards for retirement saving, you end up with abstract numbers that many people can’t relate to or achieve. It would be great to have a magic retirement number that tells you how much to save and works for everyone, but it’s just not out there.
In retirement planning, it’s better to work from the reality of where people are as opposed to some notional idea of where they should be. This is where the retirement income calculator is helpful. You can see what level of retirement income you’re on track to receive, and how you can increase that by saving more.
Find out if your projected retirement income is enough by comparing it to your expected retirement spending needs. You can estimate how much you’ll spend in retirement by tracking your household spending pre-retirement, and then adjusting that amount for your postretirement years. You’ll need less after you leave the workforce, in large part because you no longer have to put money away for retirement. Some entertainment and travel costs may increase, but you’ll be done with work-related costs like gas, parking, transit, lunches and dry cleaning.
I think you’ll feel most confident about your retirement if you have a financial planner look at your numbers and make recommendations. That’s what my wife and I did and the cost was a true value. Here’s a directory of planners who are paid through hourly or flat fees, not through selling or managing investments, and here’s another directory of advice-only planners.
Lastly, have a read of Globe reporter Ian McGugan’s package of retirement stories from last Saturday. If you’re apprehensive about your own retirement, it will help prepare you for what lies ahead.
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Rob’s personal finance reading list
Not in my backyard – the cottage edition
A Q&A with a guy in Ontario cottage country who built himself a houseboat out of shipping containers and basically sails it around. The concept might be catching on with people priced out of cottage country, but those who do own a cottage are not happy to see him. A version of what city people call NIMBY – not in my backyard. Now for a story of a B.C. woman who makes $70,000 a year and can’t find an affordable place to rent.
Melt your RRIF?
Thoughts on timing withdrawals from a registered retirement income fund to minimize tax. RRIF-holders are required to make minimum annual withdrawals, but it can make sense to take more than that early in retirement.
Requiem for the Instant Pot
A fun look at the faddish appeal of kitchen gadgets, notably the Instant Pot. The Instant Pot was a must-have device for busy households a few years ago, but its parent company recently filed for bankruptcy protection.
When your toilet turns 10
Tips for saving on your water bill. Toilets older than 10 years are candidates for replacement by newer models that use less water.
Ask Rob
Q: What is the safest way to pay cash for a big-ticket item like an automobile at a dealership? By safe, I mean safe for the purchaser. I dislike using bank drafts because of the risk of losing large five-figure sums if the bank draft is lost or stolen en route to the dealership. Interac debit transactions and e-transfers are useless for such purchases because of their ridiculously low transaction limits.
A: What interests me about this question is that security-conscious people generally prefer paper-based transactions to those done electronically. Certainly, there’s a risk of loss in carrying a bank draft covering a car purchase or down payment. Here’s a CBC story on the troubles one man had in getting a lost bank draft cancelled and replaced. Still, I have not come across any additional choices beyond bank drafts or certified cheques when paying for a vehicle. What about you? Let me know at rcarrick@globeandmail.com
Do you have a question for me? Send it my way. Sorry I can't answer every one personally. Questions and answers are edited for length and clarity.
Tools, Explainers, Guides and Charts
The tax-free Canada Child Benefit was just increased by 6.3 per cent to offset inflation. Here’s a CCB calculator put together by financial planner Aaron Hector. Find out how much CCB you can get based on your income, the number of children you have and their ages.
The Money-Free Zone
Something punchy today – For Tomorrow, from a new Protomartyr album called Formal Growth in The Desert. A post-punk band that gets better with every record.
Watch this
An explanation of the importance of choosing someone to be the successor holder for your tax-free savings account rather than a beneficiary.
What I’ve been writing about
– Even with regulators sniffing around, HISA ETFs are a great way to exploit high rates
– Mortgage rates today range from bad to horrible, but there is a sweet spot
– For savvy travellers, a money-saving new way to pay when outside Canada
More Rob Carrick and money coverage
Subscribe to Stress Test on Apple podcasts or Spotify. For more money stories, follow me on Instagram and Twitter, and join the discussion on my Facebook page. Millennial readers, join our Gen Y Money Facebook group.
Even more coverage from Rob Carrick:
- 🎧 Catch up on Stress Test: Why millennials and Gen Z are Alberta-bound for a more affordable life • Rising interest rates brought pain for new homeowners – and opportunity for house hunters • Why more Canadians are choosing to be child-free or delay parenthood • Love in the time of inflation: How to manage rising costs when dating • You're not bad at money – you're suffering from money shame • Retirement might look different for Gen Z and millennials. Here's how to plan for it • Recession-beating tips for the job market, housing, investing and the cost of life • Is the middle class dead for millennials and Gen Z?
- ✔️ The housing file: A house isn’t special. Get your head straight about the reality of home ownership • The good, the sad and the unaffordable: Saving for a home down payment in Canada’s big cities • Property taxes are popping in some cities – how worried should you be about other tax hikes? • Our other real-estate problem – people have too much wealth tied up in houses • Borrowers and savers, here’s how to time the eventual rollback of interest rates
- 📈 Investing: Canada's top digital broker is TD Direct Investing, with an assist from the TD Easy Trade app • 2023 Globe and Mail ETF buyer's guide part one: Canadian equity ETFs • For the ultimate in cheap investing, check out the Freedom .08 ETF Portfolio • Yes, there is risk in Canadian bank deposits for the unwary and complacent • CDIC covers bank deposits, but who protects your investments if your broker goes bust? • Answers to your questions about the low-risk ETF paying almost 5% • Happy fifth birthday to one of the all-time best investing products for everyday people • An investing strategy that wins cleanly over the long term by outperforming in bad years like 2022
- 💰 Your money: Mortgage holders, savers and GIC investors, it’s time to change your thinking on interest rates • How much debt is each generation of Canadians carrying, and how do you compare? • For the sake of their financial futures, young people should leave Toronto and Vancouver • This practical new spin on a savings account might just peel you away from your big bank • Rental fraud grows amid rise in fake, falsified tenant applications • Are Canadians worse off financially now than in the 1980s? • From groceries to auto loans, here’s how much more it costs to live right now • When saving for retirement, should you change your asset mix over the course of your career? • Do retirement income needs always rise alongside inflation? Not necessarily • When the bank suggests you lock in your variable rate mortgage, it has an angle
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