In an earlier posts I have talked about the fact that many younger people (under 60:-) are not investing in programs that will provide for them when they retire. There are many reasons why people don't invest in pension planning, and I have talked about some of them in earlier posts.
One of the reasons is lack of understanding of how much one would need in retirement. This is probably because we find it hard to estimate our own mortality. If you have healthy genes you may live to be 100, if not your life span is shorter. I love reading articles about people who live long and healthy lives. The writers of these articles seem to think that it is healthy living and eating that causes longevity, I believe that is a small part of the equation, but the biggest part is your genes. So to figure out your longevity, look at your parents and grandparents, aunts and uncles to see how long they lived. Once you have done that you have a pretty good guess as to your own mortality.
Once you have that age, you can refer to the following chart: (Source: http://www.canadianbusiness.com/article/81114--how-much-do-you-need-to-retire-well
and do some math. If you have a pension plan, add that to the figure you arrive at, so you can have a better guess as to what you will need. (The figures are spending for a year).
The figure of 25 times the annual spending is based on the idea that you will live 25 years past age 65. If you believe that you will live longer add this time to the 25, if you think you will live less subtract that number from the 25. Do the math in line E above and once you arrive at the figure you need, then you can start planning to save.
For example to save $500,000 when you are 30 means you have 35 years to save. If you put the money in your mattress you would need about 21,000 a year or $1200 a month. If you invested in a RRSP with a return of about 5% you would only need about $400 a month.
One of the reasons is lack of understanding of how much one would need in retirement. This is probably because we find it hard to estimate our own mortality. If you have healthy genes you may live to be 100, if not your life span is shorter. I love reading articles about people who live long and healthy lives. The writers of these articles seem to think that it is healthy living and eating that causes longevity, I believe that is a small part of the equation, but the biggest part is your genes. So to figure out your longevity, look at your parents and grandparents, aunts and uncles to see how long they lived. Once you have done that you have a pretty good guess as to your own mortality.
and do some math. If you have a pension plan, add that to the figure you arrive at, so you can have a better guess as to what you will need. (The figures are spending for a year).
The figure of 25 times the annual spending is based on the idea that you will live 25 years past age 65. If you believe that you will live longer add this time to the 25, if you think you will live less subtract that number from the 25. Do the math in line E above and once you arrive at the figure you need, then you can start planning to save.
For example to save $500,000 when you are 30 means you have 35 years to save. If you put the money in your mattress you would need about 21,000 a year or $1200 a month. If you invested in a RRSP with a return of about 5% you would only need about $400 a month.
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