Monday, January 9, 2017

How much do you need for retirement? Easy answer It depends, longer answer below

As you start planning for retirement, it’s important to know how much you will need to retire comfortably. Although this is a basic question when planning for retirement, it can be very difficult to accurately calculate how much you will need in 10, 20 or even 40 years.
As a starting point, here are some factors that can affect how much you will need for your retirement. Keep in mind this list is just a start.

Your retirement goals
Your retirement goals could have a big impact on your spending habits and will form the basis of how much you need to save. How do you picture your retirement? How will that change over time?
·       Do you plan on travelling more frequently?
·       Do you want to retire earlier or later?
·       Do you want to work in retirement?
·       Do you want to start saving for a grandchild’s education?
·       Do you plan to move out of your home? Do you plan to move to a different community?
·       Do you plan to carry debt into your retirement?

Current spending versus expected spending in retirement
Your current financial obligations are likely different than they will be when you retire. So how much of your pre-retirement income will you need in retirement to maintain your desired standard of living? 70%? 60%? 50%?

There is no golden rule or set amount. The amount can vary greatly from person to person, since everyone will have different retirement goals, different levels of income and different attitudes about money. Some people might need less, while others might need more.

To get a rough estimate as to how much you will need, think about your retirement goals, how you spend your money now and how you think you will spend it after you retire. For example, whether you still have substantial debts such as a mortgage or an outstanding loan, or downsizing your home, can have a significant impact on your spending in retirement.

If you plan to move to another province or out of Canada, look into how that might impact your medical insurance, social benefits and taxes.

It is also important to consider the effects of inflation, which is the rising cost of consumer goods and services. You should think about including a rough estimate of how much things will cost when you retire using a historical average annual rate of inflation.

 If your savings are not growing by at least the rate of inflation (2.00% between 2000 and 2014), your savings can actually decrease in value over time. To help you compare your current spending with your expected spending in retirement, try FCAC’s Budget Comparison Worksheet. Once you have an idea of what your future expenses will be like, put those values in the Financial Goal Calculator, to help you create a plan to save for your retirement.

How long do you expect to be retired?
Today’s retirement landscape looks quite different than it did 30 or 40 years ago. The number of years you can expect to live in retirement has increased: on average, a male aged 65 in 2013 can expect to live to 84 and a female aged 65 in 2013 can expect to live to 87. Therefore, it is important to plan to save enough to support your desired lifestyle throughout your retirement.

Deciding when to retire is a major lifestyle and financial question, and the answer can have a big impact on how much you’ll need to save for retirement. For example, if you expect to live until you’re 90 and want to retire by 65, your retirement savings will have to last at least 25 years, but they will have to last 30 years if you retire at 60. By working five years longer, you earn five years of extra income and delay the need to access your retirement assets by five years as well. The combined effect can be a significant help in achieving your retirement goals. 

Your retirement can depend on several factors, including:
·       your retirement goals (desired lifestyle)
·       your partner’s retirement plans
·       your health or a significant other’s health
·       your current financial obligations and living expenses
·       how much you will get from private and public pensions
·       your current job as well as the availability and suitability of other job opportunities

Unexpected events
When planning for your retirement, you may wish to consider the possibility of unexpected events such as:
·       earlier than expected retirement for personal, professional, or health reasons
·       unexpected major expenses such as home repairs, car maintenance, travel etc.
·       health emergencies for yourself and/or a significant other and the need for additional care this may cause.

It is important to consider the impact of unexpected events on your retirement since they can dramatically affect your finances. With this in mind, think about starting an emergency fund for your retirement that will be larger than a typical emergency fund (three to six months of income).

While unexpected events will always be a surprise, planning what you will do in case they happen can help lessen their impact. Consider setting up a specific banking or savings account as an emergency fund and have a percentage of your pay automatically deposited into the account.

You might also wish to consider whether you have enough disability or life insurance, and whether you will need to purchase additional insurance coverage to reduce the risk and financial impact of for unexpected events.

Long-term care
Many Canadians find it difficult to think about the idea that they may need long-term care in their retirement years. However, planning for the possibility of long-term care is an important part of retirement planning. Depending on your needs, long-term care can be very expensive, so it is important to get an idea of how much it may cost and to plan accordingly.

Long-term care facilities are governed by provincial and territorial legislation. Therefore, costs may vary depending on where you live or where you decide to live. For additional information about the potential costs of long-term care, please contact your provincial or territorial government.

If available, consider critical illness or long-term care insurance coverage which can help cover some of the risk.

After carefully reviewing your potential needs, set a goal and use FCAC’s Financial Goal Calculator to help create a plan to get there.
The information above was from the government of Canada's web site on retirement planning found here

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