It’s an age-old question that Paul Lalonde, head of wealth planning at BMO Private Wealth, hears all the time.
“The most recent example actually happened last week,” Lalonde said in an interview. Yahoo Finance Canada.
“I was biking with some friends in Maine, and we were all sitting next to each other, and one of the guys on the bike said, ‘So, what’s that magic number?'” Retirement How much do you need?”
BMO’s early 2023 survey found that Canadians think they will need $1.7 million more than they did in 2020. That number “seemed high,” Lalonde said, and was more indicative of the mood of Canadians in the current economic climate. .
So, how much do you actually need? Most financial experts say the same thing. “It depends.”
Lalonde likens it to buying a car. “What is the perfect car on the market? And you know, I think it’s completely different (to different people),” he said.
“One person might prefer a pickup truck, another person might prefer an SUV or a family van if they have a large family, and another person might prefer an (electric) car. So obviously there’s no magic number.”
Rather, that number will be unique to each individual.
Think about your desired lifestyle
There are many questions that people should consider. When do they plan to retire? What are their sources of income after retirement? Do they have a defined benefit pension plan or will they rely on the Canada Pension Plan (CPP)? What are their expenses? And most importantly, what kind of life do they want to live after they retire?
The answers to these questions will help you decide on your approach, says Julia Chung, CEO and senior financial planner at Spring Financial Planning.
For example, one couple Chung works with had between $500,000 and $700,000 in personal savings and investments at retirement. But they have a defined benefit pension plan that provides an inexpensive lifestyle and stable income, so it’s “just fine.”
“They don’t like to travel. The house is very cheap to run and she likes going to the library every day. And he really enjoys fishing all year round,” she said. . ”
“All of this has worked out perfectly for them and they are delighted.”
The couple’s retirement plans are very different from another couple Chung works with, whose current living expenses are between $10,000 and $15,000 a month.
“And that amount is definitely going to go up for at least the first 10 years of retirement because they want to go on big trips and they want to give their kids gifts as a down payment.” Chung said.
“So we’re making sure they have a higher net worth and more sources of income when they retire.”
Predict your nest egg
According to Jeet Dhillon, senior portfolio manager at TD Wealth, one of the first questions people need to ask themselves to determine how much money they will need in the future is how much money are they currently spending? It is said that it is a thing.
As a rule of thumb, Dillon advises clients to expect 70 to 80 percent of their current annual living expenses to remain in retirement. Then add discretionary spending based on your desired lifestyle. From there, it becomes easier to predict how big your nest egg should be, taking into account your expected retirement period and income.
“The gap between you and me is [retirement] Both income and expenses have to come from savings,” Dillon said in an interview. Yahoo Finance Canadaadded that it also depends on the individual’s investment strategy.
Dillon says $700,000 to $1 million is a “ballpark guide” for the average Canadian, but emphasizes that this should only be used as a starting point. It’s also important not to confuse net income with gross income, Lalonde added. That’s because his $1 million in a tax-free savings account provides him with far more disposable income than the same amount in a registered retirement savings plan.
“The meaning of retirement has changed,” Dillon said.
“Some people may quit one job and still have another job that generates income. Some people may retire early, so they may need more resources. It’s not like you’re going to retire at 65 and sit on your porch and watch the world go by. It’s a lot different for everyone right now.”
Farhan Devji is a freelance journalist and published author based in Vancouver. You can follow him on Twitter @farhandevji.
