Retirement savings: How much will you need?
You’ve spent many years saving and investing for retirement, in line with your objectives and risk tolerance. But when was the last time you stepped back and asked yourself how you want to spend your retirement? Perhaps you’ve developed a new interest or are keen to change your career direction later in life.
Surveys show that today’s retirees plan to be more active than their parents, engaging in travel, continuing their education, or starting a small business. However, these activities may affect your cash flow requirements during retirement.
Take some time to think through the following questions. Then come in and speak with us about how to ensure your income needs are met in retirement.
Where will you live?
Many retirees find that the family home is no longer appropriate for their needs. If you expect to move, your choice will have significant financial implications. Downsizing to a condo in the city, for example, could free up some cash for investment purposes and help you reach your savings targets quicker. On the other hand, investing in a winter retreat in the U.S. could introduce significant extra costs and complicate your estate plan.
How active will you be?
An active retirement can be significantly more expensive than a stay-at-home lifestyle. Perhaps you’re thinking of going back to university to pursue a passion or to prepare for a second career, or maybe you’d like to start a business.
Will you travel?
Travel ranks high on many Canadians’ retirement wish lists. Depending on the scope and extent of your plans, you might want to start building a vacation fund. The new Tax-Free Savings Account is an ideal place to save for an extensive stay abroad. You can contribute up to $5,000 a year, earn tax-free returns, and withdraw your money at any time with no tax implications.
Have you factored in inflation?
Even modest inflation of 2% a year can increase your costs significantly over the 20 to 30 years you may spend in retirement. This means it’s important to structure your portfolio with a prudent mix of equities. Historically, equities have outpaced inflation by a greater margin than fixed-income and cash-equivalent assets.
Will your family need help?
Many Canadians want to help their children or grandchildren financially after retirement. And with today’s longer lifespans, you may also find yourself caring for elderly parents while you are in your 60s or 70s.
What about health care costs?
It’s important to plan for future health needs, especially in your later retirement years. It’s possible that you or your spouse may need an extended stay in a nursing care facility. This can involve a significant cost. With extra savings or long-term care insurance, you can cover these expenses without drawing on your retirement savings.
What will you leave behind?
You may wish to leave a sizeable estate for your loved ones. This means you’ll need to live on your recurring income without touching these assets. This can affect how you allocate your assets, and the total savings you’ll need. We can work with you to build an overall retirement plan and calculate your financial needs to fund the retirement you envision.
Tags: education, retirement, small business, travel