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How much you need to retire may be the biggest financial question of all, and it guides much of your financial and investment planning. The amount tells you how much you need to save every year. It may even influence how you invest, helping determine how aggressive or conservative your portfolio should be, within the limits of your risk tolerance. The amount affects life plans too, like when you can retire.
But how exactly do you determine the amount you need to retire? You may have heard guidelines, such as basing your annual retirement income on a percentage of your pre-retirement income, often 70%. Or maybe you’ve seen some of the many retirement income calculators available online.
But calculations are only part of the solution. What’s most important is developing a good understanding of your own personal retirement situation – the following elements in particular.
Timing. Start with when you would like to retire – many of the remaining factors depend on it. And if you have a spouse, do you plan to retire at the same time? The size of the nest egg you need and lifestyle plans in the initial years of retirement are influenced by whether you and your spouse have simultaneous or staggered retirement dates.
Lifestyle. What kind of retirement lifestyle do you want to have? The more detail you can provide, the better. Do you plan to travel, and will it be world travel? Will you purchase vacation property? Here or in the Sunbelt? Will you stay in your home, downsize, or move elsewhere?
Perhaps you or your spouse will work during your retirement years. Some people continue working for the income, and some for fulfillment and a sense of purpose. Others may start a new venture as a labour of love.
Health care. Financial protection against the risk of failing health is essential. Long-term care at home or in a residence represents a significant cost – potentially tens of thousands of dollars every year.¹ Long-term care insurance is one form of protection. Or you can self-insure by setting aside funds dedicated to the potential need for care.
Helping others. You may plan to leave assets to your children or grandchildren or perhaps distribute some of your property during your lifetime. Consider whether you want to leave a gift to a charitable organization and what the amount might be. Also, do you have any financial needs or responsibilities specific to your family, like supporting an adult family member with special needs?
All of the above items probably come to mind every once in a while, but to properly determine what you need to retire, you need to write them down. Set aside some time to think about your future and make a formal record of your expected retirement date, lifestyle aspirations, and plans for health care and helping others.
Then come talk to us. We’ll help put dollar values to your plans and determine your financial needs during retirement, accounting for inflation and increasing longevity. We’ll arrive at your financial objective and compare it to your projected retirement nest egg. If there’s a gap, we’ll discuss ways you can modify your savings or retirement plans to make it all work. And we’re here to review your financial plan every year and make any adjustments that might be needed to keep you on track to the kind of retirement you envision.
¹ Source: Canadian Life and Health Insurance Association, A Guide to Long-Term Care Insurance, 2012.