A prominent worry among baby boomers is that they may outlive their retirement savings. Yet, less than half of adults have calculated their retirement needs and even less are on the right path to hit their financial retirement goals.
It is extremely rare to have a guaranteed pension plan at work. If you do have one, then consider yourself very, very lucky! For everyone else, it is even more important that you think about your retirement and take the necessary steps to live a wonderful retirement life.
Figuring out how much you need for retirement isn’t an easy question to answer. There are so many factors that need to be taken into consideration. We can’t just tell you right now how much you need to save and help you build a plan for that.
What we can do is help you figure out the factors you need to consider for your retirement and then provide you the tools to calculate that number yourself.
When you think about your retirement, what does it look like? Do you plan on moving out of the city and living at a cottage? Do you plan on travelling the world? Or do you just want to have the resources to enjoy your current lifestyle?
Retirement can look very different for everyone and the income required can differ significantly on your retirement plans and how much you currently have saved.
This is a complicated topic that has many layers. Similar to our current Home Ownership series, we will be doing a series on retirement and help provide the information you will need. So let’s get started! What are the common questions you should ask yourself? Remember, it is never too early to start thinking about your golden years!
- Where do you plan on living when you retire?
Do you want to live in your current home? If you do and you’re able to pay off your mortgage before you retire, then this can be a nice financial nest egg. You would only be paying for the utilities and property taxes. Imagine life with no mortgage payment?! However, if you plan on having a cottage or a winter home down south you will need to figure out how much that’ll cost you and how you will finance it.
- What does your lifestyle look like?
Your lifestyle can dramatically change the required yearly income you need when you retire. Retiring into a ‘simple’ lifestyle is significantly cheaper than if you wanted to travel or play golf and/or tennis every day. Our advice is to overestimate what you might want to do in your retirement and save to that threshold. That way if your retirement dreams end up being more expensive, you will be covered.
- When do you want to retire?
You might have a retirement age in mind, however, before you really set that as your goal, you need to figure out the two questions above. If your expectations of retirement far exceed what you can save up for by the time you hit that retirement age, you will definitely have a problem. So either you will have to save more now to keep your target age as a reality or you will need to change your timing of retirement to what you can save up for.
- How will you fund your retirement?
Unless you have a healthy company pension plan, you will have to go it alone. Understanding what government programs there are and other sources of potential income are crucial in figuring out how much YOU have to save for. So you might not be fully alone but we wouldn’t solely count on the government as it won’t cover all your retirement expenses.
Once you answer the above questions (make sure to speak to your partner about this too, as you want to be on the same page), it’ll help you to set the right goals for yourself. It will also help you know how much to save for your retirement and focus on what to invest in to get you to that goal. You may be reading this and thinking, “Okay, got it. Need to save and calculate. I need to figure this out. But HOW do I calculate/figure this out?!” In our next post, we’ll tackle the how to calculate and figure out how much you need to save for retirement.