Retirement: What’s Your Income Target?Christopher Briggs
There have always been varying opinions regarding the amount of income needed to ensure a comfortable retirement. The amount of income required for retirement will vary based on the individual and their particular circumstances. While some suggest an annual target of 70 percent of pre-retirement income, others advise 80 percent or more. Still others argue that these targets may be too high, pointing to the fact that sometimes pre-retirement spending can be lower than we perceive.
With payroll deductions, mortgage payments and child-related costs taking up a significant portion of expenses during our working years, we may actually be able to live on much less than we believe. For some, income requirements can increase after retirement, depending on desired lifestyle. This is why it’s important to give thought to the type of retirement lifestyle you envision and consider all of the associated costs as you plan ahead.
Is Your Target Too Low?
After taking into account your expected retirement expenditures based on lifestyle choices, factors like healthcare costs, family obligations, rising cost of living and income sources can impact your retirement income:
The good news? For those who save and invest over time, the path to achieving retirement targets becomes shorter.
- Healthcare Costs — Many retirees cite healthcare costs as the most unanticipated retirement expense, often a result of unexpected illness or disability. The average retiree’s out-of-pocket medical costs are in excess of $5,400 per year, not including long-term care.1 Long-term care costs can be more significant: the cost of assisted living in a private facility is estimated at between $40K and $100K per year; even subsidized facilities can range from $25K to $40K annually.2 Many Canadians have made no provision for these costs.1
- Obligations to Family — There may be unforeseen obligations to family, such as a child or parent who may require financial support.
- Rising Cost of Living — Increases in inflation, or even changing tax law, may add to retirement costs.
- Sources of Income — Some individuals may be relying on future sources of funds, such as home equity or inheritances, for retirement. However, these may end up being smaller than expected or not materialize at all. Even those who expect to continue working into retirement may be forced to end work due to illness or economic changes. The good news? For those who save and invest over time, the path to achieving retirement targets becomes shorter.
Factor in Longevity
As we continue to live longer lives, we must factor in the need to fund longer retirements. While the average Canadian will live to around 83 years old, your longevity may be greater still.3 So, if you retired at age 70, the average life expectancy would suggest 13 years of retirement, but this could extend to over 30 years if you become part of the growing group of centenarians.
A Roadmap to Retirement
We can help you to map how everything fits together, set financial targets for retirement based on your desired goals, factor in your anticipated cash inflows and expenses, and develop a plan to achieve those targets. This is one of the many services offered to our clients. Having a plan in place provides a retirement advantage that many Canadians don’t have, and it is an important part in helping you achieve the happiness envisioned for your golden years.
3 World Health Organization, 2018.
Ready to Get Started?
To start your own retirement plan with Precision Wealth Management, please begin by completing this fillable PDF form. Once complete, email it to us and we will be in touch with you.