Parents of infant who died in wrong-way crash on Ontario's Hwy. 401 were in same vehicle
Ontario’s Special Investigations Unit has released new details about a wrong-way collision in Whitby on Monday night that claimed the lives of four people.
For those wondering how much money they will need to retire, the answer can vary greatly. This decision will depend on your ideal retirement lifestyle, current expenses and, of course, the age you want to retire.
In Canada, those looking to save for retirement can consider opening a Registered Retirement Savings Plan (RRSP). This financial account is registered with the federal government and used for retirement purposes.
I’ll go over some of the key factors that will help you determine your RRSP savings goals and guide you through the process of calculating your retirement expenses.
An RRSP is a retirement savings account that can be used for cash savings or as an investment vehicle to hold stocks, bonds, and other long-term investments. RRSPs are tax-advantaged, meaning contributions are usually exempt from being taxed, as long as the funds remain in the plan. Investments will continue to grow until the money is withdrawn.
RRSPs are a great incentive for Canadians to save for retirement, considering contributions are income tax-deductible, meaning they can be claimed as a tax deduction on your income tax return. There are, however, annual limits on how much of this money can be claimed.
Many companies offer employer-sponsored RRSPs, which involves matching a percentage of their employees’ contributions. Individuals may also open their own RRSPs.
After retirement, the RRSP is converted into a Registered Retirement Investment Fund (RRIF), and retirees may begin withdrawing money. These withdrawals are subject to standard income taxes, similar to receiving a weekly or monthly paycheque.
RRSPs are one of the most popular pension plans in Canada, according to a recent study by financial services firm Edward Jones. The study, published in February, found that 51 per cent of Canadians said they planned to contribute to an RRSP in 2023.
How much you’ll need to save in your RRSP to retire comfortably depends on a number of different factors, including:
Another important factor to consider is if you plan on receiving any additional sources of retirement income. This can include an Old Age Security (OAS) pension, a monthly payment granted to those 65 years of age or older, as well as money received as part of your Canada Pension Plan (CPP).
Other sources of income can include pension from an employer, money from personal investments, and passive income from a business.
Some retirees may plan to maintain their pre-retirement lifestyle after they retire. If you’re looking to do the same, you should assume you’ll need to earn a retirement income that is similar to what you’ve been earning to maintain your current cost of living.
Alternatively, some prefer to downsize or upsize after retirement. Each of these choices can affect the amount of money you’ll need to save to reach your retirement goals.
Start by thinking about your ideal retirement lifestyle, and ask yourself:
These are all important questions to consider, as they’ll help you build a picture of your ideal retirement life and the cost to maintain it.
When it comes to calculating your expenses, you should account for the following types of costs.
Fixed expenses are those that generally stay the same each month and include:
Keep in mind that some of these expenses may change over time. However, calculating your monthly cost of living now is a good place to start.
Variable expenses are those that may change on a monthly basis, depending on your habits and the current economy. These can include:
The older you get, the more health-care expenses you may incur. You might require physical therapy to retain your mobility, or receive a diagnosis that needs specialized treatment.
You should also have some extra money saved for emergency expenses.
You’ll also need to consider how long you plan on living in retirement. This is difficult to estimate, because nobody knows exactly how long they will live for. Ultimately, it’s best to plan for a longer period of retirement.
What you can control, to some extent, is how long you will work for. If you want to retire early, you’ll need to have significantly more money saved than somebody retiring at the average retirement age of 64.6. Conversely, you may not need as much money saved if you plan on retiring late.
Assuming that you start saving for retirement at age 25, financial institutions such as Fidelity Investments, which has branches in Canada and the U.S., recommend putting at least 15 per cent of your pre-tax income towards retirement each year.
Additionally, the common budgeting strategy known as the 50/30/20 rule states that you should aim to put 20 per cent of you after-tax income on savings and repaying debt.
While these are great goals to have, not everyone can meet these expectations. Life happens, and there are always expenses you may not be able to plan for. Try your best to save any amount that you can.
For those who continue generating money at age 65 or older, the median after-tax income for senior families was $64,300, according to Statistics Canada data from 2019.
Based on a survey commissioned by the Healthcare of Ontario Pension Plan (HOOPP) earlier this year, more than 75 per cent of Canadians between the ages of 55 and 64 who are not already retired have $100,000 or less in savings. Of those surveyed, 44 per cent claimed that they had less than $5,000 saved.
The survey also revealed that 51 per cent of Canadians under the age of 35 say they are living beyond their means, and not by their choice. Many participants blamed Canada’s high cost of living as well as rising interest rates and elevated housing costs for not being able to meet their savings goals.
The high cost of living also has some Canadians thinking they will need more than $1 million in savings in order to retire, based on a survey published by BMO earlier this year. According to Caroline Dabu, head of wealth distribution and advisory services for BMO Financial Group, the results suggest Canadians are especially concerned about inflation.
If your RRSP savings aren’t where you want them to be, take the time to start planning. Begin by creating a detailed budget, outlining your personal retirement goals and some of the expenses you expect to have after retiring.
With a bit of determination, hard work, and commitment, you should be able to reach your goals!
Christopher Liew is a CFA Charterholder and former financial advisor. He writes personal finance tips for thousands of daily Canadian readers on his Wealth Awesome website.
Ontario’s Special Investigations Unit has released new details about a wrong-way collision in Whitby on Monday night that claimed the lives of four people.
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