Unfortunately, it's not that simple. Every person will need a different
amount, depending on what income they will have, and
what they want to do after they retire. However, everyone should have a
home, and no non-tax-deductible debt before retiring. Hopefully by now you have defined
your goals, have a budget, have maybe purchased a home, are in the process of
paying off your debt, and have started to invest. The next
step is to figure out how much money you will need, and where it is going to
come from. To do this, take your current budget and revise it to suit your
retired life.
The following are probably items you will no longer need to
spend money on after you are retired:
buying a home
raising children
education costs
saving for retirement
The following are items you will probably spend less money on:
alarm clocks
clothes
purchasing automobiles - you will probably be driving less, so your
vehicle will last longer
auto insurance - may be cheaper if you are not driving to work
auto gas and maintenance
other forms of transportation if you did not drive to work
life insurance - may not be needed if you have no mortgage
disability insurance
eating out
Your spending on the following items will probably not change:
house insurance
home maintenance
groceries
telephone
cell phone
cablevision or satellite
internet access
books/subscriptions
household furnishings
entertainment
Your spending may increase on the following budget items:
travel
toys (boats, atvs, etc.)
leisure activities
health care
donations
heat & light, because you will be home more
gifts (grandchildren?)
In order to plan your new budget, you should group your expenses into
mandatory and discretionary. Different people will put different things
into these categories, so we will leave it up to you.
You need to compare your total expenses to the total of the
income that you know you will be getting, such as
In order to make sure you don't run out of money in your
retirement, we recommend that you have enough dividends from Canadian stocks to
cover any shortage of income from the above sources. When you draw money
out of RRSPs/RRIFs, you should buy mainly Canadian dividend-paying stocks with the
money. You should hold these stocks forever. If you can live off the
dividends from your investments instead of selling investments, you are in the
best financial position.
However, if this money is not adequate to support your spending after
you retire, you will need to either
earn income from a part time job or a business
reduce your discretionary spending, or
as a last choice, withdraw money from savings or
RRSPs/RRIFs and spend it
This job may seem daunting, but there are plenty of resources
on this website which can help you with your planning. The thing to
remember is that this is just planning, and plans can often go astray. For
this reason, you need to leave yourself some wiggle room in your estimating.
To help determine how much annual income your non-registered
investments can provide, see our Annual
Retirement Income Calculator. Keep in mind that this calculator is
reducing your investments to provide part of the annual income, and this is not
advisable.
Use our RRSP/RRIF
Calculator to estimate the annual withdrawals from your registered
plans. These withdrawals should be used to purchase mainly Canadian
dividend-paying stocks. When you finally have all of your investments
outside of your RRIF, they should be made up of about 60% to 80% Canadian
dividend-paying stocks and 20% to 40% foreign stocks. This will provide some
protection against a falling Canadian dollar.
See our Borrow to
Invest article and Calculator
for information on how borrowing to invest can help you build up funds for
retirement.
The information on this site is not intended to be a
substitute for professional advice. Each person's situation differs, and
a professional advisor can assist you in using the information on this web
site to your best advantage.
See our Business
Directory for tax, accounting and finance-related firms in your
area.
Please see our legal
disclaimer.
