Retirement Planning

Today we're going to go over a basic retirement planning. 

How much do you need for you to have a comfortable retirement?

For instance, how do you know if you're on the right track.  

Retirement planning is like any other goal. Where are you starting from and where do you want to go. For instance if you're on a flight from New York to LA you need to know how long it will take to get there, the path you're going to take and land safely. 

Or another example is weight loss. If you want to lose 30 pounds by the end of the year you need a plan. To do that we start with the end in mind. Let us say year end is 6 months away.  

So you want to lose 30 pounds in 6 months.  

Well how many pounds per month is that? 5.  

And now how many pounds per week is that? Just over 1. 

So in essence you need to lose 1 pound per week to achieve your goal of 30 pounds lost in 6 months.  

Then you would look at the calorie intake and exercise. You would start by exercising at least once a week to three times a week. Then a reduction in calories. Again figure out how many calories you're eating now and reduce the amount. Test and track. 

The same is true in retirement planning. We must begin with the end in mind.  

When do you want to retire? 

What do you want to do in retirement? Do you want to travel? Go to Florida twice a year? Stay at home spend time with kids? Where do you want to live? 

What lifestyle do you want to live? 

Those questions need to be answered before you do any sort of planning. Maybe you've never thought of them before. If that's the case give it some thought because those questions will determine the amount of income you need in retirement. 

Then you need to look at where you are starting from.  

How much have you saved currently?  

How much are you saving currently?  

Do you have any pensions? 

Is government assistance available such as social security or Canada Pension Plan? 

There are many online calculators you can use to help with the next steps. A few of them I like are  

https://www.retirementadvisor.ca/retadv/apps/retirement/retsave_inputs.jsp?toolsSubMenu=preRet 

http://www.fidelity.ca/cs/Satellite/en/public/education_planning/calculators/snapshot 

http://calculators.mackenzieinvestments.com/mackenzie/jsp/RRSPcalculator/RRSPcalculator.jsp 

I have no allegiance to one or the other. I just like the way they work and simplify things. 

Once you figured out what you want to be doing in retirement we need to take a look at how much income you will need. Here is a retirement spending worksheet from Vanguard https://personal.vanguard.com/us/insights/retirement/tool/retirement-expense-worksheet 

It will help give insight into how much you plan on spending when you retire. 

Now we’ve discovered what the end goal is in retirement we need to figure out how to get there.  

Use the calculators above to help determine how much you need to be saving on a monthly or annual basis. 

You might be surprised by how large the number is. Statistically you're likely to live until about 90. That's 25 years or more in retirement. Plus the cost of inflation. In fact inflation is the biggest killer in retirement. A dollar today is worth more than a dollar tomorrow. 

Think back 5 years ago, a stamp cost what $0.70. Now they are $1.00. Or the cost of food. That's why the amount of money you need to save might be quite high. The greatest threat to your retirement is the loss of purchasing power.  

A couple other key things to consider when looking at retirement.  

  • Health 

  • Long term care 

  • Family history

Each of those will impact your retirement and you'll want to make sure you are protected. A stroke or heart attack could cause you to dip into your retirement savings early. Will you need a nursing home? Take a look back at your family history and that might provide some insight. Those costs can add up. 

To summarize: planning for retirement is very similar to planning to lose weight.  

  • Figure out where you want to go and work backwards.  

  • Then determine what you need to do to get there.  

  • Use the calculators above to help you come up with a number  

  • Start taking action. If you can't afford that much check out my book here by seeing how to manage money, check out the blog post here to save money and/or put away whatever money you can today. 

  • Take action today.