Links to breadcrumbs

Retirement Personal Finance

There are several rules of thumb for determining whether you have enough for a full retirement, but here’s a better way to determine for yourself

Publication date:

18 Mar 2022 • 1 day ago • 4 minutes read • 9 Replies An empty bucket is not good, but an overfilled bucket can be worse because it means you didn't do things when you could have. An empty bucket is not good, but an overfilled bucket can be worse because it means you didn’t do things when you could have. Photo by Getty Images/iStockphoto Files

Reviews and recommendations are unbiased and products are selected independently. Postmedia may earn an affiliate commission for purchases made through links on this page.

Article content

By Julie Cazzin with Allan Norman

Advertisement 2

This ad hasn’t loaded yet, but your article continues below.

Article content

Q: I’ve read that in retirement you need about 70 percent of your employment income and I’m wondering if that’s correct? How do I know if I have enough? — Juliette in Toronto

FP answers: Hi Juliette. Forget that 70 percent and embrace your mortality for a moment. What if you approach your retirement plans by thinking about what you want to do and achieve while still being fit and able, recognizing that time is flying by? How much money is enough to give you that lifestyle so you never have to worry about running out no matter what?

To help you understand if you have enough and where the money is coming from, imagine a bucket, and in the bucket are your registered retirement savings plans, registered retirement income funds, tax-free savings account, and cash. These are your liquid or redeemable money that is available to you at any time.

Advertisement 3

This ad hasn’t loaded yet, but your article continues below.

Article content

Above this bucket can be a house, cottage, rental property, business and/or retirement plan. These are your fixed assets, and some of those assets, such as the rental home and retirement, will drip money into your bucket.

Ideally, you will have enough money in your bucket so that you are never forced to sell any of your fixed assets.

As you work, add money to your bucket. When you retire, Canada Pension Plan (CPP) and Old Age Security (OAS) are added to your bucket.

As you add money to your bucket, it naturally drains through one of the three faucets.

The first tap is to pay for your lifestyle while you work. Once you stop working, the second faucet, the retirement faucet, kicks in and you may find yourself spending more money because you have more time to do things. At some point, the pension tap will unfortunately be turned off.

Advertisement 4

This ad hasn’t loaded yet, but your article continues below.

Article content

The third and final tap is turned on when you are too old to enjoy yourself and can no longer physically/mentally do the things you used to enjoy. Eventually this faucet will shut off and you’re gone – that’s the end of you.

Is your bucket empty, does it overflow or do you have just enough?

An empty bucket is not good, but an overfilled bucket can be worse because it means you didn’t do things when you could have. Things like traveling or helping your kids when they need help. Perhaps you ended up working longer than necessary.

In other words, you don’t want to get to that last tap and realize you have the money, but no longer the time.

What’s going to happen to your bucket, Juliette? Will it run dry and what is the reason if so?

Advertisement 5

This ad hasn’t loaded yet, but your article continues below.

Article content

Pipe for Enbridge's Line 3 pipeline in Alberta.

FP Answers: I want to delve deeper into the financials of dividend stocks, but how do you value things like goodwill and distributable cash flow?

No

FP Answers: How do I calculate my actual investment return, ie, after tax is paid?

If you're considering a factor-based small stock ETF that monitors momentum, value, and high quality, evidence shows it can have a positive risk-adjusted effect on your portfolio.

FP Answers: Will adding 20% ​​to 30% exposure to a small cap ETF really help you outperform the S&P 500?

Is your house rich and poor? If you don’t have time to add anything to your bucket before you retire, then you need a strategy that uses the equity in your home to fund your lifestyle: downsizing, selling and renting, a reverse mortgage, etc. .

Or are you spending more than your income, or perhaps not saving enough? Now is the time to get your finances in order, and the sooner the better.

Maybe you have enough money in your bucket and don’t know it with all the money going in and out, the taxes you pay and the different valuation percentages for your fixed and liquid assets. The problem with not knowing if you have enough is the fear of spending money. You realize when you reach the age of 80 or so that you could have done something earlier in life if only you had known.

Advertisement 6

This ad hasn’t loaded yet, but your article continues below.

Article content

Finally, your bucket may be overflowing with money and the sooner you know with confidence the better.

Now, Juliette, I want to ask you: Knowing that you are thinking about retirement and that time is passing faster and faster, what do you want to do with the time you have left? Will 70 percent of your employment income cover it? What does your bucket look like and what actions should you take now, if any?

Allan Norman, M.Sc., CFP, CIM, RWM, is both a Certified Paying Financial Planner at Atlantis Financial Inc. and a fully licensed investment advisor at Aligned Capital Partners Inc. He can be reached at www.atlantisfinancial.ca or alnorman@atlantisfinancial.ca. This comment is intended as a general source of information and is intended for residents of Canada only.

If you like this story, sign up for the FP Investor Newsletter.

Share this article in your social network

Advertisement

This ad hasn’t loaded yet, but your article continues below.

By clicking the sign up button, you agree to receive the above newsletter from Postmedia Network Inc. receive. You can unsubscribe at any time by clicking the unsubscribe link at the bottom of our emails. Postmedia Network Inc. † 365 Bloor Street East, Toronto, Ontario, M4W 3L4 | 416-383-2300

Comments

Postmedia is committed to maintaining a lively yet civilized discussion forum and encourages all readers to share their thoughts on our articles. It can take up to an hour for comments to be moderated before appearing on the site. We ask that you keep your comments relevant and respectful. We’ve enabled email notifications – you’ll now receive an email when you get a reply to your comment, there’s an update to a comment thread you’re following, or a user follows comments. Visit our Community Guidelines for more information and details on how to adjust your email settings.

This post FP Answers: Do I really need 70% of my work income to retire comfortably?

was original published at “https://financialpost.com/personal-finance/retirement/fp-answers-do-i-really-need-70-of-my-working-income-to-retire-comfortably”

Richard