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pension

How much do I need to contribute to my retirement savings?

by Natalie MacLellan on December 10, 2009

in financial goals

Well, between some pre-planned travel and conferences, and an unplanned bout with the flu, November was a bit of a write-off for the Before You Invest blog. But I am back, and will be implementing some form of “pandemic planning” for the site in the future.

Now, where were we? Retirement planning, wasn’t it?

We had talked about retirement needs, and possible current sources of retirement income. Now we need to look at taking those numbers and creating a plan.

I could spend many words and a week’s worth of posts explaining the math necessary to calculate monthly saving requirements, or I could save us all the time and headache and direct you to a couple of great financial calculators.

The first and simplest picks us up where we left off last time. You’ve determined what (if any) pension income you can expect, and know how much money you personally need to provide to achieve your desired retirement income.

Using the Fiscal Agents’ Retirement Savings and Income Calculator, you can enter this goal, any current savings and planned annual contributions, expected return, adjust for inflation (estimate 2-3%) and be provided with a suggested savings rate.

For example, imagine a 35 year old, with 20,000 in current savings, planning to retire at age 60, and after CPP and employer pension, wanting to provide an additional 20,000 annually. Being conservative, she estimates an inflation rate of 2%, expected returns of 6% before retirement and 3% after retirement. She would like to plan for the money to last her to the age of 90 years. Currently she puts $300/month into an RRSP.

Using these numbers, the calculator tells her she needs to contribute an additional $620 per month. That’s an increase of more than 200%!

What options are available to our fictional investor? Perhaps she could invest more aggressively? If she achieves a rate of 8% pre-retirement, and 4% after retirement, she only needs to save an additional $250 each month - but of course more aggressive investments come with more risk, and may not achieve their goal, leaving her short.

Another option is to look at retirement date. Keeping the original assumptions, if she chooses to retire at age 65, not 60, she can meet her goal by contributing an additional $260 each month.

Time is of course the most important factor in retirement planning. A 20 year old could reach these goals for significantly smaller monthly contributions. For my young readers, take a good look, and get yourself started now. For the rest of you, I quote an old Chinese proverb: “The best time to plant a tree is twenty years ago. The second best time is now.”

There are other more complex calculators available that allow you to play with even more factors. Two of the best are the Retirement Planner, also from Fiscal Agents, and Human Resources and Social Development Canada’s Canadian Retirement Income Calculator. Try them out to see which works best for you.

Tagged as: financial goals, pension, retirement planning

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How much money will you need to retire?

by Natalie MacLellan on October 22, 2009

in financial goals

This week is Financial Planning Week in Canada and National Save for Retirement Week in the United States. Add those to the fact that October is Investor Education Month in Canada, and is there really any better time to talk about retirement planning?

In a recent survey, 65% of Nova Scotians (similarly 66% of Canadians) agreed that it was important to have a financial plan and 90% of Nova Scotians (85% Canadians) agreed it was important to build up your own personal savings, whether through a pension plan or otherwise.

Yet, 75% of Nova Scotians do not have a financial plan, and 59% expressed concern that they will not have enough money to meet their goals.

How do we move from knowing what to do, to getting it done? There is no easy answer. A good place to start though, is to set goals and figure out what it is you need to accomplish.

Saving for retirement can seem daunting. Often, the figures we have in mind are so huge, we fear we will never achieve them. It is important to sit down and calculate a realistic estimate of your retirement needs. You may do this on your own, or with a financial adviser. There are three simple ways to do this:


1.    Use a simple guideline based on what you make now
One simple guideline is that after you retire, you will need between 60% and 80% of what you earned in the years right before retirement. The closer you are to the 80% mark when you retire, the more comfortable you will likely be after you retire.

2.    Look at what the research tells you
Statistics Canada has looked at the different lifestyles Canadians have after they retire and how much it costs to live these lifestyles. The numbers are fascinating, and you can use them to estimate your own income range. To learn more, read What will life be like after I retire? from the Investor Education Fund.

3.    Make a detailed budget
Here you write down exactly what you think you will spend each month on housing, food, entertainment, health, gifts, and other expenses, and then add it all up. The further you are from retirement, the more difficult it may be to judge your expenses, so it may be easier to work with steps 1 or 2.

In upcoming posts, we will consider the sources of retirement income we may already have, and look at how to translate the yearly salary you want in retirement into the amount of savings you need to accumulate.

Tagged as: financial goals, pension, retirement planning

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Retiring in Canada: New national pension plan proposed

August 5, 2009

Provincial finance ministers have agreed to look into a new national pension plan, aiming to find a national solution to improve the incomes of all Canadian retirees. The plan, likely to be voluntary, would assist workers without an employer sponsored pension plan.
(Read Provinces team up on retirement income in the Globe and Mail.)
The workforce has [...]

Read the full article →