Like a good ol’ working soldier you started putting money away for retirement when you landed your first job in your early 20’s, right?
So, the first question you need to ask yourself is, can I afford to retire?
How much you need to retire will depend on how you want to live.
Many financial advisors say that you will need between 70-100% of the income you were getting before retirement to live comfortably in retirement.
But this figure really depends on a lot of factors.
Is your mortgage paid? Are you putting children through college and/or university, do you plan on a traveling, will you be relocating to another country? This list can go on and on.
Obviously one of the biggest expenses is your mortgage, if your mortgage is paid and you have few obligations, the 70% – 100% figure can be a bit exaggerated.
The first steps you need to take to determine if you are ready to retire are looking at your current budget and comparing that to your anticipated retirement budget.
What fixed costs on your current budget will be there when you retire? And where can you find some savings.
Food, Electric, car loan, gas, entertainment, gifts, emergencies…. list them all, and be honest in doing so.
Also remember things like inflation, will you have an income source that allows for inflation? Or will the loaf of bread you bought today at $2 cost $32 in 20 years from now.
The next thing you need to do is figure out what you plan to do in retirement. Remember, you won’t be working 9 to 5 and sitting on the couch watching Seinfeld reruns will only get you so far.
Will you play golf, tennis, ski or take courses? As fun as they all must be, they all cost money.
You will need to add these expenses to your new projected retirement budget.
There may be other interests as well, like travel. Do you plan to travel once or twice a year, be a snowbird in Florida for the winter?
Crush grapes in Italy during the harvest? Again, this will cost some money.
Of course, this list wouldn’t be complete without issues like health care, dental, or that tired roof that will need to be replaced in 4 years.
It’s a time to sit down alone or with your partner and address these cold hard facts boldly.
Depending on your age and circumstance the results of this inventory will determine how well off you’ll be when you finally decide to shut the door on your working life forever.
This isn’t meant to scare you.
In most cases you may be pleasantly surprised. Just be honest and don’t underestimate.
Keep in mind that many of the expenses you had in your working life simply won’t exist anymore, transportation, clothing costs, RRSPs, work pensions and union dues, just to name a few.
So there’s many savings to be had, you just have to find them.
Of course, a lower income also means lower taxes and there’s many ways you can take advantage of that.
Visit the CPP GUIDE SHEET for more details.
Your income during retirement can come from many sources.
Do you have savings, RRSPs, a work pension? Are you able to collect Canada Pension Plan or Social security, will you be working part time?
All this goes into your budget assessment along with your anticipated monthly costs.
When it comes to the question posed at the beginning of this editorial, “Retiring soon?”, it should be obvious that money is going to be the #1 determining factor when it comes to planning for retirement and the first day of the rest of your life.
Follow the steps and be diligent, overestimate what you’ll need.
Also be sure to have an emergency fund for the odd times in which your furnace needs to be replaced or your car needs a new engine.
Remember Murphy’s Law: “Anything that can go wrong will go wrong”
Keep in mind that retirement isn’t only about money, there’s many other questions you need to ask yourself if you want to be happy, content and fulfilled in your retirement.
Where to retire
It’s a maze that you can and will get through if you follow the steps correctly.
In subsequent posts we’ll deal with some of the other issues that you’ll need to think about as you plan for this great adventure.
Stay tuned and remember:
“Live like someone left the gate open”!