I read an article in The Globe and Mail here that reminded me most experts say you need approximately 75% (or more) of your current salary to maintain that lifestyle in retirement. I recall the premise of this argument is “a lot of what you’re paying now will hopefully disappear later.”
Hopefully disappear indeed…
Yes, some costs may disappear in retirement like saving for retirement itself. Hopefully your mortgage payments are a distant memory when you retire as well – that’s our plan. However, some costs in your future are not going anywhere and if anything those costs are only going to hit your wallet harder over time:
- The rising costs of property taxes,
- The rising costs of heat, hydro, water and any utilities,
- The rising costs of healthcare,
- The rising costs of insurance premiums,
- The rising costs of gas,
- The rising costs of food and consumables,
- The rising costs for clothing,
- The potential for personal income taxes to rise, and
- Much, much more…
On top of this, because you’ve been busy working during the day (and/or night) you’ve likely put off many things you’ve wanted to do during your career and thus, delayed gratification. This might mean in the first few years of your retirement you’ll be spending just as much money as your working years.
Some other factors to consider as you work towards retirement:
- The average Canada Pension Plan (CPP) payment today is around $600 per month.
- The average Old Age Security (OAS) payment today is around $550 per month.
- About 1/3 of your RRSP is actually a government loan, only some RRSP money is yours to keep.
- Although a mandatory retirement age is a thing of the past people are living longer and you might too.
I’m not writing about a one-size-fits-all-retirement number because that number does not exist. I am saying that contrary to what some financial experts tell us, I’m convinced you need at least $1 million in assets to retire well and for Generation X and Y, I’m sorry to tell you but you’ll need a whole bunch more.