I recently read a MoneySense article acknowledging you might not have to save as much as you think for retirement.
This article is encouraging if…
- You have no significant debt at the time of retirement.
- You intend to spend less in your retirement years than during your working years.
- You intend to work every year, in a decent paying job, for at least 40 years until age 65 to maximize government benefits.
The article cites this Statistics Canada table as its foundation, the average Canadian household spent just under $80,000 in 2013.
Assuming our Canada Pension Plan (CPP) and Old Age Security (OAS) will remain intact and kick in about $30,000 per year per couple, the article suggests a low-fee investment portfolio of $750,000 using the 4% withdrawal rule should do the trick for “enough” retirement income to cover what government benefits don’t. That $750k figure might be true, certainly very true for those lucky couples that have contributed to a workplace pension plan for decades.
However, let’s revisit the sizable $750,000 portfolio and the fact you’ll need to wait (read in work) until age 65 or even age 67 to take advantage of both CPP and OAS benefits respectively.
To save your $750,000 you’ll need to save at least $4,500 for about 40 years, earning at least 6% annualized on your investments while deferring taxes. If you haven’t been saving this much or earning that much or deferring taxes on this money then you’re behind.
From an age perspective, if you haven’t saved up at least $80,000 by age 40 then you’re really behind. The math tells me you have 25 years left until age 65 so you almost need to double your savings rate to meet a $750,000 portfolio goal.
Save early, save often and keep rinsing and repeating those steps were never truer words spoken when it comes to investing.
The later you delay saving for retirement 1) the more you’ll need to save, 2) the less you’ll be able to spend, or 3) the longer you’ll be forced to work to retire comfortably. Maybe all three will apply…even if you work until age 65.
Are you on track with your savings?