Retirement can be a remarkable time of life when you get to explore new things. To make the most of your retirement, you'll want a solid financial foundation to fund your basic needs and those extra activities you finally have time to do. But how much do you need? Let's find out.
 
Retirement planning attitudes
When it comes to thinking about retirement, do you plan ahead, or do you tend to put it off? Personal habits and emotions can affect how you approach retirement planning. For example, if it's important to you to feel secure about the future, you may be more inclined to think ahead and plan for retirement. If you feel uncomfortable thinking about the late stages of your life, you may avoid planning for retirement. It's essential to be aware of your habits and emotions that keep you from planning so you can counter them and get started. Start planning early and saving regularly to ensure you'll have enough to meet your retirement needs.
 
Your retirement needs
There's no set formula for calculating how much you'll need for retirement. As a rough guideline, experts say you'll need about 70% of your average annual income (before taxes) from your three highest-earning years (commonly your last three years of work)¹. You should be able to maintain your current standard of living after retirement with this amount. You need less to live on during retirement because your expenses will likely decrease (e.g., work-related expenses will disappear, you'll pay less tax, you'll no longer be contributing to a pension plan, etc.).
 
Your retirement age and life expectancy
Deciding when to retire is a big question and depends on factors such as:

• How much you enjoy working, and how long you plan to continue

• Your health

• Your retirement goals

• Your current financial obligations and living expenses

• How much you receive from public and private pension plans

• How much you saved in addition to your pension income

 
According to the Government of Canada, the average Canadian's life expectancy is over 80¹. However, life expectancy relies on a wide variety of circumstances. When planning for retirement, consider the possibility of living longer than the average and plan accordingly.
 
Research insurance options
Since the average Canadian is living longer, it's recommended that you consider insurance options that can provide coverage for a lengthy retirement, especially coverage that can provide health, dental, vision care, and prescription drug coverage that may be necessary in your later years. You should also consider a life insurance policy to provide protection for your family once your group coverage ends.
 
Your retirement lifestyle
Think about how you want to spend your time as a retiree. Your lifestyle choices will affect the amount of money you'll need. Investigate the costs of the activities you're interested in and add them to your retirement budget.
 
The effect of inflation
Inflation is the rising cost of goods and services, and it can affect your retirement needs in two ways. First, the cost of the goods and services you buy increases. Second, your savings lose their value. With inflation increasing the cost of goods and services and decreasing the value of your savings, you'll need more money to maintain your purchasing power over time.
 
Determine your retirement needs
You can figure out how much you'll need for retirement with a couple of techniques. You can use the 70% guideline previously mentioned for a rough estimate of your retirement needs or make a detailed budget to calculate your cost of living more accurately. Luckily, the Financial Consumer Agency of Canada created a budget planner worksheet to download and fill out. Remember to account for inflation when you're doing your calculations. The Bank of Canada offers a handy Inflation Calculator that compares costs over time.
 
Attend a retirement workshop
If you're still feeling overwhelmed and unprepared, that's completely normal! OTIP offers free retirement workshops and webinars to all education community members. They're an excellent way to get the most valuable and current information and have all your questions answered by an industry professional. Check out our Insurance and Retirement Planning Events to learn more about the topics and register for an event.
 
It's essential to consider your retirement plans in detail. Start planning and saving now. That way, you can build the financial foundation that will allow you to get the most out of your retirement dreams. If you have any questions about your retirement planning, life insurance, or the RTIP health, dental and travel plans, contact a Life and Living Benefits Representative at 1-800-267-6847 or view the available RTIP health, dental and travel plans.
 

1. Financial Consumer Agency of Canada – Retirement needs