How much money do I need to retire?

When planning for the future, this is one of the most common questions that people have.

After all, part of setting smart financial goals you need a target. However, the cost of your retirement can be as unique as your fingerprint - it depends on a number of different factors.

A few important ones to consider are:

• Your planned retirement lifestyle
• Any income sources you might have during retirement
• Planning for the unforeseen/your Rainy Day fund
• Your estate planning goals

One of the primary influences on your cost of living is the type of lifestyle you want to have.

Generally, people anticipate a lower cost of living after they retire, because there are costs associated with working. It might be commuting costs, work wardrobe, food at work, or any other cost - those are costs you won’t need to pay once you retire.

However, your life in retirement probably won’t be exactly the same as your life now minus 8 hours per day of work. You might choose to travel, move to someplace new, take up a new hobby, or spend more time doing things you love. All of those things can cost money, and depending on what you choose, your retirement lifestyle could actually cost more than your lifestyle while employed.

In order to estimate the costs of your retirement lifestyle, you need to start by defining it. Where would you like to live? How would you like to spend your time? Would you like to travel, and if so where and for how long?

Once you’ve decided what kind of retirement lifestyle you’d like to live, you can start to forecast the costs of it which will help tell you how much money you’ll need.

Another important item for calculating how much money you’ll need to save for retirement is understanding how much money you’ll continue to earn.

Retirement doesn’t necessarily need to be an end of work. Some people continue working on their job at reduced hours, switch careers, pursue side hustles, monetize a hobby, or find a part-time job.

Going even further, continued income doesn’t necessarily mean you need to work. You may be able to earn additional income from renting out a property, pensions, government benefits (such as CPP and OAS), investments, or any number of other passive income sources.

Any income that you can earn in retirement may help you stretch your retirement savings out for a longer period of time, potentially reducing the amount that you need to save prior to your retirement.

While it’s difficult to plan for unforeseen events, budgeting a bit extra for unpredictable items can help you ensure you have enough funds saved to sustain you in the retirement lifestyle you desire.

Unforeseen events in retirement can include things such as:

• Home repairs
• Car repairs/replacement
• Increases in travel expenses (health insurance, hotel costs, etc.)
• Health expenses

Having a financial cushion for these potential additional costs can help you live a more comfortable retirement life - both physically and financially.

The amount of money you need to retire can also be influenced by how much you want to leave in your estate.

Some individuals want to personally enjoy all of the money they’ve saved through their working lives, while others gain satisfaction through leaving an inheritance behind for loved ones, a charitable cause, or an organization they favour.

If you do want to leave a bequest in your estate, you need to plan for that as part of your retirement savings plan.

By looking at the factors described above, as well as making some predictions based on how long you might live after retirement, the impact of inflation, investment returns, etc., you can make some estimates as to how much money you might need to fund the lifestyle you desire after retirement.

Please note: Any retirement savings goals are based on estimates of lifestyle, lifespan, risk tolerance, inflation, investment return and other factors. It’s important to regularly re-evaluate these estimates as you approach your retirement to ensure your plan is on track.

Note: The information in this blog is for educational purposes only and should not be used or construed as financial or investment advice by any individual. Information obtained from third parties is believed to be reliable, but no representations or warranty, expressed or implied, is made by Questrade, Inc., its affiliates or any other person to its accuracy.