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Income needed into retirement

This question is at the core of any financial planning work. Such a simple question yet… difficult to answer, especially if you are at the beginning of your career. Still, this information is critical.

It is very easy to generalize... Society looks for fast easy solutions. A saying like “ a person needs about 70% of his/her gross annual income earned over the last three years into retirement” is a generalization. Based on this example, if your average gross annual income is around $50,000 during your career, you would need $35,000 a year into retirement. Maybe. Maybe not. We advise clients to be careful in drawing such simple conclusions… Although it serves as a good starting point, we feel every profile is different, based on the individual’s retirement projects and desires. Hence, it is important to have a proper custom plan designed for you.

At retirement, based on the projected lifestyle, some expenses might be reduced or even eliminated. Others will remain stable. And others may increase. We’ve provided below a summary table on “general” parameters for retirement spending as compared with “regular active life” spending:

For those who are really on the verge of retirement and/or are entering early retirement, the budgetary approach can be used. This method resembles that of budgeting, is more accurate and helps to better understand the dynamics of current and future spending. Under this method, forecasted expenses and assumptions used in projecting the future are far more accurate. The end result: increasingly realistic projections, based on accumulated savings and health. In order to determine your desired retirement income needs, some assumptions will have to be made. Someone who wishes to travel abroad and enjoy lots of recreational activities will likely need a higher spending budget than the “traditional 70%”.

Once this exercise is done, the age at which you want to retire will have great importance on your planned savings. Indeed, those who wish to retire before age 65 will see many income sources be significantly reduced, namely government pensions…

How we can help you plan your retirement and achieve your goals?

Our expertise allows us to guide your thinking, and help establish realistic assumptions based on your personal situation and your retirement goals.

Following the determination of such assumptions, we can project the amount of annual and/or monthly savings required to achieve your desired retirement goals. As part of this exercise we will consider future income you should receive from different government plans and your pension funds if applicable.

The savings amount required to achieve your goals will also be influenced by your investor’s profile and your tolerance to fluctuations in equity markets. Finally, we will periodically reassess with you whether your goals have changed and/or whether the projected returns were originally made. If needed, adjustments will be made timely to your savings plan so as to ensure you can enjoy a comfortable retirement!

Source : Guide de la planification financière de la retraite. Produit par le Groupement pour la promotion de la sécurité financière (www.questionretraite.qc.ca)

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