How much money should you have left when you die?

While not the most appealing topic to consider, it’s a vital aspect of a retirement plan, along with how much to save prior to retirement and how much to budget once you’ve stopped working.

“It’s really important because people don’t know how much money they can spend,” said Fred Vettese, author of Retirement Income for Life, and a partner at Morneau Shepell Inc. in Toronto.

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“No one really knows. Some people might say, ‘Oh, I’ll spend 4 per cent of my money on an annual basis.’ Others might say they’ll spend interest only. Most of those are pretty cautious ways of doing it.”

Retirees should ensure they leave enough to handle their funeral expenses, possibly by buying insurance, but after that, it’s up to the individual whether anything remains for their heirs, says Willis Langford, an independent Calgary retirement-planning adviser.

People tend to spend more immediately after retiring as they check items off their bucket lists.

“We call it the ‘go-go years,’ the first 10 years (of retirement). As you get into your 70s, we call it the ‘slow-go years,’ you’re not [travelling] as much, you’ve been most places and the travel insurance is becoming a problem, maybe you have some health challenges,” Mr. Langford said.

“When you get into your 80s, those are the ‘no-go years.’ My dad is 86 and he doesn’t want to go anywhere, just stay close to home.”

Canadian retirees have income they can count on until death, such as Canada Pension Plan payments. And those who are lucky enough to have a defined pension plan don’t generally need to worry about their retirement income running out.

But the prospect of outliving their money is a serious worry for those whose retirement is being largely funded with savings, to the point that they don’t spend as freely as they can when they are best able to enjoy it.

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A recent Employee Benefit Research Institute study found that people in the United States who retired with more than US$500,000 in savings on average still had 88 per cent of it left 18 years after retirement.

“That is too much. Those people are being overly cautious,” Mr. Vettese said. He suggested people should try to have about 60 per cent left at that time.

“By the time they’re 75 or 80, they may be a lot more confident their money will last, but by that point in time they’ve lost either the ability or the inclination to spend and so it keeps on building up.”

The study found that even individuals with less than US$200,000 in non-housing assets immediately after retirement still had 75 per cent of their cash assets 18 years later – which is great news for their heirs.

Spending generally grows with inflation in real terms between the ages of 65 and 70, then begins to slow down for most of the next 20 years.

“At the very end, people will spend more, in their 90s – if they get that far – because at that point in time they’ll need care … and it does tend to be pretty expensive,” he said.

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“I tend to shrug my shoulders a little bit about all this because what happens when you’re 88 or 90 years old, I think, is less important than what happens when you’re 65,” he said. “You’re not going to have the same quality of life you had when you were 50 or 60 or 65 or 70.”

An online tool Mr. Vettese helped develop (at enhancement4.morneaushepell.com) allows people to calculate what their retirement income will be based on their current level of savings and anticipated income streams.

According to the tool, a single man who retires at 65 with $500,000 in savings and $1,000 a month in a defined-benefit pension will have available income of between $51,000 and $57,000 in the first year, rising to $64,000 to $71,000 per year at age 80.

Retirees with savings should adjust their discretionary spending depending on how their investments are doing, not adopt one simple budget for the entire time, Mr. Vettese said. And they need to work hard to avoid wasting money by employing inefficient drawdown strategies or spending more than necessary on investment fees.

A retirement budget should aim to cover basic expenses such as food and shelter with guaranteed income streams, leaving savings to be used for discretionary spending such as travel, Mr. Langford added, noting retirees should look for advisers who can provide lifestyle tips as well as the raw numbers.