Planning for your golden years doesn’t have to scare you. The reality of retirement is far more positive than people think. Ian McGugan has answered commonly-asked questions about planning for life after your working years.
Retirement planning isn’t just about how much you have saved. It’s often far more important to know what your expenses will be and how much annual income you need to cover them after you’ve left the work force.
Everyone’s expenses and income sources in retirement will be different, so financial planning for your post-work years needs to be personalized. While it’s important to consult experts on your retirement plan, if you’re thinking about it yourself, these five calculators from The Globe and Mail’s business team can help you to start figuring out how much you’ll need and where that money can come from.
1) Replacement Ratio Calculator: The replacement ratio is the percentage of your working income that you’ll need to fund your lifestyle in retirement. Knowing your monthly expenses in retirement and what percentage of your working income those costs represent will help you set a goal for your planning. Retirement ratios vary greatly from person to person, with the average ranging from 50 per cent to 70 per cent, or even more. This calculator will have you enter your current spending and then estimate what your expenses will be in retirement, giving you your personal replacement ratio.
2) Target Wealth Calculator: What dollar amount will you need to have saved at retirement age to sustain your net spending? This calculator can tell you, based on the asset allocation between equities and bonds for the retirement portfolio you choose. If you select a portfolio that invests heavily in equities, and therefore may be volatile, the calculator will factor that into final dollar amount you need to have saved by your target retirement age.
3) Target Savings Calculator: Once you’ve used the first two calculators to figure out the dollar amount you are aiming to save by retirement age, use this tool to crunch the numbers on how much you should save monthly to meet that goal.
4) CPP Take Early or Later Calculator: Full Canada Pension Plan benefits are payable at age 65, but you can opt to collect CPP as early as 60 if you take a reduced payment. You could also defer payments until you’re as old as 70 and receive larger payouts. If you wait, and live long enough, the benefits you ultimately collect can make up for years of foregone payments – you break even or better. This calculator can help you decide whether you should start collecting CPP early or defer your payments.
5) RRSP Withdrawal Calculator: You have contributed to your registered retirement savings plan throughout your career. When the time comes to start withdrawing those funds, you’ll need to convert your RRSP into a registered retirement income fund. You must do that by the year you turn 71 or your spouse does, and start taking withdrawals by the following year. You have to withdraw a given minimum amount each year. Using your age or your spouse’s, along with your expected rate of return, this calculator can help determine your RRIF payments and how long you can expect the fund to last.
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