How much do we need to retire?

The father of a friend of mine - a man with little formal education, but who has worked hard his entire life - recently confided that he is tired of his job. He is 70 years old and still working full-time because he and his wife cannot afford to retire. "I've had enough of getting up early every day," he says. He wishes he could enjoy his golden years, but has no savings and cannot live on his Canada Pension Plan benefits alone.

His story is not an uncommon one. A Canadian Payroll Association survey released last week showed that not only are many Canadians living paycheque-to-paycheque, they can't afford to save for their retirement. According to the not-for-profit association, 50 per cent of Canadian workers can't save more than five per cent of their net pay for retirement, which is half of what financial experts often recommend.

My friend's father got me thinking. I'm already looking forward to retirement, although my RRSP contribution schedule assumes I'll be working for over 30 more years. How much do my husband and I really need to be able to retire comfortably?

Personal finance blog Get Rich Slowly recently asked its readers the same question and got some interesting answers.

Readers noted that financial experts often advise saving 10 per cent of your income for retirement, but that is likely only enough if you start saving early and invest aggressively (and successfully). Even if you do accomplish this feat, there are many events that could lead your best-laid retirement plans awry - such as a stock market collapse in the year you plan to retire.

That's why you may want to save more than 10 per cent.

Get Rich Slowly points to a retirement strategy from personal finance columnist Liz Weston in which 10 per cent of income is the bare minimum to set aside. For those in their 30s, Weston recommends saving 10 per cent of your income for a basic retirement that covers food and shelter, 15 per cent if you want to live more comfortably and 20 per cent if you want to retire early and live it up a bit. If you're in your 40s and just starting to save, Weston says you'll need 15 per cent of your income to cover the basics, 20 per cent to live comfortably and you can say goodbye to early retirement.

Whatever your retirement goals, they'll be more easily achievable if you start saving early. With the benefit of compound interest, a nest egg started in your twenties is many times more valuable than one started in your thirties or later. Take a look at the Get Rich Slowly blog entry for ideas on how to achieve steady returns on your retirement savings, such as making regular contributions using dollar-cost averaging and taking advantage of employer-sponsored retirement programs.

About 52 per cent of those surveyed by the Canadian Payroll Association believe they need between $750,000 to $3 million to live comfortably in retirement. It's a subjective issue as living comfortably means different things to different people. For my friend's father, simply not having to wake up early every day would be enough.