Canadian money conceptalexsl
Charting Retirement is a weekly snapshot of retirement-related data.
The most-often-cited retirement income target is 70 per cent of gross income in one’s final working years. That translates roughly into 10 per cent to pay income taxes and 60 per cent for everything else (what I call spendable income). This is not the right number for homeowners who pay off their mortgage before they retire.
This chart shows the spending breakdown by year for a two-earner middle-income couple with two children over the period 1990 to 2019. Note spendable income never exceeds 40 per cent of gross income. If the mortgage is paid off and the children become self-supporting by retirement age, a good retirement income target is 50 per cent of gross income (this includes an allowance for income tax plus a buffer).
In the chart, work-related expenses include Canada Pension Plan and EI contributions. Child-raising costs include daycare in the early years. It is assumed mortgage payments never exceed 25 per cent of income and the house is paid off by retirement at age 62. The mortgage payment assumption will seem unrealistically low, at least in major cities. If we assumed a higher percentage, the retirement income target drops even further.
Spending breakdown
Spendable income as a percentage of gross pay in working years
100%
Retirement
saving
90
Work-
related
80
Child-
raising
70
60
Mortgage
50
Income
tax
40
Spendable
income
30
20
10
0
33
35
37
39
41
43
45
47
49
51
53
55
57
59
61
Age of older spouse
the globe and mail, Source: the rule of 30,
frederick vettese
Spending breakdown
Spendable income as a percentage of gross pay in working years
100%
Retirement
saving
90
Work-
related
80
Child-
raising
70
60
Mortgage
50
Income
tax
40
Spendable
income
30
20
10
0
33
35
37
39
41
43
45
47
49
51
53
55
57
59
61
Age of older spouse
the globe and mail, Source: the rule of 30,
frederick vettese
Spending breakdown
Spendable income as a percentage of gross pay in working years
100%
Retirement saving
90
Work-related
80
Child-raising
70
60
Mortgage
50
Income tax
40
Spendable income
30
20
10
0
33
35
37
39
41
43
45
47
49
51
53
55
57
59
61
Age of older spouse
the globe and mail, Source: the rule of 30, frederick vettese
Frederick Vettese is former chief actuary of Morneau Shepell and author of Retirement Income for Life.
Frederick Vettese