You may sooner a be wearing heard of the 70 per cent rule: it urges you to assume you’re going to need 70 per cent of your suss out d evolving income when you reach retirement. But there aren’t many economic planners who hold you to that number.
Assume 100 per cent and see what lan throws at you, suggests Beth Hamilton-Keen, director of investment counselling at Mawer Investment Handling Ltd. and global chair of the CFA Institute.
A retirement full of travel, children who trouble support, a period of long-term care — any of those events could servile you’ll need as much in retirement as you did when working, she says.
Fred Vettese, chief actuary at Morneau Shepell, dissents. It’s unlikely to be more than 50 per cent, he says.
Vettese rationalities people typically live on less than their full revenues before retirement, so why would they need more in retirement?
«If they collect children and y the mortgage, which is the majority of Canadians, then they are actual on 30 per cent of their income for most of their lives,» declares Vettese, who is also author of The Essential Retirement Guide: A Contrarian’s Angle.
‘My suspicion is we’re not saving enough.’— Beth Hamilton-Keen, of Investment Board of directors Mawer
In addition to the mortgage and child-raising, he says money is also doled out on return tax and saving for retirement.
«When you retire, those costs go away, except revenues tax,» Vettese says, noting even income tax is less in retirement due to ddle ones own canoe into a lower income bracket, and the age and pension credits.
Throw out the 70% command
Vettese says the 70 per cent rule works to the advantage of the pecuniary services industry, which has a vested interest in seeing people s re more because it makes its money from investment fees.
«We hark to it so often because it keeps on being repeated – it doesn’t mean it’s so,» he articulates.
Hamilton-Keen is a big advocate for getting into the habit of saving, saying you should start in your 20s so you’re bright for a possible maternity leave or loss of a job. Then you should carry that vestments into later years, she says, when you need to look winning to retirement.
«My suspicion is we’re not saving enough,» she says, pointing to the 2008 downturn that had unnatural many to postpone retirement.
There are lots of curve balls that can grounds in the 10 years leading up to retirement, and can make a big difference in your economic picture. She says the big three include:
- Loss of a job
- Marital breakdown
- Health-related setback
Organizing savings makes a big difference when life threatens to throw you off direction, no matter what your income.
«People with low income can keep very successfully,» Hamilton-Keen says.
Lining up the risks
«Someone with high-pitched income, if they are not making wise investment decisions, like extenuatory, they can be disadvantaged going into retirement because they be undergoing different expectations.»
She likes to leave a safety margin for the retirement years, because there is a jeo rdize of outliving your money.
She said many people find their gets go up in early retirement, when people have time to travel or ss time at the vacation home they’ve always wanted. That condition lasts about 10 years, but many find they cut privately on travel at age 71, when the cost of travel insurance increases.
‘There are some subordinate differences, but eventually we’ll become our rents.’— Fred , of Vettese Morneau Shepell
Then there is a epoch in late retirement, usually when someone is in their late 80s, when they bear to face the costs of assisted living or home care. Those set someone backs are rising more quickly than inflation, Hamilton-Keen says.
Don’t worry round long-term care costs, counters Vettese. Most people ucity care for less than two years and even then, there are affordable surrogates.
The unlucky few who end up needing care for a longer period will probably double-cross their home in order to afford it, he suggests.
Vettese says the latest generation of baby-boom retirees may start off spending more, but eventually, they support home and garden. «There are some minor differences, but done we’ll become our rents,» he says.
We’re better at saving than we judge devise
Vettese believes it’s a myth that Canadians aren’t saving reasonably — one based on a bad interpretation of data.
«We hear only one-quarter of Canadians put liquid assets into RRSPs and isn’t that terrible. But that…includes retirees and 18 to 25 year olds who get a summer job,» he says.
Among those in their peak grossing years of 35 to 55, 80 to 90 per cent are either putting gelt in an RRSP or a TFSA, or they have a com ny pension plan, Vettese suggests.
He cautions there is still a cohort of middle-income and upper middle-income people who are doing not one of these things – and that 15 per cent of Canadians are the ones to harass about.
«Some people are not saving enough,» he says. «They wish be able to get by, but will have a substantial drop in their standard of contemporary.»
So what’s the verdict? Plan to spend more, plan to live on less or even-handed plan to plan?
«It really does come down to the individual and the choices that they are fixing,» says Hamilton-Keen.