Want to retire at 65? Here’s how much you need to save

With the Feb. 29 deadline for RRSP contributions fast approaching, retirement is on the minds of many Canadians who are thinking about their financial futures.

But how much does someone actually need to retire? Some may have heard of the 70 per cent rule: assume you need 70 per cent of your working income when you reach retirement.

But financial experts say the first thing to remember when it comes to retirement planning is throw all the “rules” out the door.

“They key thing is that rules of thumb unfortunately don’t work,” said David Trahair, a certified professional accountant in Toronto. “They don’t work because each of our personal financial situations is as individual as our fingerprints.”

He said while 70 per cent might be right for one person, it might be completely wrong for another.

Retirement tip: Focus on your spending

Trahair is author of the upcoming book The Procrastinator’s Guide to Retirement: How you can retire in 10 years or less. His advice is to focus on your spending.

“The much more accurate way of determining how much you’re going to need to save for retirement is to focus on your expenses,” he said. “Focus on your current spending and then and only then can you make a projection as to approximately how much you are going to be spending each year in retirement.”

Several banks also offer “retirement calculators” to help estimate how much you will need in retirement.

For example, a person who is 30 years old with a yearly salary of $50,000, wants to retire at 65, will need $984,889 saved assuming they plan to retire for 25 years, while spending $45,000 a year.

The two main building blocks for retirement are $13,000 a year from the Canada Pension Plan (CPP) and $7,000 from the Old Age Security (OAS) benefit.

Retirement tip: Don’t forget the ‘wildcard’

Retirement can involve travelling, children who need support, or a period of long-term care, which could mean spending more in retirement than when working, says Trahair. He adds that the “wildcard” of life expectancy can also affect how much you need to save.

Beth Hamilton-Keen, director of investment counselling at Mawer Investment Management Ltd. and global chair of the CFA Institute, said it’s important for each person to consider what they want their retirement to look like.

“The flaw that I see in that 70 per cent rule is it’s just a starting point for somebody who hasn’t thought about retirement,” said Hamilton-Keen. “There is a human behavioural aspect where you basically live what you can also afford.”

She also advocates getting into the habit of saving, so whether it is a new baby, a divorce, the loss of a job or a health issue you are prepared. She adds that people need to be realistic about their “altruistic measures.”

“Often once you get to [retirement] you have charitable interests that crop up that you really want to contribute to,” she said.

Many of her clients often need to set aside money for what she calls “independent dependents,” the children or grandkids who may need a loan for a down payment on a house or money for tuition.

RBC survey: What will you do with 2,000 hours a year when you retire?

When Canadians retire, they will have an average of 2,000 additional hours per year to fill – the time they now spend working. A new RBC survey of 1,500 working Canadians 50 and older found nearly three-quarters (73 per cent) are unsure what they’ll do with that extra time.

While the survey found nearly two-thirds (64 per cent) have done some planning for how they will finance retirement, less than half have done some planning for retirement lifestyle decisions, such as where they will live, where they will travel (44 per cent each) and what activities they will do (46 per cent).

Bill Hill, national financial planning consultant and retirement designer at RBC, encourages Canadians to plan for their retirement by first thinking about the kind of life they want to live in retirement, before discussing their finances.

“Too often, the word ‘retirement’ is tied to the money, rather than to the life you hope to lead when you retire,” Hill explained. “You should start by asking yourself, ‘What do I want to do when I retire?’ If you’re part of a couple, have you discussed each other’s hopes for retirement – or are you assuming your partner fully agrees with what you personally want to do? If you’re an individual, have you thought about what will be truly important to you when you retire?”

The RBC survey found more than half (61 per cent) of Canadians polled plan to stay in their current home when they retire, with more than a quarter (28 per cent) planning to renovate. A third (33 per cent) plan to downsize to smaller home.

International home designer Hilary Farr has seen first-hand how important it is for couples to have these discussions in advance – whether it’s about renovations or retirement.

“You need to have a strong foundation and a shared vision to ensure the end result satisfies everyone, whether you’re thinking about retirement or your home,” said Farr. “For your home in retirement, you should take other priorities into account as well.  For example, how important is it to you to have family and friends nearby? How easily will you be able to access healthcare or get to entertainment and other activities?”

Canadians wanting to get their own retirement design underway can find helpful, interactive resources at www.retirementdesigners.ca

About RBC’s poll
From December 30, 2015 to January 4, 2016 an online survey was conducted on behalf of RBC by Vision Critical among 1,508 randomly selected working Canadian adults ages 50 to 75 with investable household assets of $100,000 to $999,999. The margin of error is +/- 2.5%, 19 times out of 20; discrepancies in or between totals are due to rounding.

About RBC’s retirement designing advice and resources
To help Canadians explore what they really want to do in retirement and how they will finance those years, RBC developed the unique Your Future by Design approach that helps couples and individuals get the conversation started about the goals and priorities that are important to them. Visit www.retirementdesigners.ca or any RBC Royal Bank branch to find out more. In addition, Canadians who want to get more from their day-to-day banking, protect what’s important, save and invest, borrow with confidence or take care of their businesses can find answers at the RBC Advice Centre.


How to (actually) Stick to Your 2016 Money Resolutions

How to (actually) Stick to Your 2016 Money Resolutions

By: Barry Choi

I love the New Year; it’s a fresh start for all of us and the perfect time to set up our goals for the year. Many people are looking to make a positive change in their lives and have set up New Year’s resolutions. For most people, unfortunately, they’ll break them by the time Valentine’s Day rolls around.

As you can imagine, financial resolutions are very popular. Everyone wants to spend less, save more, and pay down debt, but that’s easier said than done. When our credit card bills arrive in January, many of us are left scrambling to pay off our holiday spending, while trying to meet our new saving goals – a recipe for disaster. Here are some tips to help make sure we stay on track.

Set Specific Goals

The biggest problem with any New Year’s resolution is that they usually aren’t specific enough. Let’s take a look at what spending resolution Canadians made in a recent survey from CPA Canada.

  • Pay down debt – 61%
  • Follow a budget for spending – 61%
  • Save more retirement – 52%
  • Save for the 2016 holiday season – 29%
  • Save for their children’s education – 25%

For these types of surveys they have to generalize, but as individuals we need to establish specific and realistic goals. How much debt do we want to pay down? I’m sure we’d like to pay off all our debt this year, but is that realistic? Paying down an extra $100 a month might be a much more attainable goal.

Come Up With a Budget

If we were spending $500 just a month ago on food, it’s unlikely that we’ll be cutting that in half just because we’ve made it a New Year’s resolution. We need to come up with a plan to address our goals and that starts with a budget.

Following a budget only works if we have a realistic one in place; we should take the time at the start of the year to track our spending. By tracking our spending for a month or two, we can see where our money is being spent and make adjustments that’ll reduce our spending while increasing savings.

Make Things Automatic

With that budget in place, we can really start making our money work for us. The odds are we’ve “found” some extra money by deciding to cut out certain spending. That extra money can now be applied to our other resolutions right away.

Saving for our retirement or our children’s education can be easy if we setup automatic payments. What that means is that we can set up our RRSP and RESP accounts to automatically withdraw a set amount of money from our accounts whenever we want. I suggest timing it to right after we get paid so we’re essentially paying ourselves first.

Resist Temptation

Temptation will always be the hardest thing to resist when trying to stick to our financial goals. Admittedly spending money is fun, who doesn’t want shop, drink, and eat out; plus sometimes it feels like a social obligation.

If we have one vice that always gets us spending, then we should try to avoid it so there’s less temptation. That being said, there’s nothing wrong with spending, we just need to make sure it fits into our budgets.

There’s no doubt that sticking to New Year’s resolutions is incredibly difficult. If we set realistic goals, set up a plan, and avoid temptation then surely we can achieve our goals. In the end it’s the small positive changes that will have get us to the places where we want to be.

About the author: Barry Choi is a personal finance and budget travel expert at Moneywehave.com.  He has been quoted by media in Canada and the United States including: The Financial Post, The Toronto Star, Business Insider, The Globe and Mail, and has appeared on HuffPost Live.

New Year’s resolutions: how to make the most of your money in 2016

New Year’s resolutions: how to make the most of your money in 2016

Graig Wong | The Canadian Press

OTTAWA – If you don’t have a budget, then financial planners want you to add another thing to your list of new year’s resolutions.

Credit counsellor Pamela George says budgeting is important no matter what your income.

“I think it is even more important for a bigger salary to have a budget because you need to account for it and you need to understand that $200,000 can finish as fast as $12,000,” said George, who works for the Credit Counselling Society in Ottawa.

Start with your paycheque. You need to know how much you are bringing in each month. Then list your mandatory expenses that you can’t really change, such as rent or mortgage payments, utilities, car payments, insurance and debts.

George also includes savings and putting money aside for an emergency fund if you don’t already have one in the mandatory category.

“I take savings and put it under mandatory because it is mandatory that you save,” she said.

Then comes your discretionary spending for whatever you might have left over. Things that you have some flexibility with when it comes to your plan. Entertainment, dining out, a gym membership.

“These are all things you have a little more control over,” George said. “You can choose not to buy clothes one month. You can choose not to go to the movies.”

Jane Rooney, financial literacy leader at the Financial Consumer Agency of Canada, says tracking spending for a couple of weeks to find out how you’re actually spending money is important when building a budget.

“The more formal strategy allows people to see clearly where the income is coming in and where the expenses are going,” she said.

“Often people underplay where they’re spending the money.”

The FCAC offers several tools online to help plan a budget, including a comprehensive calculator, and helps detail how you spend your money.

Household debt has flirted with record levels in relation to income, fuelled by low interest rates and a boom in the housing market.

The importance of having a budget is especially important for those who have debt, especially bad debt like credit cards.

“Knowing to pay as much as you can on a credit card bill as often as you can if you cannot pay the balance in full is a really important tip,” Rooney said.

Having a budget doesn’t mean never buying a latte and a pastry on your way to work or always brown bagging your lunch.

But it does mean understanding what those things cost and whether or not you can afford them.

“There is a sense of freedom and a peace that I have because I work with a budget,” George said.

“The consequences of not having a budget is debt.”

November 15-21, 2015 is Financial Planning Week Across Canada

Now in its seventh year, Financial Planning Week is part of an ongoing effort to promote financial well-being for all Canadians.

Created by Financial Planning Standards Council (FPSC) and the Institut québécois de planification financière (IQPF), Financial Planning Week is dedicated to raising awareness of the importance and benefits of financial planning with a  qualified professional, encouraging Canadians to take control of their future and achieve their goals through sound financial planning, and ensuring Canadians have financial hiring literacy so that they are armed with the information they need to find the right financial planning professional.

In addition to consumer education and outreach, FPSC offers opportunities for Certified Financial Planner® professionals and members of the financial services industry to come together in a learning environment. This year, we are pleased to welcome Ontario Finance Minister Charles Sousa, who will be providing a keynote address, offering his insights into the future of the profession, at FPSC’s Celebration of the Profession Dinner on November 17 in Toronto. 

Vision 2020: The Heart of Financial Planning Week
Financial Planning Week was launched in 2009 with the vision that, by the year 2020, Canada will be shaped by a nation of people, organizations and a regulatory environment that:

  • Values financial planning
  • Shares and assumes responsibility to ensure the financial planning needs of Canadians are well served
  • Has a viable financial planning profession that ensures that those who need professional advice have broad access to competent, ethical financial planners

Source: FPSC 

FPSC Accredited Continuing Education Courses for Certified Financial Planner Professionals and FPSC Level 1Certificants – ILScorp


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Old age: It’s going to happen to you. And most Canadians aren’t financially ready

By: Diane Baker Mason For Metro

You think it won’t happen to you. You won’t end up warehoused in some underfunded institution. You’ll live at home, maybe hire a helper. If you must, you’ll move to a nice facility with superlative care. As for the cost, the government covers that, right?

Wrong. Most Canadians are under the illusion their long-term care is covered by government plans. But anyone who needs long-term care soon finds themselves in a financial and bureaucratic quagmire — a patchwork of services and facilities, with limited (if any) government support. There are waiting lists, inconsistent qualification procedures and significant expense for both institutional and in-home care. It is easy to fall through the gaps.

Rarely are private savings and insurance adequate to pay for our care. Usually the cost far exceeds the average person’s savings. As for insurance, fewer than one per cent of Canadians purchase coverage for long-term care, possibly thinking it’s not something they have to pay for.

But we do pay, mostly from our own private funds. If that’s inadequate, we are often thrown into a semi-subsidized system with many gaps in it.

While it should be a national priority that quality long-term care be available to every Canadian, Canada’s plans for establishing and funding universal long-term care are virtually nonexistent. The federal parties speak mostly about the Canada Pension Plan and Old Age Security. Only the NDP promises a revised health accord that might address some long-term care issues.

But even a revised accord would not solve the funding problem. The answer lies in a public insurance plan. Such a plan would cover assistance with daily living as well as out-of-hospital professional services beyond those covered by the Canada Health Act.

Studies by public-policy groups have explored options for such plans. But we continue to turn a blind eye to the problem of funding our increasing need for long-term care.
This isn’t something remote from us — something that a separate group of “old people” are facing. We are the “old people.” If it’s not our personal problem right now, it will be soon enough. So let’s all start looking at this now. To paraphrase that wise old man, Mick Jagger, time is not on our side.



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