My Money Coach says my Retirement Number is $1,000,000!

A financial advisor or money coach can crunch the numbers and offer investment alternatives, but it’s really up to you to make the big decisions on your retirement lifestyle and how much you can realistically afford to sock away. There is no shortage of factors to consider when trying to figure out how you are going to fund your retirement dreams. It’s natural to have uneasiness over the state of your preparedness due to the sheer number of variables involved:   

• Will my health or my spouse’s health fail? 
• How long will I live? 
• What will be the future value of my assets and investments? 
• How high will inflation and interest rates go? 

  Variables and uncertainties are inevitable, and your plan will have to compensate for some of the uncertainty; but relying on myths or outdated standards is easily avoidable. It’s important to separate what is still current and helpful advice from some old retirement “standbys” that are no longer relevant.   1. There is some magic amount that everyone should be aiming for. We often hear $1,000,000 or $500,000 because they are nice round numbers. The truth is these numbers are not grounded in facts, especially not your facts. Income streams, lifestyle choices and a lot more things come into play – not just the size of your cash pile heading into retirement. A 2018 CIBC report found the average retirement savings was just $184,000!    2. CPP, OAS and my company pension will get me through. The average draw on CPP is just over $700/month, well below the maximum of $1200/month. OAS provides another $600 month, and you may qualify for the GIS if your income is low. Our advice here is to investigate these programs and/figure out how much you might get/ before you make any assumptions. Your company may describe their pension as “great” in their employee wellness plan or employee retention efforts, but the reality could be quite different. There are lot of caveats and variables that affect company pensions, so make sure to dig into the details and ensure that your expectations are in line with the reality.   3. I can catch up when I’m older and have more disposable income. The problem with starting late is you miss out on the magic of compound returns. Maxing out your TFSA from age 25 to 65 with an index fund at 5% (TSX 15-year average) would yield $725,000. Catching up is always a good idea and if you have some carryover from unused TFSA or RRSP limits when you were younger, by all means play catch-up as soon as you are able.    4. Stocks are too risky for retirees. People used to work until 65 and died younger, so the duration of retirement was shorter. They also got a lot higher rates on secure savings. Today we are retiring earlier, living longer, we have minimal interest rates, and recently we are also battling inflation.    The fact of the matter is that you will likely need the higher returns that go with more risk and hold some stocks in your retirement portfolio. There are strategies to limit the risk and you should be evaluating and adjusting your asset allocation during retirement, not just in the run-up to retirement.    5. My side hustle, spouse and/or inheritance is all I need. All good options but they can all be easily derailed. If your spouse dies, your survivor’s pension could be considerably lower depending on your plan. Side hustles are great, but your health may fail or maybe you can’t find something – only 10 to 20% of retirees report doing some sort of work. There is a huge wealth transfer going on now and lots of inheritance. Just keep in mind your parents may live to be a 100, they may make some bad investments, or they may even get remarried. They problem with side hustles or inheritances is that they are not the sole solution; make sure to have income from a variety of sources: pensions, savings, part-time work, investments, etc.    Anxiety is normal when it comes to retirement planning and the cure is having the knowledge and facts you need to make your own judgement on how much is enough.