I look forward to retirement, but at the same time I worry about it. While I've been quite disciplined in saving for my later years, I'm still concerned my money will run out before I do and that I might not have the freedom to treat myself to a vacation or night out at the theatre.
I probably worry more than I ought to since I have quite a few years ahead of me before I can retire. But as it turns out, my fear of outliving my savings is very common. According to a new report by Russell Investments , in the 10 years prior to retirement about 58% of Canadians are "very or somewhat' concerned about outliving their money. That figure drops to 38% once in retirement when some people realize they're actually doing OK because their expenses have decreased. Unfortunately, 18% of retirees are still worried they will run out of cash 10 years after retirement.
I don't want to end up in that struggling 18%, so I found the following figures helpful in working out whether I am on track.
The Russell Investments report shows that the average Canadian retiree aged between 65 and 74 has an annual retirement income of $35,200 a year. Of that, government transfers such as
Canada Pension Plan and Old Age Security cover about
$18,300, or almost 52%. That means the average retiree in that age group spends about $16,900 of their own money in retirement each year.
The report shows that retirees who have a larger annual income of about
$82,800 receive
$19,900 in government transfers, accounting for 24% of their annual income.
For someone with an average retirement income of $35,200, about $27,100 goes toward paying for "essential" items, such as shelter (37%), transport (21%) and food (18%). This graph gives you a bit of an idea of how much of a retirees' essential expenses are covered by government transfer payments.
Russell says the average retiree aged between 65 and 74 spends about $7,300 on lifestyle expenses. Dining out and vacationing were the two largest lifestyle expenses for most retirees, but tobacco, alcohol and gambling were also popular.
A good thing to remember when planning for retirement is that your expenses generally decrease as you get older. By retirement age, many people have paid off the mortgage and their children have grown up and moved out. Russell says many people forget that having to save for retirement is another expense retirees no longer have.
Household costs for retirees aged 60-64 totaled
$38,100, with
$25,000 going to essentials,
$7,600 for lifestyle expenses, and
$5,500 earmarked for income tax. The retirement costs fell to
$30,300 for the 75-79 age group.
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10 Deadly Sins of Retirement
Retirement Wreckers to Avoid
Warning: Make the wrong decisions in today's treacherous economy, and it could kill the retirement of your dreams. It doesn't matter if you're 30 or 70, your nest egg is at risk, and the money moves you make now are critical. Do you want to live on baked beans and boxed macaroni and cheese in your twilight years? We didn't think so! So click through our gallery as the
Dolans warn you about 10 deadly sins of retirement planning.
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10 Deadly Sins of Retirement
Retirement Wreckers to Avoid
Warning: Make the wrong decisions in today's treacherous economy, and it could kill the retirement of your dreams. It doesn't matter if you're 30 or 70, your nest egg is at risk, and the money moves you make now are critical. Do you want to live on baked beans and boxed macaroni and cheese in your twilight years? We didn't think so! So click through our gallery as the Dolans warn you about 10 deadly sins of retirement planning.
10 Deadly Sins of Retirement
Sin No. 1: Not Getting Started Right Now
This may sound simple, but this is hands-down, the No. 1 deadly sin of retirement planning. If you haven't started socking money away for retirement, do it now. Not next month or next week or even tomorrow. NOW. Just $100 a month will go a long way. In fact, thanks to the power of compounding, $100 a month at 8% annual interest will turn into $50,000 in just twenty years. $200 could, eventually, turn into almost $100,000! To see how fast your money could multiply, plug your numbers into our easy-to-use calculator.
10 Deadly Sins of Retirement
Sin No. 2: Passing Up Free Money
If your company still offers a RRSP "matching" program to which it will contribute a certain percentage of whatever amount you contribute, we hope that you are taking full advantage of that match. Otherwise, shame on you! This is free money! We've heard from some people who aren't contributing to their RRSP because they are scared of losing money in the market. We say "hogwash!" Every dollar your employee contributes is pure profit! And no one said you have to invest your RRSP in individual stocks or mutual funds. Review your plan choices to find an investment option that fits your comfort level.
10 Deadly Sins of Retirement
Sin No. 3: Putting All Your Eggs in One Basket
Putting too much of your retirement nest egg in one basket is actually a common "sin." You might love your employer's stock, your favorite mutual fund or even a "safe" bank GIC. But if something should happen to your company, your fund or your bank, you could be in deep trouble. We've heard heartbreaking stories from people who lost everything because they had all their money in their company stock when it plummeted. Diversity can help your nest egg grow consistently and safely.
10 Deadly Sins of Retirement
Sin No. 4: Underestimating How Much You Will Need
Now let's talk about everyone's worst fear -- outliving your money. Many people completely underestimate how long they'll live and how much they'll need. Your everyday expenses such as groceries, gas and even household utilities, likely won't drop much, if at all, once you retire, unless you downsize into a smaller and less expensive home. And other costs will go up. So don't fall into this trap! Assume that you'll need 100% of your current income in retirement to maintain your pre-retirement lifestyle. Many people use 70%–80% as a rule of thumb, but unless you plan to dramatically scale down your lifestyle in retirement, you really need to aim much higher (especially considering inflation).
10 Deadly Sins of Retirement
Sin No. 5: Raiding Your Retirement Funds Early
Come on, do you want to have a carefree retirement, or not? Raiding your nest egg early is not going to enable that to happen. We don't care if you need a new roof or that your child can't get a scholarship. Consider taking out a fixed rate home equity loan for the roof and have your child get a student loan for college. We know it sounds harsh, but the point is, do whatever you have to do to NOT touch that retirement account!
10 Deadly Sins of Retirement
Sin No. 6: Putting Retirement Savings Last on the Priority List
How many people have you talked to in the last month who are putting off retirement because they have not saved enough money? Our answer is, "Too many." We all have lots of personal financial obligations competing for our hard-earned dollars: paying off debt, buying a home or car, putting the kids through college. Don't let today's distractions derail your future personal financial well-being. Make saving for your future a top priority.
10 Deadly Sins of Retirement
Sin No. 7: Retiring Too Early
If you've saved "enough" by age 62, should you retire? Not necessarily -- especially if you're healthy and can work a few more years to help make up for any investment losses you may have experienced lately. Depending on what year you were born, you can collect full payments anywhere between age 65 and 67. See Service Canada's page on the Canada Pension Plan to calculate your optimum time to retire.
10 Deadly Sins of Retirement
Sin No. 8: Mis-Managing Your Tax Advantaged Retirement Account
If you mis-manage your RRSP, your wallet (and future) will pay the price ... and dearly! Find out exactly what rules govern RRSPs, and then make sure you don't break them. And remember that you must start making yearly withdrawals from a RRIF when you reach 71.
Break any of these rules, and you'll be in for a boatload of extra taxes and/or penalty fees.
10 Deadly Sins of Retirement
Sin No. 9: Not Having a Plan ... and Sticking to It!
The old saying is true -- if you fail to plan, you plan to fail. Without a plan, you can't answer critical retirement planning questions such as: How much can you live on once you pick up your last pay cheque? How much can you afford to sock away for retirement? More importantly, how much do you need to save? Surveys report that 59% of people who take the time to calculate how much they need to save, end up increasing the amount of money they are putting away! Here's a nice summary of the retirement landscape in Canada, circa 2010.
10 Deadly Sins of Retirement
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Reader Comments (Page 1 of 1)
7-20-2010 @ 3:59PM
Dee said...
where do Canadians go and how can we as Canadians fine out credit reports etc.etc.
Reply
2-26-2011 @ 6:46AM
henry said...
go to a bank and ask them to do one for you
8-22-2010 @ 2:23PM
Ben said...
If you are retiring now this might be true, in 30 years when I reitre I highly doubt CPP, old age, or any other government program will be running to help me.
Plan to not have them for your retirement and the retirement stress will be a lot less. Whats then the worse that could happen, the programs give you money so now you have more to spend. I am sure you wouldn't mind the extra time to see your grand kids, or that extra cruise.
You don't plan to fail, you fail to plan.
Reply
8-22-2010 @ 5:31PM
jayq said...
The Federal Government of Canada started a fund specifically designed to ensure there is money separate from annual tax revenues to fund CPP obligations. The assets of this fund totalled 130 billion dollar at the end of Q1 2010. As such, the CPP will be fully funded to pay for the aging boomer generation and those of us who come afterwards may be more assured of receiving benefits. The wild card is the mortality rates but the actuarial industry advising the Government has noted the CPP is on much more stable ground than ever. Of course, there are no absolute guarantees but the Feds and Provinces worked out a plan 15 years ago, and the CPP is on track to fulfill its commitments to all Canadians.
12-20-2010 @ 3:03AM
jule williams said...
These same credit report companies are in Canada too. You may have to write to them for a FREE report, but their web site should tell you how to go about it. I have used both Equifax and
TransUnion with good results.
Reply
12-20-2010 @ 7:25PM
Alex said...
good article...now, could someone tell me where I get 8% interest in Canada, or in the World.??
Reply
2-25-2011 @ 6:26PM
Jim said...
Must be an election coming. There is so much conservative B.S. flowing on these internet sites.
Want some advice, don't believe anything you read on a computer.
If you are a Canadian, you may be able to retire when you are 95 years old, if you don't drop dead before that.
As for a nest egg, the canadian people are so suppressed and over taxed, no one has a nest egg.
If they do, they are most likely crooks, like the government, working illegally under the table for that nest egg.
Of course the government really has your best interests at heart. I mean after all it only took them 30 years to convince us to invest in RRSP's, and once we all came on board they changed the laws, so they could get all our money.
But cheer up as canadians we will never do anything about it, so you won't have to worry about a revolution.
My dream is to have the entire country go on strike and watch the government collapse. That would be awesome.
Like the ostrich believes, so to does Canada, keep your head buried in the sand and it's not really happening.
Have a nice day!! Heh, Heh!!
Reply
2-25-2011 @ 6:29PM
Jerry said...
Very simple.Leave Canada and come back as refuges.
Reply
5-16-2011 @ 7:29AM
Albert said...
Stay in Canada since you have better retirement than we do or will have here in the States. Because of that Obama guy, Our young people will suffer dearly. I just talked to my doctor the other day and he said if Obama happens to be elected in 2012 because of voter fraud, he is going to retire because the Obama type people will ruin the health care industry.
Reply