Marcus says: “I’m 54 years old and I have a total of $1.8 million dollars in both registered and non-registered accounts. My house is mortgage free and worth about $650,000 and I own a rental property worth about $400,000. Can I afford to retire?”
Many people spend their whole lives diligently saving and working towards retirement and then find it agonizing to start spending the money.
The challenge is to shift from savings and asset gathering mode to spending mode. Often the greatest savers have the most trouble doing that. As a result, they needlessly deny themselves a pleasurable retirement.
What were you saving for?
In our younger years many of us had some vague reasons for saving for retirement – it was the sensible thing to do and you got a tax break. Later on the reasons became more concrete.
Are your retirement funds meant to:
- Supplement other pension income?
- Provide the necessary cash for big expenditures – new car, home renovations, travel?
- Provide a legacy for your heirs, or favourite charity?
Plan for the unexpected
What causes you extreme anxiety when you think about retiring?
- Running out of money?
- A large, prolonged market downturn?
- Loss of a spouse?
- Rising health care or assisted living costs?
- You or your spouse becoming infirm?
None of us can predict what our future holds, but once you have articulated your fears you can prepare for the unexpected and alleviate your worries as much as possible.
What does your retirement look like?
Each person will make choices about how to spend their days after retirement. Some will be happy with a small apartment and a stack of jigsaw puzzles. Others plan more lavish lifestyles doing all the things on their bucket lists while they can.
A common rule of thumb is that retirees need to replace 70% of their pre-retirement income to finance “regular” consumption. Other sources estimate as low as 50% and even as high as 90 – 110%.
There is no magic number. The amount you need is determined by what your expectations are. Realistically estimate what your spending needs will be, both fixed expenses and lifestyle expenses.
In a 2010 Statistics Canada survey, 80% of retirees said their current financial standard of living is equal to or better than what they assumed it would be.
Most people see their standard of living increase throughout their working lives and want to at least maintain that in retirement but most of all, people want to be able to afford a retirement that’s comfortable for them.
It’s not rational to hoard assets because you can’t bear to see your net worth decline.
Related: 8 retirement mistakes to avoid
Consider whether you’d get more happiness from a bigger bottom line on your brokerage statement or, say, spending quality time with family or a once in a lifetime world cruise.