Want to know exactly how much income you will need ….
From the Canadian Society of Actuaries: Men aged 65 have a 50-per-cent chance of living to age 83 and a 25-per-cent chance of living to 89. Women aged 65 have a 50-per-cent chance of living to 86 and a 25-per-cent chance of living to 92. Which side of the statistics are you planning for?
Source – OSFI Site
This suggests a couple who reaches age 65, have better than a 50% chance of one of them living to age 89. So retirement at age 60 means we need to plan for about a 30 year retirement – Just in case!
To answer the question , “How much do I need?” , we consider a few important things. First, that inflation at the long term average of 3% will double our costs in 25 years and increase by2 ½ in 30 years. So, the income our clients want to live on is increased to align with rising costs allowing our clients to continue having the same lifestyle throughout their lives.
Next we gather the guaranteed or other sources of income our clients will receive, be it private pensions, Canada Pension and Old Age Security and inheritances or a sale of a business or property.
We then consider all investable assets and decide on a long term Rate of Return our clients will receive on their investments. This is always based on the asset allocation our clients need or are comfortable with.
Lastly we assess the tax impact on all income based on its’ source.
As you might imagine, an accurate answer involves a complex calculation and needs a sophisticated tool to complete, of which we are experts. The most important thing is this – the question needs to be answered every year, because numbers and our lives can change and we are always looking forward for the benefit of our clients.
If a good answer to this question is what you need, give us a call. We’ll sit with you and come up with as good an answer as we can, given the information you provide to us, at no cost or obligation.