Many people plan to retire at 65 but the goal retirement age may depend on several factors and become a rather personal matter. Your health, current savings, the ability to work, and even your family situation can influence your decision to retire sooner or later.
Here are the ways to optimize your savings to reach this long-term financial goal as well as guidelines on how to utilize a retirement calculator to define when you can stop working and how much funds you need for that.
How Much Do You Need to Retire?
There is no one-size-fits-all answer and every situation is unique. The amount of income a person needs for a comfortable retirement depends on overall net worth and other circumstances. A widespread solution is to save 70% of the annual pre-retirement income to retire comfortably.
You should keep in mind that your expenditures will gradually decrease once you stop working. Hence, you don’t need 100% of your previous income. You won’t have high housing costs or expenses for transportation as you won’t need to commute to work on a daily basis. Besides, you won’t have to save cash for your future retirement anymore.
According to the Government of Canada, the amount of a CPP retirement pension will depend on several factors including how much and for how long a person contributed to the CPP, the age they decide to retire, and the average earnings throughout their working life.
For 2022, the Canadian citizen may receive the maximum monthly amount of $1,253.59 at age 65. The average monthly sum for a new retirement pension was $727.61 in April 2022.
If you consider that your lifestyle won’t change a lot or you have some lending obligations to pay off, this amount should be increased. Getting online payday loans for the short term won’t affect the sum you need to retire while paying down a mortgage can need more savings.
To understand how much exactly you need to set aside, you should take 70% of your current income and multiply it by 25 as we assume you will live for about 25 years after retirement. If you qualify for the Canada Pension Plan (CPP), you should also subtract this sum during those 25 years.
How to Use a Retirement Savings Calculator
Some people want to calculate the exact amount that they should take into consideration before they retire. If you can’t cope with all the maths concerning investment savings or government assistance programs, you can use a retirement income calculator.
This is an online tool you can easily find on the web to find out your exact retirement savings goal. Many people want to realize how much exactly they need to set aside and whether they are on track to meet these long-term goals.
The results can be obtained within just a few minutes while you should fill in some basic information. What do you need to mention in this calculator and how does it work? You should enter your current age and the age you would like to retire.
Then the system will ask you to add your income details such as your current income before taxes and how much you may need during retirement.
The next step is to mention your savings and contributions such as your tax-free savings accounts or non-registered savings and investments. More than that, you need to fill in your additional retirement income sources including the defined benefit pension plan and other sources of retirement income. The online retirement income calculator will include an assumed amount for CPP or QPP and Old Age Security (OAS).
Questions to Ask Yourself Before You Retire
The above-mentioned rule about the average 70% of your pre-retirement income you need to save is a general rule. There are other factors and things you should take into account. Here are some of the questions to ask yourself before you define how much you should set aside:
- Will you downsize? You might think about choosing a small apartment or house when you retire. If you do so, the home maintenance expenses, as well as utility costs, will decrease so that you need less monthly funds to make the ends meet.
- Will you continue working? Not every person desires to retire and stop working at all. For many consumers retirement means you can work less but still have some additional form of income if your health is in good shape. You may want to keep on working part-time or have streams of passive income.
- Do you need to repay the debt? Are you still paying down your mortgage? Do you have any personal loans or credit card debt that should be taken care of? If you retire with some debt, you may need a larger monthly sum to survive and pay down everything.
- Where do you plan to live? Are you living in a city now? Will you still live there when you stop working and don’t need to travel or commute? Do you plan to move to a town or the countryside? The answer will also help you understand whether you need to save more or fewer funds.
- What expenses should you plan for? If your health isn’t strong you may want to purchase additional insurance for some services such as specific medication or dental services.
- What do you plan to do when you retire? Some people decide to travel a lot when they stop working. Others prefer to stay at home and lead a more passive lifestyle. Depending on your preferences, you may need extra funds set aside for travel costs or other goals.
We all want to have a comfortable retirement. However, the perfect age for that defines each person. A variety of factors determine whether you want to stop working at the age of 65 or keep on having a part-time job. Utilize a retirement savings calculator online to find out the amount you should set aside while you are still in the workforce so that you have a comfortable life once you retire and reach that goal in a timely fashion.