MoneySense is Making Sense

I was very happy to get my latest issue of MoneySense magazine (Feb/March 2008) yesterday because of one article in the back which showed what retires were really replacing from their working income while in retirement in Canada. It was found the number was around 45 to 55% (they published a wonderful table of %’s which are broken down by pre-retirement income).

So perhaps we can finally kill this stupid idea you need somewhere around 70% of your pre-retirement income to leave work. Yet if you keep reading the article it gets better.  Did you know the saving rate of most retirees are just behind that of those working people in their 50’s at the peak of their savings?  So why are retirees are saving? Basically most people are over saving for retirement.  They can’t spend it all so they save it.

Therefore the article suggested people retire with two different chucks of money.  The first to cover from their retirement date till their 70’s where you will have your most active lifestyle and do those once in a lifetime trips and then lower amount to cover their more relaxing years closer to home.

Overall not a bad idea.  Yet I would like to suggest we push a good idea further.  Why don’t we suggest more people retire earlier?  After all if most people can’t spend it all perhaps we just need more time to start spending our retirement money.  Of course I’m bias and I’m planning on a number closer to 40% myself.
So what’s your % number?

9 thoughts on “MoneySense is Making Sense”

  1. I’m shooting for around 70% or so like the ‘professionals’ say. Here is my line of thinking, and probably why the professionals do to.

    In general, no matter what you tell people, they are just going to do their own thing. Problems are going to happen through their life and they will probably not get to the goal you set for retirement since most of them think ‘That’s YEARS away, why can’t I have a 50 inch TV now and enjoy life while I can”. So if you plan ahead thinking that they will probably hit around 60% – 70% of the goal you set, then set the goal higher than you actually need.

    Now when they retire ‘under par’ at about 40% – 50% of their income (60% – 70% of the 70%) and now they retire comfortably and thank you for your hard work for their retirement planning.

    If by some strange miracle of averages and stats they really do replace 70% of their income, then they are also thanking you from Fiji for your hard work and retirement planning.

    In both cases, now as a professional, you win and get referrals.

  2. Did the article include the cost of housing in the 45-55 % range? We own our home so it provides us with an equivalent retirement income component. If we did not own the home we would be paying rent and need more income.

    When “professionals” (of all kinds) give advice they tend to make the advice “idiot proof”. The 70 % works for anybody.

  3. For us we have to aim high, because we’ve no idea where we’ll live or how set up we’ll be there (I’m Irish, he’s Bengali, we live in Canada but have significant history in the US). The nature of our globe-trotting extended family means we also have family obligations that require a lot of travel, which won’t change when we’re 50 or 60 no matter where we are by then. My “aim” includes both RRSP and a fair amount of non-registered though, as I am a relatively new canadian with savings/investments built up prior to coming here.

    So did you think the woman with all the property should sell it all off? That whole divorce/pay-off thing sounded pretty shady to me.

  4. Guiness – I think she is too optimistic about paying the ex off with $100k – as soon as he talks to a lawyer he’s going to realize that he’s being ripped off.


  5. I would have to agree with Traciatim in that financial planners (FP) make their living from individuals who invest. So if you are one of the focused investors, you will hit the 70% mark and be happy (the FP looks good). If you are somewhat focused, you may hit the 50% mark and are comfortable with that (the FP looks good again).

    If my wife and I stay with our current employers, we will both have indexed government pensions (both at about 60%), which should provide more than enough income when we are ready to retire. The contributions unfortunately, don’t allow our FP control, and as a result, he doesn’t get quite as much bought through him as he may like to see.

    I will say though, the FP did get us on the right track with a budget, goals, and really making us look at what we spend. I won’t go into how many of our friends have no budget, no savings, and no investments, therefore, no idea what retirement holds!

  6. Trac,

    So you are planning to fail at your 70% goal? That seems to be a very strange way to go about it, but if it works for you go for it.


    It was explained fully, but my impression was the number didn’t include housing. Ie: They are assuming you own your home.


    Too true. If you planning a more expensive standard of living then yes go for the 70%. I also have to agree with Mike. Even with selling the other condo for $300K and another $100K in cash it looks like she is trying to screw over the ex. Not to mention the fact it looks like she got lucky with the boom since her rents don’t cover her mortgage payments on the rental property.


    60% pensions! Nice! I agree that FP can be useful to people who need help getting it together. As to your friends, it reminds me of a quote “If you fail to plan, you plan to fail.” I always like that one.


  7. My favourite magazine too. 🙂

    We’re aiming for 45% as well and I still believe that to be playing safe.

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