It's the big question on the minds of many: how much do I need to save for retirement? It's your biggest savings goal - but just how big is it?
An online retirement savings calculator is an easy and quick way to get a ballpark figure of how much you'll need to fund your retirement. But like anything that's easy and quick, it's not going to give you the optimal outcome. It's like the instant coffee of the financial planning world: it does the job, but is missing depth.
Understanding what goes into the estimate can help you get a better outcome. Here are the important inputs to your retirement number:
External factors
- The rate of inflation
- The rate of return you can earn on your retirement savings, both before you retire and during your retirement
- Income you will received from CPP, OAS and other sources
- Tax rates
Personal factors
- How much you will spend every year in retirement
- How many years you will be in retirement (life expectancy minus your retirement age)
- What you plan on doing with your home
- Whether you want to leave an inheritance or gift money
Online calculators account for most of these factors, but not all of them. You have to overlay considerations like the equity in your home and your children’s inheritance onto the answer the calculator gives you. You also need to consider how you will share your expenses with a spouse or partner.
Since the future is uncertain, try out different scenarios. What happens if inflation is 2% versus 3%? What if you take more or less risk in your investments – how does a 5% return change the outcome versus an 8% return? What if you want a more lavish lifestyle, such as more dinners out, concerts, travel or yoga retreats? Try inputting different spending estimates to see what's realistic for you. (You'll need to put together a retirement budget to do this.)
You can get help from a financial planner if you want a more fulsome plan. I can also help. I've developed a retirement planning model that can account for a whole host of considerations, which makes it a very personalized estimate.
Get in touch if you'd like help with your retirement number.
Follow me on Instagram for all kinds of personal finance-related tidibts!
