Cost of Retirement

It is important to take stock periodically of your financial situation to bring yourself up to date with where you stand financially. It might be helpful to sit down, perhaps quarterly, and fill out a sheet that lists all your assets and income sources, along with your expenses and debts. This can be used not only to discover your current financial situation, but to chart how you are doing from one period to the next. An accountant or financial planner can help put a form together for you to use, or you can make your own.  If you are using the services of an accountant or financial planner to keep track of your finances, make sure you stay informed. Do this regularly. You've worked hard for this money, now you want to make sure it works hard for you.
So, how much money will you need in order to retire? How much money will you need to pay for the services you may require to stay independent? The answer to these questions would be easy if you knew the day you were going to die.  Our date of death is unknown so we can only estimate our financial needs using what we know for sure (facts about your current situation) and projecting into the future (what your future needs will be given various time frames).You need to know what income you will have.  Things like pensions, CPP and OAS that are regular.  Also you will need to know what assets you have, and what income they are currently providing, if any.

To do projections you need to use conservative rates of return to allow for the economic cycles.  Will you spend only the growth on your money or are you willing to spend capital?  If you are only willing to spend the growth and not principal then your money would last indefinitely, however your income will not be the same from one year to the next.

The amount of money you will need will depend on the lifestyle you want to have.  Some people say travel is important to them. If so, are you one who stays in a hostel, or are you a 5-star all-inclusive resort traveler?  Obviously, this will make a difference as to how much money you will need.  Some people want to stay in their big house as long as they can, while others are willing to downsize to free up capital.  Some people want to buy a new car every three years, while others will drive the same car for twenty five years.  Some people want to spend all their money and others want to leave a legacy. As you can see, lifestyle choices make a big difference in how much capital will be required to provide the income you need for as long as you need it.

One of the largest unplanned expenditures for many seniors has to do with health care. Statistics indicate Canadian seniors can expect to be in care, at some level, for an average of 8 years.
Much of these expenses are not covered by our medical system and therefore need to be accounted for.  A good financial planner will be able to help you think through all these things to come up with a plan that will suit your lifestyle and budget.

Article by Cheri Crause, CPCA.  Reprinted with permission from Senior Living Magazine