Will I have enough money to retire? The top 10 questions to ask yourself

If you’re approaching retirement age, the question of how much money you need to retire may have entered your mind. You may have heard random figures, like a million or 3 million dollars. But to answer that question properly, you need to ask yourself the following ten questions, which reflect the many different factors that impact the amount you need to save between now and retirement.

  1. How old are you today and what’s your ideal retirement age?
  2. How many years do you plan to draw on your retirement funds?
  3. How do you want to spend your time in retirement? Volunteering, travelling, starting a business, or simply enjoying some R&R?
  4. What will your ideal retirement lifestyle cost?
  5. What are you current retirement savings?
  6. How much can you contribute each year to your retirement savings?
  7. What rate of return do you expect to earn pre-retirement? During retirement?
  8. What’s the annual inflation rate?
  9. What sources of retirement income will you have?
  10. Will you work in retirement to supplement your lifestyle?

Retirement lifestyle (questions 1 – 4)

The first question is easy. To answer the second question, consider that according to a 2014 report from the World Health Organization, average life expectancy in Canada for males born in 2012 is 80 and for females, 84 years[i] (higher than it had been in previous decades.)

Question 3 may require some contemplation as well as consultation with family and friends to come up with a vision for your ideal retirement lifestyle. Then create a realistic retirement budget by determining the cost of that lifestyle.

Savings (questions 5 – 6)

The amount of your current retirement savings are known, but the amount you’re able to contribute each year is discretionary. You may want to examine your current spending and budget if you think you’re not saving enough.

Rate of return (question 7)

Your investments, whether stocks, bonds, real estate, or others, will provide you with a rate of return. Many of the factors that determine that rate of return, like the economic cycle and monetary policy, are out of your control. But what you can and must determine is your tolerance for risk.

Keep in mind that there are tradeoffs between your tolerance for risk, expected return, time to retirement and the amount you need to save to reach your retirement savings goal. The more conservative an investor you are, the lower the rate of return you can expect and thus the more you must save. Generally, the more time you have until you plan to retire, the more risk you can theoretically take. On the other hand, if you are closer to retirement and/or are less comfortable with risk, the amount you need to contribute to savings each year is greater.

Inflation (question 8)

The Bank of Canada tries to keep inflation at 2%, the midpoint within the target range of 1 to 3%.

Retirement income (questions 9 - 10)

Besides your savings, what other sources of retirement income, whether from the government or possibly from an employer pension plan, will you have? Finally, decide if you’re going to work in retirement, either for fun or for money.

An example

Suppose you’re 30 today and plan to retire at age 65 and you calculate you’ll need $50,000 per year in retirement. Assume you will live until you’re 82. Your current retirement savings are $135,000 and you plan to earn 4% pre-retirement and 3% during retirement. Inflation is expected to be 2.5%. You expect to get $12,000 per year from the government but don’t have a pension plan and aren’t planning to work in retirement. According to our retirement calculator, you’ll need about $1,432,000 to retire, which means saving approximately $12,200 each year for the next 35 years (about $1,000 a month.)

Give it a try!

Armed with our retirement calculator and the answers to these 10 questions, you have everything you need to find out how much you need to retire.


[i] http://www.cbc.ca/news/health/life-expectancy-in-canada-hits-80-for-men-84-for-women-1.2644355