The Million-Dollar Myth

Why is it that every time people start talking about saving for retirement, the Magic Million shows up to the party? Is it any wonder people get turned off and shove their heads firmly into the sand? Let's face it, saving a million dollars can be a daunting task. And who says you're going to need a million dollars anyway?

Most experts now agree that you'll likely need between 50% and 70% of your current income to meet your retirement expenses. So if you're family is living comfortably on $65,000 right now, you'll need the equivalent (in inflated dollars) of about $40,000 to avoid feeling the pinch later.

As with everything else in life, figuring out what retirement will look like and cost is a very personal thing. Rules of thumbs are fine, but they only go so far. To get a clear sense of how it'll be for you, you have to be prepared …brace yourself… to do some math.

The first thing to look at is how much income you will have. When Drew O'Brien told me he has a pension plan at work, I suggested he get in touch with his plan administrator to find out how much he'll be entitled to receive. Since his wife, Pat, would be dependent on that pension too, he also checked up on survivor benefits to avoid any surprises.

You can do the same when it comes to the Canada Pension Plan. This year's maximum CPP payout is just over $800 a month. It's may not seem like a lot of money, but it was enough to cover Dorothy Michael's food and transportation. However much you receive, it'll lower how much you have to come up with from savings.

Speaking of which, how much DO you have in savings? And how much are those savings going to grow before you have to start dipping into them? Lots of websites have calculators to help you predict the growth of your savings and how you can use them to create a retirement income. Just make sure you're working on a Canadian site. (I'll tell ya, I'm not overly fond of these calculators since they often over-state what you'll need, which is why I wrote Never Too Late. But if you want to have an idea of how much your money will grow, they beat using a calculator.)

Jessica Jones was looking for ways to boost her savings so I suggested she use her RRSP tax refund to boost her next RRSP contribution. She made an RRSP contribution of $5,000 (paying taxes at a 35%) so she got back $1,750 in taxes. Jessica not only boosted her next RRSP contribution, she increased the amount of her next refund to $2,362 and kept growing her savings without pulling her proverbial belt any tighter.

When it comes to expenses, some, like medical, may go up a notch or two. Many others will go down or go away completely. Drew wouldn't need a fancy work wardrobe anymore. Since Pat commuted for almost an hour each way to work, her transportation costs would drop. And since most retirees' incomes are lower, taxes (yes, they're an expense) will be lower too. With any luck, your children will be self-sufficient, so there's another big cost gone.

Having looked at your current budget with an eye to what you think will go up or down, turn your sight to things you can eliminate completely: car and other types of loans, credit card balances and, ultimately, your mortgage. You objective should be to move into retirement with the lowest possible fixed costs and no debt.

Keep in mind that there may be things you can acquire while you're still working to make retirement less expensive. Pat and Drew decided to modify their master bathroom so that they already had the features and fixtures they'd need later in place. Dorothy stocked up her "gift cupboard" over her last two years of working. Jessica made sure she'd replaced virtually all her appliances just before retirement.

It doesn't matter if you're two, five or fifteen years from retirement, if you make a plan and stick with it, you'll be able to move into the newest stage of your life with confidence. Now that you know what to look for, quit procrastinating!

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