Figuring out how much money you’ll need in retirement is top of mind for many Canadians. And there are several factors you should consider as you determine where you stand. Nicole Ewing, Director, Tax and Estate Planning, TD Wealth, joins Kim Parlee to dig into this important topic.
- Figuring out how much money you will have or want in retirement is a big question for a lot of people. And that is the focus of today's Ask MoneyTalk. We're joined by Nicole Ewing, director of tax and estate planning at TD Wealth. Here's the question, Nicole. I am hoping to have $70,000 of annual income in retirement. Can I achieve that?
Now, I know this really depends on the person. But maybe just explain what it is composed of when you retire. Because it's not just one lump sum you get. It's streams of income. It's combinations.
- That's exactly right. So we want to think about, depending on where-- what years we're planning to retire in-- we'll have different options for what will fund it. And it's usually a combination of multiple things. So we may have a private pension through our work. We'll have the CPP-- so Canadian Pension Plan-- potentially Old Age Security. We may have dividend income coming from our stock portfolios. You may have an annuity stream as well.
So there's a lot of different ways that we can combine sources of income to fund our retirement. So when we're thinking about whether we have enough or what that magic number would be, we need to think about not only the individual amounts, but the potential that they would have to impact others. So for example, if we are taking our CPP early and we have other type of income coming in, that might be impacting our Old Age Security entitlement, which is income-tested as well.
So we really want to be thinking about, overall, what is it that we're-- that we want to be spending, how long are we anticipating being in retirement for, and then what individual sources of income we can have. And you might take some of them earlier, some of them later. Some you might be using throughout your entire retirement.
So there's a lot of math into this question. And it is really good to have a number in mind, but to be flexible when you look at what those sources of income are and how much income can be generated. If you're not going to have the number that you want, there's only so many things we can do. We can either reduce our expectations, we can delay our retirement a little bit further, or we can think about other income streams that we might be able to access during retirement.
- There's a couple of things, too, which are interesting, which is longevity. People are living longer, which is awesome. But then that means, of course, you need more money to-- during that time for the longevity. And also, inflation, I know, is another thing, as well, too. We live in a higher inflation world than we did 10 years ago. We'll see if that sustains-- don't know-- but lots of things to keep in mind on that front, too.
- There are. And this is where there's a great value in running through with a professional who can do some of those projections for you. So it can test it against a higher inflation rate than we're expecting, or perhaps lower return rate, on our investments and see what our likelihood of getting the result that we want, and whether or not we'll have to maybe pull back on some of our spending. Or sometimes people have the opportunity to spend more than they expected to because the funds are going to last a little longer.
What I would suggest, though, is not underestimating what your longevity might be. I know we talk to a lot of folks who say, well, in my family, we don't live very long. But with the health care advances that we have now, we do really have to plan that our retirement can go well, well into our later years. And so being conservative in terms of how long we think we might be living is going to be one of those key elements to make sure that we're not running out of money during retirement and we have all that we need.
So again, working with professionals who can help you navigate some of this and figure out what your income streams are, when to be taking them, and how long they need to be lasting for-- that will give you a much better sense of where you stand in terms of your goals.
- Thank you very much, Nicole. That is Nicole Ewing, director of tax and estate planning at TD Wealth. If you'd like to ask a question, send it in to email@example.com.