What’s Funding Your Retirement?

If your family is anything like mine, you’re spending money at breakneck speeds. It is truly impressive how quickly a monthly pay cheque can be eaten up by gymnastics dues, swim lessons, and the occasional wing night.

I’ve never felt so rich and so poor simultaneously.

The benefit I have over you, though, is my access to fancy financial planning software. I know my numbers and I can see the proverbial light at the end of the tunnel. Because I’m a good dude, let me shed some light on where your money will come from in retirement.

Canada Pension Plan (CPP) and Old Age Security

CPP is a thing and it will be indefinitely. Don’t get caught up in the hype and distraction of it becoming an Alberta Pension; it is something that you have paid into since you started working and is managed better than 99% of other sovereign wealth funds in the world. True story.

An average retired couple can bank on about $3000/month in government benefits in retirement - some more, some less.

No more dependents, no more mortgages, no more car payments

“You want us to live off of $3,000 a month, Dave?!”

Hear me out. Think about how much your kids cost you (see above: gymnastics, swim lessons, etc, etc, etc.), the 30-40% of your take home income that is currently going to a mortgage, and the combined $1000 car payments. You undoubtedly have your own version of expenses that will run out in retirement.

You will spend less, I promise.

I have very few retired clients that spend HALF of what my clients with young families spend.  Convincing retirees to spend MORE is my biggest challenge!

Keep building

You can live off of $3,000/month with no mortgage and a pretty sedentary lifestyle, but that doesn’t sound very fun, does it?

The money from your investments will fill in the blanks: TFSAs, RRSP accounts, LIRAs (private pensions), etc.

The dream is to have enough money to live off of the interest it generates. $1,000,000 at 5% (after tax) gets you $50,000/year, while the million stays as the golden goose that keeps on giving. 

What if you can’t get to your ‘million’? Side note: everyone’s target is different - age, spending, legacy goals, etc. Here’s the thing: you aren’t going to live forever. You don’t need to live off only the interest of your portfolio; it is totally okay to eat into your principle. 

A properly constructed financial plan will show you if your money will last. It takes into account all of these income sources, tax codes, investment returns, spending, and inflation … everything.

Chop Wood, Carry Water

My favourite Bhuddist proverb, loosely translates to, ‘Keep your head down, do the work and trust and enjoy the process.’

You’re doing the work; putting money into a work investment plan, maxing out your TFSAs, contributing to your kid’s RESP accounts. You’re doing the right things now.  

Could it be better? Almost certainly yes! We can all make a little more, save a little more, do a little more for our future selves.

Is it going to be enough? Also almost certainly yes! Tomorrow is never promised, folks. Don’t rob today at the expense of tomorrow’s joy (feels proverbial as well).

If you need to see the numbers to feel better about all of this, I’m here for you! Seriously, I’m always down to help with a financial plan - we can vent about the criminal nature of youth sports fees together.