This article was reviewed by Chris Singer, CFP®.
With inflation raising the cost of living, many British Columbians are wondering whether they will be able to afford to retire. While the average estimate BC residents assume they will need is near $2 million, many are wondering exactly how much they need to save and how long their savings will last.
There is no universal number for retirement savings. With differing lifestyles, medical needs, housing situations, and work aspirations, every Canadian will have different retirement savings needs. But every BC resident will need retirement savings, so we’ve put together some useful information and advice to help you sort out how much you need to save, and how to get started.
What do you want your retirement to be like?
Having a clear vision for your retirement is the first step in retirement planning. It’s important to know:
- The lifestyle you want to live. From housing to hobbies, how you want to spend your time and how you want to live will greatly affect how much money you need to save.
- Where do you want to live? An acreage in the country, a condo in the city, or a move to a new country will all have different cost demands.
- Do you want to stop working altogether? Or do you plan on taking a phased approach or starting a side hustle?
- What are your current medical needs? If you have a family history of hereditary illnesses or currently experience poor health, you may want to put aside more money for medical care in your senior years.
At Cedar Rock, we recommend taking a values-based approach to creating your retirement vision, then using sound financial practices and logic to create the retirement savings plan to support it.
When do you want to retire?
Knowing when you want to retire will help you gauge how much money you need to have saved. While the average life expectancy for Canadians is 82, at Cedar Rock, we follow the Financial Planning Canada guidelines and plan for a life expectancy of 95. Most people’s retirement planning horizon is for 30 years; however, if you want to retire sooner than 65, you’ll need to have even more money saved.
For some, taking a phased approach to retirement is an ideal scenario. It lets them enjoy the financial, social, and lifestyle benefits of working, while having more free time for the people they love and activities they enjoy. Others may want to leave their current employment, but take on a new side hustle or passion project. Then there are the 14% of Canadians who say they do not plan on retiring. Whether it’s for financial need, to support their family members financially, or because they enjoy the sense of purpose work brings, for some, fully retiring isn’t the dream.
Having a clear plan means you can better estimate the numbers when calculating how much money you need to retire.
What sources of income will you have in retirement?
Knowing how much money you will have coming in during your retirement will help you determine how much you need to save. While you may choose to continue working part-time, do some consulting, or start a side hustle to bring in some additional income during early retirement, eventually, you will rely on:
- Your pension earned through your employer (if applicable)
- CPP
- OAS
- Personal registered savings plans such as your TFSA, RRSP, and RIF
Your sources of income will also affect when you decide to withdraw funds from your registered accounts and when you opt into government programs like CPP and OAS. The key to a thriving retirement isn’t just how much you save, but how you make those savings last.
How much do you need to save for retirement in B.C?
As you can see, several factors will influence how much money you need to save for retirement. British Columbia is a beautiful province, but some areas–like the Lower Mainland–will be more expensive to retire in than, say, Northern BC. Many B.C. residents (correctly) anticipate needing to save more money than their East Coast counterparts. That’s not to say retiring B.C. is out of reach for many Canadians, only that you will need to be more diligent with your financial planning in preparation for retirement.
A general rule of thumb is to use the 70% rule, which is a guideline estimating that most Canadians will need roughly 70 per cent of their pre-retirement income to maintain a similar lifestyle, although at Cedar Rock Financial, we’ve found this number to be a high estimate for our clients. Working with an experienced financial advisor can be a great asset to help you not only clarify your vision for retirement, but also to help you manage your finances to ensure you get to enjoy the retirement you’ll work so hard for.
How can I start preparing for retirement in BC?
There isn’t a one-size-fits-all solution for retirement planning, but there are a few foundational pieces of advice:
- Aim to put away at least 10% of each paycheque into savings
- Make smart investments into your RRSP and TFSA.
- Automate your savings
- Break your goal into smaller, more manageable milestones. Trying to save for $1million+ may seem daunting at first, but aiming to save $10thousand at a time is more achievable.
- Practice discipline. Do not fall for short-term follies at the expense of your retirement
Despite the average British Columbian anticipating needing to save $2,201,000, estimates are actually much lower for BC residents planning to retire in 20 years. Inflation estimates largely account for the significant jump in retirement savings required.
The best time to start planning for your retirement is now. With compounding interest, the earlier you start saving, the more growth your portfolio will achieve. Clarify your vision. Automate your savings. And speak with a financial advisor to begin investing through your personal registered savings accounts.