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Dale Jackson

Personal Finance Columnist, Payback Time


A new BMO survey finds we believe we each need $1.7 million to retire.

We haven’t been this shocked since last month when Health Canada told us more than two drinks a week is heavy drinking. 

How we collectively came to that figure is a lot to unpack, but it does reveal just how much most of us are in the dark about saving for retirement. A more revealing finding from the same BMO survey says 53 per cent of respondents say they have no idea how much they will need to retire. Kudos to the other 47 per cent.

Blame it on RRSP season hype; the finance industry marketing drive to shame customers into making tax-deferrable contributions to their registered retirement savings plans (RRSP) before the March first deadline.

The survey cites inflation as the main concern raising retirement expectations to such lofty levels. Last summer it hit a four-decade high of 8.1 per cent but has since fallen to 6.3 per cent as the Bank of Canada waits to see if an aggressive series of interest rate hikes brings inflation closer to its target of two per cent.

Even BMO admits $1.7 million for retirement is high. The bank’s economics department expects inflation to fall to three per cent by the end of this year.

Most legitimate online retirement calculators, including BMO, factor in a long-term inflation average of three per cent even when inflation is running lower.

Inflation is fleeting, but it’s also a minor variable to consider when calculating how much we need in retirement. Online calculators can be a big help but a qualified, human, advisor is best.

Either way, here is some basic background information required to get an accurate estimate:

  • Current dollar value of total assets in your RRSP, tax-free savings account (TFSA), home equity or other investments that store value.
  • Liabilities including mortgages, consumer and student debt, or any other outstanding loans. Most advisors recommend having no debt in retirement but its important for measuring your total portfolio value at any moment in time. 
  • Other retirement income including employer pensions, Canada/Quebec Pension, Old Age Security or other government benefits. CPP/QPP and OAS are indexed to inflation but most employer pensions are not.
  • When you expect to retire and how long you expect to live. Unless you already have the answers you will probably need to run through various scenarios.
  • How much you plan to contribute to your retirement savings before you retire. This is where it’s better to make RRSP contributions on a regular basis instead of rushing to the deadline. You might want to boost your savings by contributing your annual RRSP refund to your TFSA.
  • Expected rate of return on your investments. The deferred annual rate of return on many calculators is six per cent but it could be higher or lower based on your tolerance for risk.   
  • How much you need to live each year in retirement. This is a tough one but it’s better to estimate too high than too low. Some experts have a general rule of a fixed portion of pre-retirement income but if a big portion of that income goes into saving, its much lower. Be sure to subtract savings or debt payments if you plan to retire debt free. Also, we tend to spend less on activities as we age but that can act as an inflation hedge.                                                                             
  • Part-time income from a side hustle might be difficult to estimate but can be a huge boost to early retirement, and act as a safety net if you need to up your income. 
  • Home equity can also be a source of income in retirement through a home equity line of credit (HELOC) or reverse mortgage.

It’s a lot to digest, so if it takes some time you can still make your RRSP contribution before March first and park it in cash for now.