What is Your Magic Number?
The good news: 68% of Canadians are currently saving for retirement; the bad news: 70% are worried that they are not saving enough, according to a recent Scotiabank Retirement Survey. Another disconcerting fact mentioned is that 50% of Canadians saving for retirement have not visited a financial advisor in the last year.
“Do we have a retirement crisis looming when, according to a new CIBC poll, 32 per cent of Canadians between 45 and 64 have nothing saved for retirement? I’ve come to realize people rarely talk about how much money they will need in retirement. Instead, the focal point of most conversations is on what they hope to do in retirement,” Pattie Lovett-Reid wrote in BNN Bloomberg.
She believes this could at least partially explain the majority of Canadians who do not know if they are saving enough.
“For many people, the amount of money required to fund maybe 30 years of retirement is a secondary consideration,” she wrote.
Also, many Canadians are still expecting to retire in their mid-60s and are anticipating they will require less money to do so comfortably. Yet, there are many factors that play into retirement. It really should not be a guessing game. In a world of uncertainty, it is wise to at least have a road map.
Strategic planning and saving for many people who toil their entire lives– and do not get a fortuitous windfall from some tremendously successful business idea – is essential.
It is important to find your magic number.
The Magic Number is the value of investments you need to retire with the lifestyle you want. This is different for everybody and depends on the specific lifestyle you want and how you invest.
When I prepare a financial plan, a retirement plan comes custom with the service.
A detailed retirement plan should help clients figure out their desired retirement lifestyle in detail. Where will they live? What will they drive? What entertainment and travel will they want? We look at every item they spend money on now or may want to after they retire.
Then, a financial planner works through the other details that will establish how much money will be available: the before tax income clients will need taking income splitting into account and adjustment for inflation.
After pensions, the rest needs to come from investments. A specific plan takes shape.
It is through this process that people can discover their Magic Number – the value of investments they will need to provide them with their desired lifestyle, increasing by inflation, for the rest of their lives.
We have to take into account the types of investments they will buy to figure out what they can reasonably withdraw each year. When they reach their “Magic Number”, they are financially independent. In the end, it’s about financial independence, financial security and freedom.
When pondering what you would like to do during retirement, it is not a bad idea to also ponder exactly how you will afford it. Mitigating worries and surprises when it comes to the years of life that are meant to be golden should be moved a little more to the forefront of consideration – find your magic number.