Get real
Despite what certain advertising campaigns would have you believe, you don’t need anywhere near $1 million to retire comfortably, says Patricia Lovett-Reid, 49, the a senior vice-president at TD Waterhouse Canada Inc. and co-author of Live Well, Retire Well: Strategies for a Rich Life and a Richer Retirement. People tend to live a similar lifestyle in retirement as they did before, she says. So while a lifelong landlubber may fantasize about sailing around the world in her own 40-foot yacht, the reality is that even if money weren’t an object, the closest she might come to fulfilling that fantasy is a commercial cruise around the Caribbean — a much less costly endeavour. The moral of this story: If you aren’t living large now, don’t knock yourself out planning for a lavish retirement.
Another fallacy is that if you didn’t start saving for retirement in your twenties or thirties, making up for lost time will cost all of your spare cash. Au contraire! Lovett-Reid lays out this scenario: “Let’s say you’re 40 years old and you’re earning $75,000 a year. You want to retire at 65. If you save just 10 per cent of your [before-tax] income — $7,500 a year — at a reasonable rate of return, 6.6 per cent, for 25 years, you’ll have $448,000. That’s a tidy nest egg.”
Plan ahead to live comfortably
And that money will continue to grow even after you’ve retired, as long as you take the portion you don’t immediately need for living expenses and keep it inside safer, income-earning investments such as bonds and GICs. And don’t forget: In addition to the money you draw from your own retirement savings and any employer pension you receive, you’ll be entitled to a healthy amount — as much as $16,000 a year right now — in Canada Pension Plan and Old Age Security benefits.
Still worried you won’t be able to save enough? Instead of quitting work cold turkey, consider scaling back your hours or switching to self-employment. The income will supplement your retirement savings, allowing you to retire sooner or live more luxuriously than you might otherwise. And, as Lovett-Reid points out, many boomers are choosing to work part-time past age 60 or 65 simply because they enjoy what they do. “You’d have to fill 4,000 to 5,000 hours a year if all of a sudden you were to stop cold,” she says. “That’s why for many, part-time employment or turning a hobby into a revenue-generating exercise makes all kinds of sense.”
Between contributions to her employer’s pension plan and her own RRSP, Oxenbury is putting away $1,000 a month, with an eye to retiring early, at 60. “It doesn’t sound like that much, but it really does add up,” she says. Best of all, this amount still allows her enough spare cash to indulge her passion for nice shoes and restaurant meals, and this past summer she was able to treat her 14-year-old son to his first solo trip to England for a visit with his cousins.
