Why You Might Be in Better Shape for Retirement Than You Think

Dave and Fred Vettese discuss why many Canadians may need less income in retirement than they think.

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One of the points that you made was that a fair number of Canadians actually are in better position financially in retirement than they realize. In fact, some may have overs saved. And walk us through your thinking there a little.

this comes down to, uh, what’s often called the rule of 70 or the 70% in retirement income target. Um. I don’t even know quite where this came from. I’ve tried to chase it down a few times, but, uh, generally the industry will tell you you need to save enough so that you can, uh, generate retirement income uh, equal to at least 70% of your, your final average income just before you retired.

So let’s say if you retired, the keep number is simple. With a hundred thousand dollars in income, then you ought to have, um, total retirement income of at least $70,000.

So I actually finally tried to really pin this down in my book, uh, the rule of 30 where uh, I took a, a typical couple and the kind of expenses that they’re gonna have over the years. And then if you you subtract off income tax, you subtract off daycare, um, saving for retirement itself, um, mortgage payments and everything else, and you see how much money they actually have left for the rest of of their lives, it tends to be like only 35, 40%.

Uh, actually not even more than 40% for most of their lives up until, uh, they’re maybe close to age 50. And after that, then, uh, you know, the mortgage might finally be paid off, so that drops off, and that’s a big number. Um, daycare drops off as soon before that, uh, the kids might finally leave home and then go to college and, and maybe even if not be totally financial, self-supporting.

They’re not quite uh, expensive as they used to be. And all of a sudden you have a lot more, um, um, disposable income. So the question is, whatcha gonna do with all that disposable income? If you start spending it all, then yeah, you’re gonna have a problem in retirement. ’cause then you will have a, a high number to, to try to achieve.

If you end up saving a chunk of it, then, uh, you, you’re doing two things. You’re actually still having a better lifestyle than you ever had before. You’re fifties and at the same time, you’re maybe saving sufficiently for retirement.

You know what’s interesting, a very basic point. I mean, it’s incredibly basic, but you are one of the first people to really bring it up aggressively is that when you’re in retirement, you no longer have to save for retirement. And I know that’s extremely straightforward, but you shone a light on it and said that, think about it.

For a lot of people, that’s 10 to 15% right there that now they don’t have to set aside. And it’s so true and let’s say if you’re a, a, a middle, a middle aged, uh, or even younger than middle aged couple younger, young couple in, uh, places like Toronto or Vancouver, and, uh, you’re, you’re trying to pay a mortgage on the house, that might be 25 or 30 or 35% of your income right there on top of that. And, and that should go away by the time you retire.

There’s all kinds of reasons as to why the number ought to be less.