I plan on retiring around that age
Retirement is one of the big milestones in a person’s life; large monetary savings must be accounted for, pensions need to be established, as well as many other requirements that must be put into place to ensure a good retirement. The first thing that one must consider, and this should be done at a relatively young age, is at what age they wish to retire; in Canada, the general age for retirement is 65. For myself, I plan on retiring around that age, as after approximately 50 years of day-to-day work, I would want close to 30 years of enjoyment time to spend with family and friends, without a constant commitment to work. While I may formally retire around 70, I would likely want to keep up an odd job that doesn’t require much of me, just to keep busy when life is a little slower, or to make a few extra dollars.
While considering what age one would like to retire, the, perhaps, most important aspect is establishing a financial savings plan from the time a person begins their first major career, as to ensure that by the time that retirement come around, money is less of a worry. With the average life expectancy growing, people need to be able to make their money last longer. So just how much money, roughly, should one plan to save, and expect to spend? For a single person to live comfortably in our society, an average yearly expenditure, in the middle-class range, will be around $20,000-$40,000. Government pension plans on average cover roughly $15,000, if a person has had a fairly long career with a median wages, therefore, having a yearly expenditure of about $30,000 is what a single person can expect, to maintain a comfortable middle class lifestyle. For a couple, double those numbers and that can be a close approximation. Due to the fact that a person will likely not be working, or working very little during their retirement, all this money needs to come from somewhere. Commonly called a “nest-egg”, this is the approximate balance of all your savings that you have been saving for nearly 50 years. The size of this will vary greatly case to case, so for a close estimate, multiply the expected annual expenses by 25 or 30 years, and that will give a value that one can plan for. While it is incredibly difficult for me to accurately estimate at this time how much money I should save for retirement, by using a yearly expense of $40,000 for 30 years in retirement, my retirement will need to be funded by $1.2 million, at a yearly withdrawal rate of 3.33% from my “nest-egg”.
There are many factors to take into account for retirement, and one of them is to consider how your lifestyle will be affected, and, therefore, how your financial situation will change. However, one of the largest mistakes that a person or couple can make in living comfortably during their retirement is misjudging just how much money they will need. This can happen when someone does not take into account how his or her lifestyle will change in retirement. Prior to retirement, there are substantially more costs that one must factor into their financial situation, such as mortgages, car payments, costs of raising children, schooling costs for said children, and etcetera. When retirement begins, most of these costs no longer become as relevant or prominent, such as paying off the house, children moving away, and overall costs of living dropping.