If you’ve worked in Canada all your life, you can expect to receive $11,000 to $16,000 a year from those two sources, depending upon what you made during your working years and how early you start collecting your pension cheques. A husband and wife who have both worked until retirement at 65 can expect $22,000 a year or more between the two of them. That money will keep pouring in as long as you live, with no particular planning required on your part.

You should compare what government will provide you with what you figure your minimum retirement needs will be. If you and your spouse figure you can maintain the must-have parts of your current life on, say, $33,000 a year, the good news is that retirement becomes a very affordable proposition. You may have to add only $11,000 a year in after-tax income from corporate pensions or savings to ensure the key components of your retirement plan.

Factor in pensions and RRSPs This brings us to the thorny issue of pensions. You may be fortunate enough, if you’re a public servant or work in the right industry, to be the recipient of a pension that guarantees you a “defined benefit” in retirement. If so, you can simply contact your employer’s human resources department to find out the size of the monthly retirement cheque you can expect.

If that amount is enough to bridge the gap between government stipends and your retirement needs, then congratulations — your retirement planning is largely done. You may still want to contribute to an RRSP to finance luxuries, to provide you with a buffer against inflation, and to guard against the possibility that your employer will go bust and renege on its pension promises, but, in all probability, those RRSP contributions will simply increase your security, not determine your retirement lifestyle.

Most of us, though, aren’t in that position. Maybe you don’t have a pension plan. Or perhaps your employer’s pension plan is a “defined contribution plan” that only promises how much your employer will contribute each year you work, but leaves the actual investing up to you. Or maybe your employer’s defined benefit payouts aren’t enough to bridge the gap between government pensions and what you need. In any of those cases, you’re going to have to deal with uncertainty.

So get a handle on risk

This is where playing the odds becomes vital. Some retirees insist on playing it safe and keeping all their money in bonds and GICs. Others go for the gusto by betting on highyield real estate investment trusts, penny stocks and small growth firms in hopes these high-risk, high-reward bets will provide them with the income they want.

Both approaches are flawed. Stashing everything in bonds and GICs raises the risk that inflation will whittle away the real value of your savings. On the other hand, betting on high-risk stocks or trusts raises the odds that you’ll make a big mistake and wipe out a chunk of your savings.

The best solution for nearly everyone is a well-diversified portfolio that has 30% to 50% of its assets in various fixed-income investments, such as bonds and GICs, and the remainder in a wide variety of stocks from Canada and other countries. One good approach to building such a portfolio is outlined in our article about couch potato investing.

No portfolio, though, can guarantee a given return. What makes retirement planning so difficult is that you’re drawing down your portfolio for living expenses at the same time as the markets are bobbing up and down. The first few years of your retirement are particularly crucial. If you have the bad luck to retire at just the moment that the markets head into a bear market plunge, your withdrawals combined with stock market losses could put a hole in your portfolio from which it will never recover. On the other hand, if you= retire at the same moment the markets decide to go on a tear, the surging market returns may more than cover your early withdrawals. You may actually increase your net worth in retirement.