Six steps to a wealthy retirement

Confused about how much to save? Follow these six simple steps to a comfortable retirement

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by Jody White
November 2nd, 2010

Online only.

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Ever worry that you’re not saving enough for retirement? Did the recent financial crisis make you wonder if you’ll ever be able to retire at all?

MoneySense magazine has a simple message for you: Relax. Preparing for retirement doesn’t need to be stressful. The trick is to have a plan.

So where do you begin? Do you really need to amass a million-dollar nest egg as many people insist? We’ve found a smarter way to discover how much you’ll need to retire.

Six easy steps
1. Calculate your must-haves
There are the things you’ll want in retirement, and then there’s the things you’ll need. Start with the things you’ll need—and you’ll find they probably cost a lot less than you thought. Think about it: One you’re retired, your mortgage is likely paid off, and there will be no more child care or tuition payments. Plus you won’t have to save for retirement any more, and you can probably get by on one car. Most middle-class couples are happy to discover that they can cover their must-have list with just $30,000 to $40,000 a year in after-tax income.

2. Calculate your nice-to-haves
Dreaming of a round-the-world cruise or winters down south playing golf? Such activities must be planned and budgeted for. Keep in mind though, that one-time splurges, or even a busy travel schedule all the way through your 60s, will not be a regular expense forever. You’ll naturally spend less on such pursuits when you reach your late 70s, so you may be able to afford more than you think in your early golden years.

3. Count on government
Ignore the naysayers regarding the Canada Pension Plan and Old Age Security. Both are in good shape and will be there for you when you need it, to a maximum of $16,000 a year per person, depending on your situation and how long each of you paid into CPP. A couple receiving the full amount wouldn’t need much from their corporate pensions or savings to supplement this.

4. Factor in pensions and RRSPs
Got a defined benefit pension at work? Congratulations! Your retirement planning just got a lot easier, as you can count on a set amount of income every month. It may be a good idea to continue contributing to your RRSPs as a hedge against inflation, but this will likely become your nice-to-have budget.

5. Get a handle on risk
For those without a defined benefit pension—or those with a sizable amount invested in equities—the name of the game is risk management. You should have a diversified portfolio with 30% to 50% of its assets in various fixed-income investments (such as bonds and GICs), and the remainder in a mix of Canadian and international stocks. (See our Couch Potato strategy on MoneySense.ca for more on this.)

6. Balance the present and future
Your nice-to-have budget is better spent during your early retirement years, as you’ll be more active then. If you build a fortress around the must-have component of your portfolio, you can treat the nice-to-have with more freedom. If you reach 85 and your nice-to-have budget is almost tapped out, you’re still in good shape. You used it properly and got the maximum value from it.

You can get a more comprehensive outline of these steps—plus a decade-by-decade list of tips and priorities—by picking up the MoneySense Guide to Retiring Wealthy. It features 130 pages of proven advice delivered in a straightforward manner—all of it backed up by the editors of Canada’s most-read personal finance magazine.

97 comments on “Six steps to a wealthy retirement

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  2. I bought this book, was hoping for more investing information. Really would like more information than buy an RRSP or hire a financial planner. I would like to get a basic understanding of the stock market, different kinds of stocks, the lingo etc. Or information about things like qtrade, something beyond hire a financial planner. I want to be my own financial planner.

    Reply

    • I completely agree. This is my problem when reading all of these sites; I want to know how to do it myself!

      Reply

      • i am not joking guys, mail me i can show you how to get bigger return on your investment

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        • and how do you propose people do that, jasmine?

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    • drop an email I can help you, give you the answer you need. you don't need to hire no one, do it yourself.

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      • If you cannot express yourself in proper English how do you expect anyone to believe you can substantially improve their finances.

        Reply

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  4. I suggest that people not rely on their pension from employment. I have over 30 years credited service with my employer, Canwest Global Television, and have been notified that the pension plan is being terminated. Whatever amount which will be credited to me from the pension plan can be used to buy an annuity, but there won't be enough to duplicate the pension I was promised. The company sent annual statements to employees showing how much each would receive as a pension if they worked to whatever age, but, alas, these statements can now all be considered bogus. We've been lied to and cheated out of what we were promised, in spite of the fact that most of the holdings of the pension plan were from money which we, the employees, contributed. Very little of the pension plan holdings were contributed by our employer. To say this is unethical is a huge understatement!

    Reply

  5. All this advice and these wonderful formulas or prescriptions are great, but nowhere does it mention that real wages earned today are less than what we earned in the 70s and 80s. I gross a little over 90,000 a year, but with tax, payroll deductions, union dues, contributions to a defined pension plan…, I actually take home less than half that amount. I had to make the calculation a few times to make sure I hadn't made a mistake.

    From $40,000 net must be deducted mortgage payments, condo fees, property tax, utility bills (I no longer have cable TV), plus the HST on everything. The price of gas, also taxed, is more than double what it was 20 years ago. I drive a six-year-old car, don't go to Starbucks or Tim Hortons twice a day… Who can set aside anything for "extras"? It's time to paint the true picture in these retirement scenarios – otherwise they're written for the people writing them.

    Reply

  6. And in light of the fallout on the world stock markets lately, and the plight of people who thought they'd "invested wisely for retirement," but ended up with nothing, plus countries themselves filing for bankruptcy (Ireland, Spain, Portugal, Greece), who can take seriously any advice that suggests investing in the stock market?

    Reply

  7. Retirement is a scary proposition given the times we live in. I have agood job with a leading transportation company and earn an above average salary. Together with my wife, our family income is low 6 figures. We have substantial credit debt which we are trying to clear before retirement in a few years. When this debt is cleared we will enjoy a good retired lifestyle. My message for those nearing retirement is to clear themselves from all debt. Don't spend beyond your means. The rest will fall into place.

    Reply

    • I agree. Clear off the debt and tighten the belt. But most of all, keep all of your investment liquid a low return is better than no return or a huge loss. Steer clear of all other investments, another crash may be just around the corner. This is how the profits are made and scooped from those who worked hard and put their trust in buying them to find out that the returns they get after 3 – 8 years and more is sometimes lower than a bond or a gic tha compounds. The stock market problem is the timing of the gains and the losses and now crashes and unless you can sit on it all day long at the computer and time it, good luck. It's a full time job and it does not pay. Better try winning a poker game it may pay better. But that is a full time job learning how to win and be good at it.
      My advice, keep it simple, get simple gains, but true gains even if they are low, better safe than sorry.

      Reply

  8. Between me and my husband we’ve owned more MP3 players over the years than I can count, including Sansas, iRivers, iPods (classic & touch), the Ibiza Rhapsody, etc. But, the last few years I’ve settled down to one line of players. Why? Because I was happy to discover how well-designed and fun to use the underappreciated (and widely mocked) Zunes are.

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  9. Amazing, have you guys see the Mardi-gras photos in flickr? Most of this stuff is fairly crazy, yet appears to be a whole lot of fun! You actually ever previously been or intend to go to Mardi Gras?

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  10. If you’re still on the fence: grab your favorite earphones, head down to a Best Buy and ask to plug them into a Zune then an iPod and see which one sounds better to you, and which interface makes you smile more. Then you’ll know which is right for you.

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  11. Apple now has Rhapsody as an app, which is a great start, but it is currently hampered by the inability to store locally on your iPod, and has a dismal 64kbps bit rate. If this changes, then it will somewhat negate this advantage for the Zune, but the 10 songs per month will still be a big plus in Zune Pass’ favor.

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  13. Apple now has Rhapsody as an app, which is a great start, but it is currently hampered by the inability to store locally on your iPod, and has a dismal 64kbps bit rate. If this changes, then it will somewhat negate this advantage for the Zune, but the 10 songs per month will still be a big plus in Zune Pass’ favor.

    Reply

  14. Hands down, Apple’s app store wins by a mile. It’s a huge selection of all sorts of apps vs a rather sad selection of a handful for Zune. Microsoft has plans, especially in the realm of games, but I’m not sure I’d want to bet on the future if this aspect is important to you. The iPod is a much better choice in that case.

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    • You must have failed math t school!
      Your maximum CPP is about $1250 a month after years of hardship as a taxpayer.
      A person who never worked in life will get the same money. It is just named differently: CPP + Old Age Security + Guaranteed Income Supplement. = 1250.

      Would you trust the mandatory CPP Pension Plan?
      Since it is so good why it is mandatory?
      It is great for lazy butts.

      Peter

      Reply

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  28. The Zune concentrates on being a Portable Media Player. Not a web browser. Not a game machine. Maybe in the future it’ll do even better in those areas, but for now it’s a fantastic way to organize and listen to your music and videos, and is without peer in that regard. The iPod’s strengths are its web browsing and apps. If those sound more compelling, perhaps it is your best choice.

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  32. Sorry for the huge review, but I’m really loving the new Zune, and hope this, as well as the excellent reviews some other people have written, will help you decide if it’s the right choice for you.

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  34. I’m still learning from you, as I’m trying to reach my goals. I certainly enjoy reading all that is written on your blog.Keep the posts coming. I liked it!

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  35. The new Zune browser is surprisingly good, but not as good as the iPod’s. It works well, but isn’t as fast as Safari, and has a clunkier interface. If you occasionally plan on using the web browser that’s not an issue, but if you’re planning to browse the web alot from your PMP then the iPod’s larger screen and better browser may be important.

    Reply

  36. Zune and iPod: Most people compare the Zune to the Touch, but after seeing how slim and surprisingly small and light it is, I consider it to be a rather unique hybrid that combines qualities of both the Touch and the Nano. It’s very colorful and lovely OLED screen is slightly smaller than the touch screen, but the player itself feels quite a bit smaller and lighter. It weighs about 2/3 as much, and is noticeably smaller in width and height, while being just a hair thicker.

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  37. The Zune concentrates on being a Portable Media Player. Not a web browser. Not a game machine. Maybe in the future it’ll do even better in those areas, but for now it’s a fantastic way to organize and listen to your music and videos, and is without peer in that regard. The iPod’s strengths are its web browsing and apps. If those sound more compelling, perhaps it is your best choice.

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