So you’re a Gen-Xer that is now getting ready for retirement. You’ve worked very hard for many years to get to this point. The children are now growing up, and as a parent you now or will have soon a new found freedom. Worries and responsibilities you have lived with so many years will soon be gone.
You’ve dreamed about the so-called golden years. Being able to be mortgage free, all your debts paid off, ample money in the bank ready for retirement. Stress of work and paying debts finally be gone.
Now you can finally have the time and freedom to travel around the world. See all the exotic places you’ve dreamed about. Do the things you never had the time or money for while busy working and raising your family.
Has this been a dream of yours? It has been mine.
Your Ready, But Are Your Finances Ready For Retirement?
But the scary reality for a huge part of the population is that we are not ready. No matter hard we’ve tried, there never seemed to be anything left for savings. With the rising cost of living, raising a family, our children’s education, or perhaps taking care of aging parents.
Gen-Xers have been stretched beyond their financial limits in many cases, which hasn’t left much room for contributions to our savings. It’s virtually impossible to contribute to a Registered Retirement Savings Plan (RRSP) when we are having problems just paying your monthly bills.
With roughly half of all Canadian couples between 55 – 64 having no employer pension plan to count on, and only half of them have enough savings to last for one year.
Statistics show that only 28% of Canadian’s and 37% of American Gen-Xers haven’t started saving yet.
Politicians can talk about the fact that we all need to invest money in RRSP’s for our retirement.
I don’t think anybody would disagree with that.
But if the average Canadian citizen is struggling financially just to survive day-to-day, then how could we possibly save anything?
So that leaves many of us in an uncertain position as we near retirement time.
Never mind all the traveling we had dreamed about doing, but now the reality sets in about how are we just going to pay the day-to-day bills in retirement.
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How Much Money Do I Need To Be Ready for Retirement?
Have you actually calculated how much money you are going to need to retire to support your lifestyle? Or how many years will your retirement savings need to last?
Let’s look at our current income and ask ourselves, what amount can we live on comfortably? Let’s use the figure of $50,000.
This amount will not support an extravagant lifestyle. But if you are debt free when you retire, it should allow a comfortable living while allowing for at least one trip per year traveling abroad.
So now the next question is how many years of funding should you calculate on needing? That’s a tough question, but you want to be on the safe side so let’s go with 25 years.
There is a easy way to calculate how much money you will need to retire. Take the amount you need each year and divide it by 4% (the maximum amount you will withdrawal from savings per year). So for this example you decide you want to retire on $50,000 per year. $50,000 ÷ 4% = $1,250,000.
According to a poll of Canadians aged 45 – 64, the so called magic number for retirement savings is $756,000. But unfortunately 32% of them have not been able to start saving anything.
Have you been able to save anywhere near this much?
For the biggest majority of us the answer is no. Not even close to being ready for retirement.
What Can We Expect From The Government?
Thankfully in Canada we have the Canada Pension Plan (CPP) and Old Age Pension (OAP). But these pension plans do not give you much to live on. Let’s look closer at what you can expect.
The maximum amount for Canada Pension Plan in 2018 is $13,610.04 per year. CPP is calculated on how much you contributed each year and for how many years. According to Service Canada, the average CPP payments for 2018 is $7,998.72 per year.
The maximum amount for Old Age Pension in 2018 is $7,039.92. OAP is calculated by the amount of years you have lived in Canada. To qualify for the maximum you need to have resided in Canada for a minimum of 40 years.
So if you take the average CPP at $7,998.72 and the maximum OAP at $7,039.92, you would receive $15,038.64 yearly per person from the Canadian government. Considering many families had one spouse stay out of the work force while raising a family, the amount off CPP for this individual will be greatly reduced.
Let’s assume your spouse worked prior to having a family and then again after the children grew up. In this case let’s take 1/2 of the average CPP for a full time worker. Your spouse would then receive CPP of $3,999.36 and OAP of $7,039.92 for a total of $11,039.28.
So a Gen-X Canadian couple based on these calculations would receive $26,077.92 per year. Since we earlier calculated needing $50,000 per year, this will put you short by $23,922.08 per year. A retirement savings in the amount of $598,052 would be needed to make up the difference.
How does your savings compare to this needed amount?
What Steps Are You Taking To Get Ready for Retirement?
If you are still reading this, then I would imagine you are like me and a huge amount of the population that has been unable to save enough for retirement.
I know that every year I would tell myself that next year would be better, and I would be able to save. But there was always a strain on my funds, which resulted in things not really changing for me.
Is this how it went for you also?
Honestly looking at this is hard to do when you just don’t have the money. But as hard as it may be, it is a reality and something we all need to do. The longer we put it off, the harder it will get.
Sooner or later we all will have to stop working for one reason or the other. Either our employers will either replace us with younger healthier people, outsource our jobs overseas, or our health will make us stop.
Something that I could build up and be able to continue into my senior years even if my health starts causing me problems.
Tell me how are you preparing for your retirement in the comments below.
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