Most people spend months in advance planning for and anticipating their one week vacation to their dream location. However, when it comes to their longest vacation in life, retirement, they often do very little or no planning at all. 

In fact, there are many who reached their desired retirement age but realized that they couldn’t retire because they haven’t accumulated enough money to live a decent lifestyle during their retirement years. Some decide to work for another 5 or 10 years but soon after it dawns on them that another 5 years working will not make them any better off. The lack of retirement planning during the 30 to 40 years of working cannot be recaptured in 5 years. 

You shouldn’t overlook the importance of planning and saving for your retirement. When you’re young, healthy and at the top of your game, it ís very easy to view retirement planning as something you need to do in the distant future. But the earlier you start planning and saving, the longer time you have for your money or investment to grow to significant amounts.

When you do retirement planning, you will be forced to identify the following:

1. How long you expect to live after retirement
2. The lifestyle you want to live during retirement
3. Where you want to live
4. Your expenses during retirement
5. Your retirement income goals (to fund your retirement) 
6. Your sources of income during retirement (Pension, RSP, CPP etc.)
7. Different types of retirement savings and investment products (Mutual Funds, Real Estate etc.)
8. The actions necessary to achieve income goals (if sources of income is insufficient)

Here are some tips for saving for retirement:

1. Invest in multiple appreciating assets: Diversifying reduce your risk 
2. Maximize your employer contributions: Invest the maximum amount that the company matches 
3. Have Retirement Savings Plan and Tax-Free Savings Accounts: Maximize your yearly contributions if possible
4. Pay yourself first: Save at least 10% of paycheck each month
5. Set up direct deposits: Retirement savings is automatically withdrawn from paycheck

There’s no formula to determine the amount that you will need for retirement, and there’s no one strategy that is most suitable. Each person’s amount will be unique to them, and the strategy chosen will be based on one’s preference. However, one rule of thumb is to identify the amount that you think you need now to live comfortably each month, and then determine 80% of that amount. The rationale is that you will not be paying EI, CPP, and your home should be paid off by then, so your income needs will be lower. 

To get a ballpark of the amount that you will need to fund your retirement, you will multiply the 80% amount by 12 to determine the yearly amount, then multiply that amount by the number of years that you expect to live into retirement. 

Do keep in mind that inflation does affect the buying power of your money. So $8,000 today may be worth only $5,000, maybe even less depending on the rate of inflation and how far from retirement you are. So the amount that you will need to maintain the same buying power during retirement could be significantly more. Do keep this in mind when you’re planning. 

Here’s a simple example for illustration purposes only: 

Suppose you decide that you need $10,000 each month to live comfortably now, and you expect to live 30 years after retirement, here are the steps to the calculations to help you get a ballpark amount:

1. Monthly amount needed after retirement is: 0.8 x $10,000 = $8,000
2. Yearly amount needed is: $8,000 x 12 = $96,000
3. Total amount needed to fund your 30 year retirement is: 30 x $96,000 = $2,880,000

Hence, your action plan would involve you identifying strategies to accumulate $2,880,000 by the time you retire. However, if you expect to get monthly income such as employee pension, CPP, or any other monthly cash flow, you would subtract these amounts from your desired monthly income to identify the shortfall that you would need to make up. 

If you haven’t yet started to plan for your retirement, it’s not too late, today is the day to begin. Don’t wait until you’re close to retirement and have less time to capitalize on the power of compound interest. And if you’re young and have lower income now, you can start putting away a little at a time because little by little, a little becomes a lot!