How can Louis save for retirement? His shocking Uber Eats budget may be a good place to start …

Louis is thinking about his long term savings goals. The 35 year old architect wants to save for retirement but isn’t sure what financial steps to take and how much money he needs to put away. “How much is a reasonable amount to save to have a comfortable retirement where I can travel two times a year and still live in downtown Toronto?” Louis wonders.

Currently, Louis has no debt and has $61,000 in investments. All of his savings are in a Registered Retirement Savings Plan (RRSPs) and a Registered Disability Savings Plan (RDSPs). “The RDSP is a unique investment opportunity offered to disabled Canadians who qualify,” Louis explains. “Contributions are matched by the federal government and can be invested.” But Louis admits that he spends much more than he’d like.

Louis makes $89,000 a year. He shares an apartment with his partner in downtown Toronto and buys lunch every day or orders meal kits for dinner. On other nights he and his partner order takeout on UberEats which amounts to an average of $50 to $76 a night. Louis says he also picks up coffee every afternoon.

“I find I have a hard time keeping savings in my savings account and will spend it on clothes, vacations or concerts instead,” he says. “I prefer to lock my savings away and will borrow from a personal line of credit from time to time if I need additional cash. I pay off my credit cards every month and if I do borrow from my line of credit, pay it off in a few months.

Louis hopes to reduce his spending on alcohol and eating out this year and use the money instead to pay for a fitness and nutrition coach. How can Louis best budget for his retirement and cut back on discretionary spending? We asked him to share his expenses to get a better sense of his spending habits.

Louis is an architect looking to build his retirement savings to maintain his love of travel when he retires. He has no debt and has amassed $61,000 of investments. He spends about $68,000 a year. A lot of it is discretionary spending. I hate to use rules of thumb about how much someone needs to save for retirement.

But if someone wanted to spend $68,000 a year in retirement today, they might need to have between $1 million and $2 million in RRSPs — with an asterisk. That broad generalization assumes no pensions other than CPP and OAS government pensions. Why such a big range? It makes a difference if you retire at 60 or 70.

The earlier you retire, the more you need. It also depends on your investment risk tolerance and fees. As well as your life expectancy. Or if you expect an inheritance or if you own your home or rent. So, that massive savings target range could be even lower or higher. If someone is saving in a TFSA, you do not need to save as much because you will not pay tax on withdrawals from the account.

RRSP withdrawals are fully taxable, so you need more. But it takes longer to save in a TFSA without the tax refunds that help an RRSP contributor magnify their savings. The challenge is there is no easy answer about how much to save for retirement. If you develop a personalized retirement plan that takes into account future income, expenses, and other financial considerations, you can try to work through the trajectory that you are on to assess your savings plans.

Even then, life does not move in a straight line, so you need to go back to the drawing board from time to time. Louis should definitely stick with his RDSP contributions. A registered disability savings plan can provide a 100 per cent government match on the first $1,000 of contributions at his level of income.

And since his income is relatively high, RRSP contributions are probably better than TFSA contributions for his retirement savings. Especially assuming his group RRSP has some sort of employer match. Depending on Louis’ disability, his plan to hire a fitness or nutrition coach may be considered an eligible medical expense for tax purposes.

Certain authorized medical practitioners like kinesiologists, naturopaths, or occupational therapists, for example, may be eligible although it may depend on a taxpayer’s province or territory of residence. I cannot help but comment on Louis’ $2,000 a month Uber Eats budget. Especially when he spends another $800 a month at Loblaws and Metro.

To budget $33,600 a year on food for a single person is pretty high. In 2021, the Statistics Canada survey of household spending showed the average Canadian household spent $10,305 a year on food. If someone is hitting their savings goals, I am ok with them overspending in a specific category. But Louis might want to spend some time developing a retirement plan to determine if he needs to boost his saving.

If he needs to cut expenses, there is definitely a glaring category to focus on reducing. It’s no surprise to Louis that he needs to cut back on his takeout spending. “I appreciate the advice that if I want to increase my savings, I should target one specific aspect of my spending which is on food,” he says.

“I had long suspected it was an area I could cut back on but it helps to hear it from someone else.” “I found it reassuring that I should continue contributing to my current investment portfolio as it works for my income level,” Louis added..