How much do you need to save for retirement? Consider these factors, expert warns

You may have heard the common advice that you’ll need about 70 per cent of your current income when you go into retirement, but financial expert Daniel Tsai — a lecturer, lawyer and author of two textbooks — stresses that the actual amount will vary from person to person, depending on their personal circumstances.

To find out how much you’ll need, you should figure out what your expenses are along with how they might change when you retire, and take stock of your current net income. Then, find out where you would get your income in retirement, and how much more you would need to save to balance your budget.

Altogether, your sources of income during retirement can include the Canada Pension Plan (CPP) or Quebec Pension Plan (QPP), Old Age Security (OAS), the Guaranteed Income Supplement (GIS), employer pension, and the savings and investments you’ve made on your own (in your RRSP or TFSA, for example).

Calculators online can give you a better idea of the total money you’ll need — — but you’ll want to have some additional information handy. Although a , the Star spoke with several experts about the figure, and they all agreed that much money isn’t necessary. One even called the number “absurd.” According to the , the median after tax income for senior families in 2021 was $69,900.

For a senior individual, that number went down to $31,400. For 20 years of retirement, that would be $1.398 million for a couple or $628,000 for an individual. But Tsai emphasized that people with different needs and lifestyles will all reach different numbers. To find out how much money you’ll need, you should track all your current expenses, and take note of any assets and bills that will already be paid off.

Tsai pointed out that by retirement age, many baby boomers will have already paid off their mortgages — which could make up a significant chunk of expenses — and will no longer have to financially support their kids. That means they won’t be paying expenses like daycare, child support or tuition.

Another important point to highlight, Tsai says, is that “people's lifestyles change when they go into retirement,” and “they end up spending less.” Living in Toronto, with an , however, may place retirement at 65 out of reach. “That might be a generational reality shift, in terms of our traditional notions of retirement, given the fact that housing has gotten so crazy expensive,” Tsai said.

Those who expect to be paying off a big mortgage into their retirement or who will pay rent could be “stuck working” for longer. Noting the maximum monthly CPP payment is about $1,360 for someone retiring at 65 and the maximum OAS payment is around $710 for the same age, Tsai pointed out that $2,000 per month, for many people, is not enough to cover rent, let alone rent and groceries.

Financial planner Dan Hallett previously told the Star that , but those with a decade or more left will probably need to adjust their expectations. Tsai said they may have to downsize or move to a more affordable country — perhaps an option for someone who emigrated here and can see themselves moving back.

Parents helping their adult children with home ownership might face their own set of challenges, Tsai added. Whether they’re planning to give their children a lump sum for a down payment or have co signed a mortgage and are now “on the hook” for payments, they may have to work longer to save adequately for retirement.

Financial adviser Stephanie Kotsopoulos previously told the Star Speaking of mortgages, Tsai said it's in someone’s best interest to . “Any high interest loans, pay them off first, then work your way down to the lower interest ones,” he suggested. Credit card interest, for example, can be as high as 20 per cent or more, and a $10,000 debt could lead to $2,000 interest.

If you prioritize paying off your high interest loans, you won't incur as much debt, and can start saving sooner, Tsai explained. He also suggests making debt repayment a priority over investing, which is unlikely to earn you as much money as the interest you're being charged. As people get older, he suggests they make "conservative" investments, like blue chip stocks and Guaranteed Investment Certificates (GICs), rather than risky investments that could cost them in retirement..