How much do you need to retire?

You’ll be thankful for the planning you’ve done when you come to retire, as you’ll probably be living more comfortably because of it.

But it’s a complicated calculation – you don’t know for certain how much you’ll be spending, or for how long you’ll need an income.

In this guide, we cover the essential things to consider when planning for your retirement.

The amount of money you need in retirement will depend on the lifestyle you want when you get there.

You might view retirement as an opportunity to travel the world and start new hobbies – which could be expensive. But you may just yearn for simple pleasures, with a focus on seeing family and relaxing at home.

It’s handy to think about which category of retirement living you aspire to:

The category your lifestyle falls into will be impacted by the finer details of your retired life:

In general, people tend to spend less in retirement than in their working life.

Costs like commuting will disappear and children have usually left the nest and become able to fend for themselves financially.

Although, with real-estate prices and costs to rent an apartment on the rise, some young adults are moving back home to save on day-to-day expenses and a down-payment for their first home. You might also see your utility bills go up because you’re spending more time in the house.

Try going through your recent bank statements and looking at your monthly spending habits. Then, make some adjustment for what you expect to change in retirement. You won’t get a pinpoint prediction for your monthly spending, but even a ballpark figure can help visualise how much you’ll need to be comfortable.

See how much you’ll need for retirement with ourFootnote link 1, retirementplannerdisclaimer Retirement Planner[@retirementplannerdisclaimer].

Once you establish how much you might need in retirement, have a look at your finances to see if you’re on the right track.

Our Retirement Planner[@retirementplannerdisclaimer] can help you understand where you’re headed, based on your:

If you’re coming up short compared to what you need, you can adjust the calculations to see how much more you need to save.

And you can even try out some ‘what if’ scenarios in case you want to retire earlier, or you’re able to save more.

How you save for your retirement will depend on your individual circumstances, but a Registered Retirement Savings Plan (RRSP) is often the most tax-efficient.

Contributions into an RRSP are deducted from your taxable income, which means you could pay less income tax on your salary.  

There are limits to how much you can contribute to an RRSP each year (18% of your previous year's salary), and you’ll be taxed on the amount you draw when you convert it to a Registered Retirement Income Fund (RRIF). But most people find themselves in a lower tax bracket in retirement, so you could pay less income tax than what you’ll originally save in tax-relief. 

If you haven’t been able to max out your RRSP contributions for a year, you could consider topping it up with an RRSP loan.

Tax-Free Savings Accounts (TFSA) are another option.

Dividends and interest from your investments within a TFSA are sheltered from tax. They’re also protected from capital gains tax when you sell them.

Like RRSPs, there’s a limit to how much you can contribute each year, but your allowance rolls over annually so you may be able to use your limit from previous years.

Once you’ve maximized your available allowance in RRSPs and TFSAs, or if you’re not eligible to open a registered account, you can still start investing towards your retirement through a non-registered account.

There are no annual or lifetime contribution limits, and no limits based on income to invest in a non-registered account. Like TFSAs, the money you invest is “after-tax” dollars, therefore any withdrawals you make in retirement won’t count towards your income.

You’ll need to pay taxes on the growth and income, however you may be able to apply tax credits for specific investments and income, such as dividends from Canadian companies.

Non-registered accounts also allow for sharing assets between you and others, such as your spouse or family members, which may be useful to manage expenses in later years.

When you’ve figured how much you may have saved by the time you retire, you can start to think about how far it’ll get you.

The less you choose to draw down each year, the longer your savings will last. But while you don’t want to spend too much too soon, you also want to make the most of the money you’ve saved over the years and enjoy it.

Our RRIF Payment Calculator[@retirementplannerdisclaimer] helps you visualise how far your savings will go in retirement, depending on the income level you choose.   

If you’re falling short, you might want to revisit your current savings levels or adjust your retirement expectations. Or if your current retirement trajectory is much healthier than you expected, you could prepare to enjoy yourself a bit more when you get there.

Our integrated approach to goal planning can set you on course to reaching your retirement goals so you can plan for the future you’ve always dreamed of. Goal planning is an exclusive service we offer to our HSBC Premier[@premierwealth] clients. Your HSBC Premier Relationship Manager will help you take a holistic view of your financial needs and develop a customized goal plan unique to your situation.

If you’re coming up short compared to what you need, you can adjust the calculations to see how much more you need to save.

And you can even try out some ‘what if’ scenarios in case you want to retire earlier, or you’re able to save more.