Your Retirement Income Target—Why You Don't Need 70 Per Cent

If you're like most Canadians, you are probably tired of hearing you are not saving enough for retirement. For middle-income earners, the challenge of juggling current expenses is difficult enough without worrying about what will happen to you decades from now. Now that you know you are better prepared for retirement than you thought, it won't come as much of a surprise that your retirement income target is almost certainly lower than you have been led to believe. This is not because you should accept a lower standard of living in retirement (you shouldn't). And it's not because your investments will magically perform better in the future than they have over the past decade. In fact, as we noted in Chapter 4, they will probably perform a little worse. No, your real income target will be lower than what you have been told because you have been living off a smaller proportion of your income than you think.

Retirement income targets are usually expressed as a percentage of your household income, before tax, in the final year of employment. The percentage you hear cited most frequently is 70 per cent of your pre-tax income in your last year of full-time employment. On that basis, if your total household income (including that of your spouse) in your final year of full employment was $100,000, you would need to generate $70,000 in annual retirement income from the traditional three pillars: Old Age Security, the Canada/Quebec ...

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