Arriving at Your Own Retirement Income Target

We have learned that a reasonable retirement income target for most people is significantly less than 70 per cent of one's final year's income. Chapter 11 showed what the neutral retirement income target (NRIT) would be in a variety of situations. In this chapter, we help you define your own retirement income target and then provide some guidance as to how to reach it.

Rule of Thumb

The examples in the last chapter showed that the NRIT ranged from as low as 41 per cent for the high-income couple with children to as high as 56 per cent for the middle-income couple with no children. In fact it can be a little lower than 41 per cent at very high income levels, and it can be a little higher than 56 per cent for middle-income people with no children who choose to rent rather than buy their home. For the vast majority, the range is between 40 per cent and 60 per cent.

At the risk of oversimplifying, you might take 50 per cent as the starting point for estimating your own retirement income target. This assumes you are in the middle- to high-income range because a higher target is necessary for lower-income Canadians. You can then refine that target by subtracting up to 10 percentage points if all of the following conditions are satisfied: (a) your household income is well above average; (b) you own a home and will pay off the mortgage by the time you retire; and (c) you have children who will have left home by the time you retire. Alternatively, ...

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