How much money do I need to retire in Canada comfortably?

hi everyone welcome to today's video we're going to be talking about how much money do you need to have in retirement there's a variation on that question it can be will i outlive my retirement account will i have enough money to retire how much money do i need to retire there's a number of different ways you can ask the question but we're going to get into exactly what you need to do in order to make that question be something you don't have anxiety over and we're also going to be talking about the hidden secret behind all successful retirees what are they doing to make sure that they have a successful retirement we're going to be talking about three things that you can do immediately to to catch up if you will if you think that you're behind schedule on your retirement and what are three things that could really hurt you if these things happen to you before you retire and so those are going to be really important to know we're going to talk about some surprising statistics on retirement not that i'm a a great uh cheerleader for statistics because after all some statistics actually don't help you it's kind of nice to know but it's not going to actually pay the bills we're also going to be talking about some case examples so actual client case examples without giving you know private details away but we're going to be sharing with you a couple of examples of actual retirees and what they uh retirement looks like for them and then we're actually going to go into so stay tuned for this the number one thing you need to focus on in order to have a successful retirement hi everyone my name is david aaron i am a financial advisor working in toronto with air and wealth managing my own company and i help my clients manage the things that they cannot afford to lose if you're new to this channel i would appreciate it if you would just go down and hit that subscribe button like and share and make some comments in some of the videos you know that action that you do by just subscribing helps to actually grow my channel so that i can get in front of more people and help as many people as i can the videos here are all educational in mind let's get into it there's a lot of videos out there on financial planning topics and some are going to give you the answers you're looking for and some are not going to give you the end the answers my video today is going to be very specific about how much money you're going to need to have during retirement and exactly how to actually acquire that amount of money as well so how to narrow it down how to get to that number so what is your number you want to put that in your comments please feel welcome to do that what is your number and um and then i'm going to share with you exactly how to get there and how to avoid some of the pitfalls during retirement there is no magic formula you know but i can tell you this we have worked out not so much the magic formula but we put in a lot of effort into understanding financial planning products time value of money understanding your goals and you know our experience our education our knowledge are really the skill sets that we bring to bear to be able to help you solve this problem so let's go over some rules of thumb if you will there's a lot of rules or there's several rules of thumb and these rules of thumb are designed to help you figure out exactly how much money you need to have in retirement if you haven't talked to an advisor and you're just at home kitchen table take up some paper you're trying to figure it out yourself there's some rules of thumb that can help you get to that kind of estimate your way there you can say okay what would be a a rough estimation of getting to a number and from there i can try to be more accurate with it so rules of thumb are kind of that way so let's look at one rule of thumb the 10 rule the 10 percent rule is really about you saving 10 percent of your money towards your retirement so it's not something that you use tomorrow this is you paying it forward so that you can retire with enough money at your retirement day the 20 rule is well some people don't subscribe to the idea 10 it's going to be enough money given the fact that you know home values have gone up so much expenses have gone up in in just about all areas of our life and so maybe 10 isn't enough maybe 20 percent is what you need so just translate that multiply that 10 percent dude times 2 so you can have enough money so that would be another way to kind of estimate your way there the other rule is the rule of 72. this is an old math rule that says how quickly will my money double you just basically you're taking 72 divided by your annual rate of return and that'll give you the number of years it'll take for your money to double it's nice to know but it's not the thing that's going to get you feeling you know all warm and bubbly about your retirement because your retirement is more than your rate of return the four percent rule well you see this a lot in just about everywhere on the internet you see a lot of advisors talking about it you know the four percent rule first of all i'm going to tell you right away i don't agree with it it's it's only a way for you to estimate will you have enough money in retirement four percent rule is basically saying if you used or withdrew four percent of your money every year that if you only did four percent that would last you at least 30 years in retirement so that's it's kind of nice to know but i'm going to get into why that's not an accurate way to do that and you'll see that in the slides coming up the 25 rule this is um actually actually accurate okay so if you think about how long you're going to live in retirement on average going to live about 25 years in retirement men and women are different by a few years but essentially a healthy person and there's a slide that's going to speak to that is going to live 25 years so one way to estimate which isn't going to be accurate understand this number is going to be huge and that's not the number you need but it's just a way to get there and that is to take your annual living expense and multiply that by 25 times and that'll give you an a number that is going to be astronomical okay and the truth of it is you don't need that because as you're using your money it's your as you're doing withdrawals you're actually making a rate of return and that that money is actually helping you to offset the withdrawal that you're doing unless your withdrawal rate is like 20 a year then you're gonna deplete your asset pretty quickly but essentially if you were let's say withdrawing at four percent but you're getting seven percent of your money then you can see you're actually making more than you're withdrawing so you know that money is gonna last long um but not everybody um can get seven percent some people that's a rate of return that is too risky for them during retirement so then there's a seventy percent rule you hear this a lot you'll hear about why do financial planning professionals say you'll need 70 of your current annual income in retirement why do they say that because they're trying to answer the question generically because they don't know who you are they don't know who is on the other end of this computer watching the screen how much money you've been saving what your risk tolerance is what your time horizon is so they can't just say you need this amount of money so they'll say 70 seems to be an accurate amount so that helps you to estimate your way to getting that number every situation every investor is different it's important that you actually work with someone to get down to what is your actual number now let's just do a quick review on some of the ways that you would sort of figure out what your number is you know this is really just going back to kind of like an accounting question right what are some of the areas that you have to consider when you're thinking about retirement so one of them is what is your retirement age when are you actually planning to retire and i've said in other videos before and i'll link it up here and that is your retirement date probably won't be your retirement date more than 52 of the population do not retire at the time that they think they're going to do and that is largely due because of a disability their inability to work what kind of lifestyle do you want in retirement you want to live large you want to live moderately what kind of lifestyle are you trying to achieve in retirement will you have any private pension you know teachers firefighters government employees have defined benefit plans they'll have an income do you have an income through your employer as a pension that's something to consider what is your health going to be like it's hard to know but some people might have poor health going into retirement so they kind of expect they're going to have poor health during retirement but that's an added expense for you the other things you'll want to work out and that is income-wise so how much cpp and old age security you're going to have do you have any passive income like real estate properties are you an amazon seller are you a youtuber you're making some money what is the um status of your current savings so how much money do you currently have today what's the savings rate that you have or that you're using today we're going to get into all of that but you know what the the real issue is here is you're asking all the wrong questions i'm not trying to beat you up what i'm trying to say is if you're thinking about a pool of money that you need to have you're going at it a much more difficult way you really need to be asking just simply two questions and these are actually probably the most important questions and i know you you just went what are you talking about only two questions and a lot of advisors around there will probably say there are so many other questions yeah there are but there are also two very important question that is how much income do you need during retirement so stop thinking about the the pile of cash and start thinking about how much am i gonna spend every year in retirement so that is actually an important exercise it's very difficult for some people who haven't figured it out and then how much income does my financial plan project that i'm going to have at retirement so how much do i need based on what i have today and projections of what i'll have in the future when i plan to retire what is that financial plan say i'm going to actually have in terms of income so forget about the notion of how much money start focusing on getting these two questions answered so the hidden secret so back to the beginning of the video we talked about what is the hidden secret of all successful financial all successful retirees and that is having a written financial plan you know you wouldn't build a house without any architectural drawings right be unheard of where do the windows go how much wood do we need how many rooms are in the house what other kinds of uh of um equipment are you gonna need to build a house how much is it gonna cost how long is it gonna take do we have all the legal things done like the list is endless right you would never build you would never think about building a house without any architectural drawings and you get those done but it seems to me like when people think about their financial planning they just say well i won't make a financial plan i'll just keep putting the same amount of money in every year and it'll probably be okay that's just not a great strategy and so the number one hidden secret to having successful retirement is having a written financial plan you know the financial plan um is so important because the number one you know the number one concern people have about their retirement and that is will i have enough money to retire that's kind of like the whole background of this um this video today was how much money is it going to cost for me to retire well it's based on the fear of saying will i have enough and so financial plan really helps you answer that question and they're probably the reason why that people have that fear is because two out of 10 people actually have a written financial plan so that might lend some some evidence as to why people are worried that they're not going to have enough money to retire because they just don't have a written financial plan financial plan is so important for you so the first step here is really if you were just to sit at a table and kind of map out without without getting into a financial plan right now i'm just going to give you a couple steps to help you get on your way okay and then when you have that in front of you you can use that to talk to an advisor with so the first step is to add up all of your expected retirement income streams right so we talked about cpp old age security any pension income any passive income maybe are you going to work in retirement is there going to be some kind of employment income and pension income the next thing so put that on paper add it all up and it comes to this number x okay then you're going to add up all of your expected costs so how much you will need to fund your lifestyle every year if you can't figure out on an annual basis just think about it as a monthly basis what are our expected um lifestyle expenses you know some of those things aren't going to disappear right you're going to have if you're in a home you're going to have taxes you have to pay property tax you have to pay on the house you have water and you have heat and hydro those things are not going to disappear you're going to have some food costs you might have a car some travel expenses so there there's a telephone and cable internet and all those kinds of things will probably be relatively constant but there's going to be other additional spending that you're going to do so those are the things you need to map out then the third thing is the plan this is where you need to develop a really well thought out plan so if you have an idea now as to how much you want in terms of lifestyle what the cost of that's going to be and you have an idea right now as to ballpark how much income you're going to have now you need to take that together on a financial plan have an advisor work with you and how to actually improve that situation this is really important so there are three actions let's get into three actions you can take right now to immediately get you back on track number one work with an advisor i know this is i know this is kind of like oh that's cheap right you're you're supporting your own industry but you know what the statistics are that when working with a financial advisor for more than 15 years on average homes have so households have more than 290 percent more money to use at retirement than compared to them ones that don't use a financial advisor so the math the statistical uh math is in your favor of working with an advisor and so if you're you know you're thinking about i can do it myself the odds are actually against you so let's think about the number one thing out of the three things is work with an advisor let's look at just some statistics now i don't buy into all the statistics right some statistics don't help you some does but let's just have a look at some of these things this is really interesting you look at the uh the first line here 60 or 56 percent of people who are 65 years of age or older think that they don't have enough money to warrant using a financial advisor to have somebody help them and that might be something you may want to revisit because it might be the fact that you're not using a financial advisor is the reason why you don't have enough money kind of it connects together ages 55 to 64 more than half of those people still don't think they have enough money to use a financial advisor and i gotta i gotta somehow change your mind on this because it's so important that you work with someone a lot of people actually just don't know who to trust and so that's where you begin the process of trying to figure out who could i talk to you can ask your friends who they talk to you can i mean if you were to interview advisors just as you would be interviewing them at for a job really and i i think this is a awesome thing to do when i meet people it's happening on occasion where we're in the middle of the of meeting that person and realized oh my goodness they're interviewing me they're actually not just thinking about me but they're thinking probably about three or four or five other advisors this is an interview this isn't a done thing they actually want to know my character my my philosophies and they want referrals to clients so these things do happen by the way a little bit deeper information so if you look here and i don't want to spend too much time on this but if you look at income on the right-hand side this is really was really the surprising um thing about this this survey if you will sixty percent of people making more than eighty thousand dollars a year don't have a financial advisor so it goes back to that slide just before when they say you know 55 to 64 more than half of those people don't want use a financial advisor because they don't think they have enough money and here we're seeing that people making more than 80 000 a year don't think they have enough money to to work with an advisor absolutely alarming if you look at the the bottom left hand corner and we see the age groups okay i understand 18 20 21 those kinds of people maybe they're not making a lot of money although there are a lot of people doing social media and youtubers are making a killing making a lot of money but look at the age group from 35 to 44 72 percent not using a financial advisor 60 i mean the numbers are actually kind of surprising so i i understand um there's a lot of people out there that are not getting the kind of advice they need and i would encourage you to change that given the fact that you know that 290 more money for your home if you use an advisor again over the top right hand corner i do not have enough a big enough portfolio 44 of people who um making over 80 000 a year and it didn't matter look at male female they both feel the same way so the second thing of course is a written financial plan this is i don't know how much more i need to say and try to convince you i've said this in a number of videos you'll see i'll link to a video up above that we talked just about having written financial plans you know advisors profession is the science of making money i want you to think about that next time you look at that statistic or you ask yourself why you're not working with a financial advisor their whole profession is about the science of making money that's it we're not going to give you recipes and i'm not going to tell you how to decorate your house my only function is to make you more money and to protect the assets that you have and then try to make other things come true like giving it away to charities or your children in a tax-efficient way there is no other priority other than that that is our number one task is making you money and there's a science behind it and this is why i want you to encourage you to go to a financial advisor you're tapping into an advisor's knowledge and training experience that's been passed down through generations of advisors training other advisors on how to help their clients achieve financial freedom and your financial plan allows you to see the impact of your financial decisions before you commit to it that's the beauty of a financial plan can you see any other place other than if you work for a company and they say look can you come up with a plan throw in our budget there see if these things are achievable for us to achieve this target of growth that's a plan and you guys get to work and you do it it's no different for your own life that's what a financial plan does let me make a number of decisions apply some math to it some science pour in some experience knowledge from advisors that have been doing it for 20 years and then see what the outcome of that would be and then i don't like that outcome could we change a few things and turn some dials and see what would happen if we did those minor changes what would be the outcome you get to have all these scenarios in a financial plan you know played out before you actually put one dollar in that's the beauty of a financial plan that's the power of a financial plan so i'm going to share with you this is just um a financial dashboard each one of my clients get a financial dashboard it's designed to help you understand in a snapshot of where you're at this is connected to the financial plan that might be 80 or 80 18 or 20 pages deep but we consolidate all that information onto one page is a one-pager scan it real quick you know exactly where you are i'll briefly go over it if if you want to know more detail about this on a one-on-one session i'm happy to go through it but let's just look at top left-hand corner we talked about network and by the way all of these boxes are the areas that you have said to me these are the things i want you to actually help me with so we can you know swap them out if you have different goals we'll just swap them in and then that's your financial plan those are the main goals that you want me focused on to help you improve so in this case net worth net worth people need to increase the net worth because if they're going to borrow money get mortgages for homes apply for anything they need to have a good high net worth and also people want to know am i actually improving my worth over time the top right hand corner is about portfolio so many people spend their time focused on rates of return it's nice it's nice to know but it's not the thing that's actually going to get you to retirement your rate or return isn't paying you your monthly bills during retirement it's really the plan it says all of these details that's really securing your lifestyle retirement so it's nice to know but we might have a target in terms of how much you need to get but i guarantee you 23 percent is probably not sustainable year over year it's nice to brag about it but your financial plan is going to say a completely different number but we share that number year over year so you can see what kind of rate of return you're getting year over year the but the middle um corner on the right portfolio gains this is the rubber hits the road how much money have i made for you what is the actual amount of money that your advisor has made for you can you actually look it up and say this is what i've done this is how much i've made so instead of you trying to look through a portfolio and look for where how much money you put in versus how much you have today it's right there in front of you it's it's hard to avoid the middle section total assets is really important for people because so many people have paid down their home they have zero mortgage balances their net worth is two million dollars and you know 85 percent of that is your home well i got news for you that's not going to help you retire unless you plan to do a reverse mortgage or to sell your house so i like to visually show people that look don't it's nice to say your worth your net worth is is large but how is that really helping your retirement we need to grow the other pies of your total assets your tax-free savings your life insurance cash values your rrsps what kind of non-registered assets you have do you have any passive incomes coming in like we need to actually look at everything together and of course some people want help with paying down their debts whether their debts for their business or whether their mortgages on their homes or other properties they want us to focus on helping them to get that debt paid down quicker and we track it to so we can show you hey we're we're uh doing really well here we're going to have you debt free in this number of years that's important for people to see that now the bottom left-hand corner arguably is probably the most important part of this dashboard and that is your retirement income it's divided into two sections the first side with the chart tells you year over year how much your income so how much money your portfolio currently is going to provide you at the age of whatever retirement if it's 65 whatever that is currently we have that if all things remain the way it's been going the way we planned you're going to have this amount of money to spend annually these are annual numbers during retirement so we set out a goal i want to have x number of dollars per year to use for lifestyle right away we balance that off bang will you have enough money to retire well this is telling us how quick or how close we are to getting that number the second part on the of that same square is talking about how much money so the way that this whole started this session was you asked the question how much money do i need to retire so we're actually including that so i'm giving you the one thing that you the number one thing you should be focused on is income but i'm also including it from the other way the way that you were thinking how much money a pool of money would i need and so in this particular case we're saying 1.35 million and how much do you have now 350 000. so that's a reminder to this client you still got a lot of way to go keep going and then to the right-hand side just tells you know where are you as a percentage how close am i to getting um to retirement and all these things come with milestones and when those milestones go off we send out wonderful messages some of them are video messages of congratulations celebrating another milestone being achieved it's such a wonderful thing to receive because clients get to cheer their progress they get to get excited about the the idea that they're that much closer that they've hit a milestone in their uh retirement plan and i think it's so important that you celebrate your achievements and your success and these milestones but you don't want to be this guy you don't want to be this guy that's you really kind of want to be this guy i mean he's not as stylish as the guy before but it looks like he's got a plan and he's working through his plan so number three the third thing you can do to impact um your ability to get on track is you might need a side hustle so let's say you get into these numbers you say i need this amount of money this is my expenses this kind of lifestyle i have this is the kind of income i currently have and i don't see any new income coming in like there's no inheritance or i'm not gonna i'm not gonna bet my whole entire my retirement based on when i when or if i'm ever gonna receive an inheritance so the problem is going to be you have a gap you have a shortfall in the way you want to live during retirement and your capacity to fund it right now so you might need a side hustle that means you need to be able to generate the gap how much you have to fill in so if you're missing 20 grand a year you're going to need to generate that start now start putting together a plan to be able to generate twenty thousand dollars a year or thirty thousand whatever that number for you is you're going to need to start to start a side hustle so would you be working part-time i don't want you to have to work part-time but some people do because they just you know they don't want to be lonely they want to get out they want to meet people and there are some people that don't have kids they're single and that's that's a that is part of their lifestyle some other people do it because they need the cash could you get a pay increase could you get a higher paying job how about starting a side business now i don't want to say that you know everybody doing youtube makes money but there are literally hundreds and hundreds of way for you to make enough money so extra money to fund your lifestyle i've said in other videos i mean i'll link a video here for you having a twenty thousand dollar additional income in retirement is like having four hundred thousand dollar riff having an extra four hundred thousand right because when you think about how much money you have to take out of rift it's gonna work at about twenty thousand dollars so if you can earn twenty thousand dollar part-time it might be easier earning twenty thousand dollars than saving four hundred thousand do you follow me so this is an important consideration you'll notice here throughout this whole thing i didn't talk about rsps tfsas individual pension plans life insurance i wasn't talking about here are the products that you need to use in order to provide the amount of money because that's a different conversation 100 different conversation because everybody's situation is different you know if you're a business owner um an rsp is not the best solution for you there are a couple other options you should be using but it depending on your situation it may be the only thing because you don't qualify to do the others options so rsp might be the way to go you might be not healthy and so you can't do life insurance even though is the biggest i'll say the i'm a little impartial this but it's i think one of the biggest ways you can save money for retirement is through life insurance but i digress it's very important that you know what your dreams are going to be how much are these dreams going to cost you in retirement are you going to be this couple who gets on a plane and they travel are you just going to have your grandkids on the beach and enjoy spending time with them maybe you're going to keep it local and you're just going to do road trips and sadly some of us are actually going to need home care these are all things that everyone has to consider because everybody is different and our goals are different that's what makes financial planning that's what makes my job so enjoyable because every time i meet somebody i can't wait to hear what they have in mind for retirement and i'm just like oh wow like that is that's a cool retirement how are we going to fund that do you have any idea how much that might cost i remember having just to give you a little anecdote i remember having a client tell me i want to buy land and i want to raise horses on the land and then i want to bring in kids who are disadvantaged who have um challenges with confidence bring these kids in and take them horseback riding get them to interact with horses that's what i want to do in retirement and like totally blown away and i said well do you have any idea what it costs for the land and how much it costs to raise horses and she said i have no idea and so together we went on this journey of understanding everything about what she needed to do in order to make that happen how much it was going to cost what was the lifestyle like what are all the rules and it was such an enjoyable experience instead of just thinking about the math of how much money we got to really explore and that's that's a lot of what i do with clients is explore their lifestyle and understand that because once i do that with one client i'm able to take that and pass it on to another client say look i i have clients that have done planning that have done this this this and this and i can tell you everything about it that's invaluable but what if you haven't figured that out yet what do you do about it you need somebody that can put all the pieces together that's the value of working with an advisor and so on the subject of retirement planning i'm just going to give you a survey now that survey is one of those things that i think how does this help you like for instance 37 of uh all the people said that they didn't have enough money saved for retirement so my question to you is how does that help you when you read surveys like that so i'm why i'm saying this to you is when you're reading you know something um a blog post in the news and they'll say recent survey by one of the banks said that 57 of all people age 50 years of age say they don't have enough money to retire that might be true but how does that help you what you really want to get down to is what is the helpful information the statistics that's actually going to help you retire statistics about on average what do retired canadians spend every year in canada that's available to you um can on statscan they have all that information i include that when i do reviews with people when we're doing financial planning i'll say look here's the average canadian from statscan but i also have like these clients who are retired living in florida living in another province doing all kinds of different things activities here's how much they spend so that's the value so it's important for you to get the actual statistics that are close to your retirement goal so that you can be more accurate so let's talk about a couple scenarios okay so to get deeper into how much money you might need let's talk about if you are a 65 year old single 65 year old and you're going to retire at 65 and let's say you need 57 000 of income why am i saying 57 000 well guess what that is the average income for a single retiree in canada that comes right from statscan that's after tax dollars so why don't we use that in this example so in this example you're going to have about a thousand dollars from your cpp about 600 from your old age security so that's 1600 a month almost 20 000 per year so we know that's the income side right no pension in this example just almost we'll call it 19 because it's closer to 19 than it is to 20 000. but you need 57. so we're going to subtract the 57 the 19 from the 57 that comes with 37 8 let's just call it 40 because it's easier for us to just work through the math so that means you're going to have to generate an additional 40 000 somewhere between now and 65 in order for you to retire and you have to build into the idea that that 40 000 has to go up by inflation every year and that's about two percent per year so that's your target and i actually have another video i'll link it up here is this side of that side i'm not sure but i'll link that video because there's a video exactly that talks about this gap and what to do about it so the real goal is not the pool of money the real goal is how do i generate 40 000 worth of income today for my retirement many years from now hopefully you're not doing this exercise at 60 and you're retiring at 62 because that's going to be a really difficult question to answer but if you've got time in your hands then we can actually get to work and start figuring that out and so that is the real problem that needs solving it's really just an income problem right so let's look at how much savings that are required in order to generate that so i'm going to give you a couple tables you can screenshot this if anybody wants the table just go ahead and put comments or email me and i'll be happy to send these tables to you but the way this works is you want to be able to have enough money to last you 30 years in retirement so you notice over here on the right hand side in the the assumptions someone making less than 90 000 a year and they're going to retire 65 62 years of age and they need that money to last 30 years of retirement so you need to be thinking that you're going to be in retirement for at least 25 years so we say 30 years so all you do here is you would take in the example here we'll use a 40 year old so take the the age on the left hand side column and move across to the income that you're currently at and that's the percentage of of your current income that you're going to need to save every year so in the example of a 40 year old making 50 000 a year they would need to put aside enough money that money would grow to about 864 or grow to they would withdraw over that 30-year period 865 000 that's how that works so the real challenge for you is how do you put away 18 of your money every year that is how you work with a financial advisors you get down to how could you do that in a different way i love working with business owners on that equation because much of the things that we can do is say translate some of the expenses that could have been funded by their corporation rather than personally we get an immediate savings but i digress let's look at another table what if you're making more than a hundred thousand dollars a year same scenario okay just take your age move across the table until you've hit your your current income goal that is the amount so if you were 50 today okay and you're making 150 000 and you hadn't start saving that's the whole caveat if you haven't started saving today what would you need to do today so 50 year old making 150 000 zero dollars invested would have to save 59 of their income do you know how hard that is that's incredibly challenging so that's why it's important to get started earlier to make sure you have long enough room if you don't get started early enough so any or any of you listeners who are young you see the power of this that a 50 year old today with zero assets has to save about 60 percent of their money to get to a point where that money will pay them enough income to last 30 years so if you're younger look at a 25 year old making a hundred thousand needs to save 11 percent not 60 percent do you see how it's much harder so it's easier for you at a young age you can put less in as a percentage of your income over a longer period of time it makes it so much easier for you okay changes in spending i just want to spend a little bit of time to let you know some people talk about well what what kind of expenses might i have i wanted to help you with that when you're trying to think about how much money you might need in retirement this is a good indication of how expenses some expenses seem to level out and some come down you'll notice travel at the top of that that darker color at the top as you get older you're not going to travel as much because you're worried about your health you're worried about getting sick in another country and that's um very expensive if that happens so you want to make sure um people just are are are less inclined to travel more travel maybe within a province that would be um that road trip we were talking about with seeing those seniors in the car you can see the charitable contributions health care housing those tend to be pretty flat line you don't see them becoming a terribly expensive especially in canada that you know health care is is largely it's paid for there's obviously some expenses but the main expense to health care for seniors is really about home care so while you might be able to go to get cancer treatment and that may not cost you you will have a problem with home care those are the things that are are more expensive now there are also some medications that if you don't have some kind of health plan are not covered and are very expensive so that is where you would see um a real problem for some seniors in retirement but again it all goes back to a financial plan it's so important that you start thinking about these long before you get into this situation so i want to share with you now um how a financial plan works real briefly this is simple stuff if you look at this this is a client i meet this client i say tell me your story they tell me their story i take all their information i put it into um financial planning software work some of the numbers through and i come out and say look um they and i think they already know the answer to this question that's why they came to me because they're worried and the red means they run out of money in this case they're not actually running out of money just means they have to pay they actually have to live a lower lifestyle so if you think left to right the green area the person is working that's their employment income and then they hit 65 that orange area is a little bit of income that they still have because they retire mid-year kind of thing right and the gray area that is all government benefits old age security and and cpp and then the blue the dark blue and the light blue those are all their own money so you think about that from 65 until 76 they're able to live their lifestyle that gray line going across the bar that is the lifestyle and the expenses are going up over time because as they age um cost of inflation things become more expensive every year every year two percent some cases other things become more expensive than two percent but essentially their lifestyle is costing more each year and so their income has to go up each year to match the cost of those expenses and so they're when they first started out let's say they had just above 60 000 of total gross income and as they hit 76 it's about 80 thousand and the next year they're not able to get eighty thousand it drops down to about just below sixty thousand dollars right so this is an important consideration because that person comes to me and they understand they have a feeling that their money is not going to provide full retirement throughout their lifetime and so the question is what can we do about it so we start talking about it come up with a number of different planning scenarios we say let's see if these things are achievable for you can you do these things and if you can it looks like this now those things by the way are not monumental they are not difficult to do they're just understanding how to use money differently how to plan differently how to mitigate a little bit of taxes how to save here and there and these strategies help the person live a fully funded retirement they have enough money and all it was was some simple discussions and we go from this to fully funded retirement powerful that is the use of a financial plan that's why you employ a financial advisor right it is about the science of making money that's our profession it's a cool profession and when you get it right a lot of people are very happy they live great lives and when i tell you when there's enough money a lot of things happen that are a benefit to great many people it's not about buying milk and bread it's about living the right neighborhoods going to the right schools your grandkids having a good upbringing having a healthy lifestyle have being able to afford money afford to to eat right to eat well um those having not having enough money a lot of those things you have to push this side yet to choose things that you might not otherwise be too happy about another thing that goes with the financial plan is just through retirement options so again it's another page you just scan quickly and it tells you option number one increase lifestyle i want 48 000 but can i actually have more money and the answer is not really the green is you have a little bit extra but you really can't take any more money this is the this is the cap for this particular client could they retire sooner wouldn't that be a great question to be able to have answered for you if you do all these things and you come up with this number and then you say to the advisor how could i retire two years sooner i'd love it to get out of this job two years sooner can you figure that one out in this case this person can't but i've done plans where i've told the person i get you out two years three years sooner here's how we're going to have to do this could you take less risk option number three so in this case they need six percent and they're getting six percent so there's a much of a difference in terms of the rate of return that they're gonna have to get in order to retire and so but in some plans i've done where i'll say well they only need three percent um they're getting eight nine six doesn't matter but they only need three so there's some there's some right away some immediate information that says to this person i'm worried about the markets i'm i'm worried that there's going to be some declines i don't feel good i have great anxiety is can we scale back the risk because i'm just worried and i tell them remember the financial plan the financial plan said he only needed three so if you like i can scale back and get three percent so that is the value of having a plan the fourth one is asset allocation how much money are you going to remember that this how much money are you going to need in retirement remember this is the pool of assets right that that back to that first question how much money do i need to have in retirement there's your answer right there it's actually in black and white we put it for you how much of a pool of money do you need that's going to provide an income and it tells you this is the required capital at retirement here's how much money your portfolio is projected to have bang right away that question is solved for you know right away whether that's going to be answered for you so again another powerful thing to have cash flow here's another example of retirement this is an example of somebody that's making a lot of money look at more than a hundred thousand dollars a year combined assets for a couple it's not unusual for a couple and the lifestyle that's they're living a great lifestyle they're they're spending in a way they're enjoying it and they say look we're not gonna we know we're not gonna spend that kind of money we don't have any intention that spend that amount of money we wanna actually have a moderate lifestyle so we're gonna live large while we're working and then when we get into retirement we're going to have a moderate lifestyle give me a plan like that so here's one where the lifestyle is like this and then drops down and goes straight across a little bit of a drop but because they were put money aside you'll notice that the lifestyle that gray area going the line going across is well below the blue um individual annual amounts that they could have had so those are the the excess so this is a completely different conversation that i have with this kind of client where we say look you're going to die with money you're going to die with a lot of money so this is an opportunity for you to think about legacy charitable giving what you can do for grandkids your kids what would you love to do because you're going to die with this and so why pay all the tax on your estate why would i with it why don't we do something long before that happens and that is a conversation that's great to have and to help people see their life could be a lot more meaningful to a lot of different organizations and the things and that they cherish most they can actually start to give today okay that four percent rule and i want to tell you why i wasn't in favor of that here is why i'm not in favor of the four percent rule again it's used to help you estimate your way to a number that's going to be useful for you to retire with but it's not actually practical look at a riff a riff is your rrsp that you turn into a rift that's your income phase of your retirement asset and you're paid based on your age so if you took a minimum withdrawal out of your rift at age 65 it starts at four percent well there you go four percent rule but look as you age you see those yellow lines the government makes you they're required to take out more and more money every year as you age so when you're 70 it's five percent when you're a 75 it's almost six percent so that four percent rule only works for a few years and then forget it it's not practical so just understand that if you're saving almost all of your retirement assets in a riff and a lot of canadians are that you are going to the four percent rule is not going to be useful to you it's a it's a a ballpark but it's gonna not serve you well the left hand side shows you if you had a balanced portfolio okay 40 60 percent um 40 uh fixed income 60 equity you're gonna be seeing here what that looks like for you if you had four percent withdrawal rate that's the gray line and a million dollar portfolio then your money is going to last 30 years but if you had a six or five percent withdrawal rate is going to last about 23 years and if you had a six percent withdrawal rate you're actually going to have that money last about what 18 years so think about that in terms of your need for capital rates or return withdrawal rates 4 is actually not a good planning tool okay three things that are disastrous for you three things you do not want to have happen while you are saving for retirement or in retirement the first one is poor health you can impact your retirement right away by making sure you exercise today you eat well you get with people that are going to add value not subtract value from you that means people who don't believe in your goals don't support your goals people who are adding stress to your life i know you i'm not saying you can't uh uh disavow your three-year-old has given you grief you can't do that but what i'm talking about is surrounding yourself with people that love you who want to support you and see your goals your mental health that's a big issue but your physical health is another issue you're seeing people who don't take care of their bodies eating poorly now translates to a really bad situation with diabetes hypertension overweight heart issues um a blood pressure issues that it's really causes a lot of grief so the best thing you can do is think about having a great retirement is really about being healthy so the three things that can derail you the first one is poor health and let me tell you about poor health you think i'm just you know giving you some you know information that's oh that's nice look at this chart 55 of all retirees retired earlier than their retirement date because they had a disability heart attack stroke cancer severe diabetes kidney issue man the list goes on alzheimer's early alzheimer's all this is happening 55 percent of everybody that retires doesn't retire on the day they thought and then another almost 25 another quarter of the population retired early to take care of a spouse that was ill so this is what forced people into early retirement i have a video i'm going to link to it right now why you won't retire at the age you think you're going to this is just one element of that total video but i encourage you to watch it okay the second thing is timing the market so many people so many people think i've had this before with clients and they'll say i want to get out of the market i think there's going to be bad news i want to get out of the market i don't feel good about it going to be really bad i want out and i'm going to buy back in when it's a better time when the values are lower and this doesn't happen it's a rarity look at this chart if you look at the s p 500 i'm giving you like the biggest one instead of just focusing on canada i'll just give you some good statistics if you stayed fully invested on the left-hand side and you stayed fully invested you got a 7.47 percent rate of return this is from 2001 to 2020. okay so this is a decent amount of time for you to look back and see what the markets were like and so seven point four seven percent rate of return if you just kept your money in and you didn't do anything just let ride if you decided that you thought you were going to try to miss some bad news and get out of the market and you missed 10 of the best trading days you look at the rate of return 3.35 10 of the best days and usually the set it says right there seven of the best 10 days occurred within two weeks of the worst days so that means usually when the market sold off the market went back up and people tried to time it and they missed it and they ended up buying it at a higher value and so i would encourage you just to stay invested and when things go south and you firmly believe things are going to go north add to don't subtract your portfolio add to your portfolio that's the time for you to really double down and put more money into the market when you try to time the market look at this this is statistics from 2001 to 2020 annualized returns the average investor got 2.9 percent because they tried to time the market terrible so this is the problem holmes did better we know homes in ontario did much better than that and people will brag about oh i got 11 12 maybe they got it right but a great many people are not and that's why i say you look at the the light blue colored area this is the 40 60 60 40. so it's about having a little bit more equity than fixed income or fixed income more than equity if you just put your money in that would be an example kind of like a balanced portfolio if you just put your money in a balanced portfolio and left it there and i don't want to say you close your eyes that's just negligent but they did better much better so just think about trying i just don't time the market it's the second worst thing you can do and the third thing you can do that's gonna just ruin everything and that is investing too conservatively if you have um with a four percent withdrawal rate again we go back to that using that four percent rule and you look at portfolios if you had cash this is like detrimental right a million dollars in cash isn't going to last you long enough in retirement you're going to run out of money if you had a 40 60 split so 40 of your money is in fixed income 60 of your money is an equity but you see more um it's a slightly more risk to you but it gets you that 30-year mark didn't it but then if you look at the other one and that is a higher equity component and well diversified in the equity but you get something that is well diversified it actually runs out past the 30-year mark that is the power of diversification you really want to live your life stress-free like this couple look at them it's one of my favorite images when i think of couples and looking at a map and saying where do you want to go that is the ultimate freedom during life here during your retirement years this is the lifestyle you want to be living a life free of any exam anxiety about how you're going to pay bills being able to choose not to have you know around the world cruises that's for people who make a lot of money but for the average person this can be you where you're looking at this thing where are we going to go on vacation and i know you're not thinking about hey vacation is not the only thing i want to do with my life but what i'm trying to impart to you is this idea of living a life free of having any anxieties about your money work with a financial advisor get a plan done invest properly well diversified with enough risk to your portfolios and grow your money to the right levels that you can avoid all these things that i just told you about and really engage your advisor of saying what if i was to do give me like two or three options of what i could do to actually because by the way there's three options there's more than three options that'll get you to the right place but some involve risks some involve other things that you might not qualify for or not be able to do so you really want to examine what are all my options to getting to that end goal in a way that's going to satisfy my my risk appetite and and what i'm willing to do and what i'm willing to sacrifice those are the things i would encourage you to do okay that was the end of this session this was a powerful amount of information to give to you i'm happy that you got right through the end so you could hear the number one thing that you could do it's so important that you you make the right decisions if you have any questions please feel welcome to put your comments below use whatever technology you need to use in order to send a message to me remember to subscribe to this channel this helps get this information out to a whole lot more people because youtube is going to love the algorithm of seeing people subscribe and like and comment share this with as many people as you think needs to see it and i look forward to seeing you on the next video thanks for watching

Channel: Aaron Wealth Management

Views: 22,395

Keywords: aaron wealth management, rrsp, tfsa, cpp, how to save money, how to retire in canada, do i have enough money to retire, how much money do i need to retire, financial planning for business owners, How much money do I need to retire in canada comfortably, how much do i need to retire, retirement in canada, how much moeny do i need to retire in canada comfortably?, how much money do i ened to retire in canada comfortably?, How much moeny do i ened to retire in canada comfortably?

Id: 1nFlaprSGz8

Length: 58min 13sec (3493 seconds)

Published: Thu Aug 05 2021