Part 1 of 3-Part Series
We’re returning to the topic of retirement this month and delving a little deeper into how we calculate the basic numbers. Why retirement again? Well it’s because ultimately, isn’t retirement what all our hard work is all about? The sooner we hit our retirement goals, the sooner we can actually retire if so chosen. Retirement is defined as the time in our life when we permanently stop working and that means we need to have enough income coming in after to support our way of life. Whether you want to live more frugally, the same or more lavish is what you need to think about now while you are in the workforce and actively working on your investments for the future.
The general accepted age of retirement is 65 years in Canada and the average life span here is just over 82 years. That means you should be planning on the safe side for another 20 years of living! This is where the very important Retirement Ratio (RR) comes into play. The Retirement Ratio helps you understand how many years you will be able to maintain your current lifestyle by living on your current retirement accounts. This will give you an idea as to how your retirement accounts are doing currently.
The calculation is as follows by our ratio:
We divide up all of your retirement accounts into a single dollar value and divide it by your current annual spending. The number you are left with is the number of years you can live off what you have already saved.
Part 2 continued next week.