Planning for retirement is one of the most important steps in your financial journey. The right savings plan ensures you can enjoy your later years with confidence, security, and peace of mind without having to worry about making ends meet. But how do you know how much is enough?
While the “right” number varies for each person, there are key factors to consider when calculating your ideal retirement nest egg.
1. Start with Your Vision for Retirement
Retirement isn’t one-size-fits-all. Begin by imagining what you want those years to look like:
- Lifestyle – Do you see yourself travelling frequently, volunteering, or staying close to home?
- Location – Will you stay in your current community, downsize, or move somewhere new? Do you hope to be a snowbird, relocating to a warmer climate during the winter?
- Work – Will you fully retire, or continue with part-time or seasonal work?
This vision will help you estimate how much income you’ll need each year after you stop working.
2. Estimate Your Annual Retirement Expenses
A good rule of thumb is that you’ll need about 70–80% of your pre-retirement income to maintain your current lifestyle. This accounts for lower work-related expenses (such as commuting or professional wardrobe costs) but recognizes ongoing needs like food, utilities, hobbies, and health care.
Include these categories in your estimate:
- Housing (including property taxes, utilities, rent or mortgage, if applicable)
- Groceries and household expenses
- Insurance premiums
- Transportation
- Travel and leisure activities
- Taxes
3. Factor in Inflation
Even modest inflation can significantly impact your spending power over a 20- to 30-year retirement. As a guide, assume a 2–3% annual inflation rate when projecting your future expenses.
4. Identify All Your Sources of Retirement Income
Your nest egg is only part of the picture. Other income sources reduce how much you need to save. Consider:
- Government benefits like the Canada Pension Plan (CPP) and Old Age Security (OAS)
- Employer pensions
- Rental income
- Investment income or dividends
Subtract these from your projected annual expenses to see what you’ll need to cover from personal savings.
5. Determine the Size of Your Nest Egg
A common rule is the “4% rule”, which suggests you can withdraw 4% of your investments each year in retirement without running out of money over 30 years.
For example, if you need $40,000 annually from savings: $40,000 ÷ 0.04 = $1,000,000 nest egg target. Our partners at Qtrade suggest that if you need $70,000 annually from savings, you would need a nest egg of $1,700,000.
While this is a helpful starting point, it’s not a substitute for a personalized plan, especially considering market fluctuations, life expectancy, and unexpected expenses.
6. Check Your Progress and Adjust
You don’t need to have it all figured out today. Start by saving what you can, increase contributions as your income grows, and regularly review your plan. Use tools like:
- Kindred’s Retirement Calculator – to estimate how much you’ll need and how your savings are tracking.
- Kindred’s Financial Health Score Calculator – to get a broader view of your financial wellbeing.
7. Seek Professional Advice
Every member’s situation is unique. A conversation with a member of Kindred’s Wealth and Investment team can help you refine your numbers, find the right investment approach, and make sure your plan aligns with your values and goals. Book an appointment today.
Final Encouragement
Retirement savings might feel like a big mountain to climb, but every step counts. By starting early, saving consistently, and revisiting your plan regularly, you’ll be well on your way to building the security and freedom you deserve in your later years.
At Kindred, we’re here to walk alongside you - helping you connect your values and faith with your finances so you can Make Peace with Your Money™.