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How Much Money Do You Really Need For Retirement? You May Not Like the Answer Money Matters The title of this article seems to be the most sought after answer for people who are either saving for their retirement or are actually in their retirement. Obviously, it is a very important question-you spend a lot of years working and saving to hopefully achieve your retirement dreams. Getting to the answer to the question is not as easy or straightforward as you might think. This means that constant planning and review is necessary to make sure you have done the best job possible to answer that question for yourself. The short answer to the question is, (and you are not going to like to hear this), but, it depends!!! If you have had anyone that claims that there is a definite answer to this question, be highly suspect of the advice that you have received. There are a number of factors that will affect how much money you need for retirement: When do you want to retire? Obviously, the earlier you want to retire, the more money you will need. If you want to retire at age 60 and we assume you started working at age 20 and that you will live until age 90, it means that you have 40 years of working to save enough money to provide you with income for 30 years of retirement-no small feat to accomplish!! What do you want your lifestyle to be? Just as important as the length of time you will be in retirement is what do you want your lifestyle to be-what will your expenses be? Be careful not to underestimate them!! Dont forget about the effects of investment returns, taxes and inflation. These two variables will have a big effect on how much money you need to save. The higher your investment returns, the less money you need to save. However, for most people, when you get to retirement, you become more conservative in your investment decisions because you are reliant on your investment returns to generate income. This usually means that returns are lower than they may have been previously, which over the long term means you need more money. Everyone is familiar with inflation and the effect that increasing prices will have on their lifestyle-if you dont take this into account, you may come up short achieving your lifestyle objectives. And obviously taxes will greatly affect where you ultimately end up. What is your marital status? A single person that makes $50,000 per year will end up with less money after tax than a married couple who each make $25,000 per year. Granted, you may argue that a married couple will have more expenses because there are two people versus one, but your marital status can affect other sources of income due to such issues as OAS clawback. To illustrate the effect that these variables can have on the answer to the question of How Much Money do You Need?, consider the following: If an individual has a $500,000 portfolio and a $500,000 RSP. Inflation is 3%. Their average tax rate is 35%. The two variables we will change will be their expenses and their investment return. The chart below shows the number of years that their money will last using these assumptions. Expenses Investment Returns 6% 8% $40,000/yr 23 24 $50,000/yr 17 22 What this means is that if you retired at age 55, your money would last anywhere from age 76 to 92, depending upon the variables noted above. Alternatively, if you retired at age 60, your money would last anywhere from age 81 to 97. After having changed only a couple of assumptions, you can see the dramatic effect on the length of time the money will last - obviously the amount of money you need is dependent on a number of factors. Your ScotiaMcLeod advisor can help you determine how much money you need to save to reach your retirement goals and objectives. Make sure you talk to him. Article courtesy of Scott Becksted, BES Investment Executive, ScotiaMcLeod 905-796-5024. All too often, investors take an extremely short-term approach to long-term retirement planning. But at Edward Jones, we believe the best way to prepare for retirement is to follow investment strategies that have proven themselves over time. For a free retirement review, or to find the Edward Jones office nearest you, call 1-800-ED-JONES or visit www.edwardjones.com. Member CIPF. Colin Brookes Financial Advisor 211 Guelph St., Unit 4 Georgetown, ON L7G 5B54 905-873-7630 Personal & Corporate Tax Return preparation Audits, Reviews, Compilations (All Industries) Schedule of Business Activities Accounting & Bookkeeping Personalized Service, Competitive Rates 905-873-8837 16 Mountainview Rd. S., Suite 202, Georgetown, ON L7G 4K1 R. Scott Becksted, BES Investment Executive A Wealth of Investment Expertise in Halton Hills. Retirement Planning, RRSPs, RRIFs ?utual Funds, Stocks, Segregated Funds ?ICs, Bonds ?ee-based Managed Accounts 905-873-6640 or 905-796-5024 Toll Free: 1-800-263-2454 Fax: 905-450-6343 scott_becksted@scotiamcleod.com www.advisors.scotiamcleod.com/sbecksted ScotiaMcLeod is a division of Scotia Capital Inc., a member of the Scotiabank Group. St re ss -F re e Ta x Pr ep ar at io n Knolcrest Centre 360 Guelph St., Unit 47 Georgetown, ON L7G 4B5 Call: 905-873-2697 Email: info@yorkshirent.com www.yorkshirent.com At Yorkshire Enterprises: Pick-Up & Delivery Available. Call to arrange a meeting. Your return is completed by tax professionals with more than 35 years of combined experience. You get our assurance of accuracy and maximum tax savings. Your return will be done while you wait. EFILE services are available. For the same price, wouldnt you rather have your taxes prepared by a Chartered Accountant? Do you want a professional who cares, to develop your financial plan and put it into action? Scott Becksted, BES Investment Executive 4-348 Guelph St., Georgetown www.piphh.ca or 905-873-1877 - Financial Plans with Implementation - Retirement Income Planning - Estate Planning / Tax Planning - Life, Critical Illness, Disability and Mortgage Insurances - Ongoing Commitment to Clients Providing Unique Financial Planning Solutions Helen MacCormack, CFP Brett Worby, CFP Judith L. Grant-Horner, CA 52 Main St. S., Georgetown 905-877-7200 Email: jgh@accountantonmain.ca Website: www.accountantonmain.ca Q:I hate income tax time, but I know that I am here. Ihave been thinking about completing my income tax return and my neighbour mentioned that he takes his taxes to a tax preparer. Is there really any advantage to following his lead? How do I decide where to take my taxes? A:Canadians love to hate taxes but this is onerelationship you want to get deeply involved in. I love tax time, but better yetI love tax planning. If you wait until now to starting thinking about last years taxes, then you really are limiting your opportunity to keep your hard earned money in your hands. Tax planning = Tax savings! There are so many tax deductions and tax credits available to you and you really want to take advantage of them. How do you know which ones apply to you? Well thats where your tax expert comes into the equation. I must tell you there is a significant difference between a tax preparer and a tax expert. I recommend meeting with a Chartered Accountant who has thorough knowledge of the tax regulations and tax strategies. Your tax expert must be an expert in tax and your situation to develop sound tax strategies. Too often, a meeting between the client and the tax expert is not held. How can anyone know your tax situation without knowing you and your unique set of circumstances? If you have a business, even a home based business, many tax deductions can be taken for the business use of your vehicle and home. There are income splitting opportunities that are available. Do you have children? Are you paying for your childrens education? Why not pay your child a reasonable salary for work performed in the business? Your child benefits from work experience and first hand budgeting of his or her salary. You save tax dollars because business income which would be taxed in your hands at your marginal tax rate is now effectively taxed at your childs lower tax. An experienced tax expert should be discussing options such as this and much more. 12 Acton/Georgetown, Friday, February 15, 2008