Am I on track to retire?

This is a very common question I receive, so today I wanted to give you a simple way that you can get an answer to this question without pulling your hair out.

Bob is 55 years old and approaching retirement. He plans on spending his winters in Phoenix and relaxing at the lake during the summer. Bob’s first step in getting his retirement plan started, is to determine how much his lifestyle is going to cost him once he’s retired.

Bob reviews his current expenses and concludes that he’ll need $5,000 per month to have the lifestyle he desires. We now have Bob’s goal so the next step would be to map out a timeline. He intends to work until he is 60 because at that point he’ll be able to draw on his work pension without having the benefit reduced. This gives us five years to make sure that Bob is on track to meet his retirement goal.

We have to generate $5,000 per month in retirement, so Bob makes a list of all the income sources he expects to receive in retirement. He’ll have CPP at 60, Old age security at 65, a work pension, small inheritance, his investments, and his home.

Lastly, Bob needs to determine how these assets will grow over the next five years. He is a fairly conservative investor, so he expects his TFSA and RRSP to grow at a yearly rate of 5% and he expects his home to grow at a rate of 2% per year.

Constructing the retirement plan

We now have the data required to put together a retirement plan and with the help of, a financial planner they can make projections as to what Bob’s retirement picture will look like. The planner might tell Bob that he’s done a great job and he’ll be able to spend $5,000 per month or on the other hand; Bob might only be on track to spend $4,000 per month.

This is where Bob has some tough decision to make. He can keep doing what he’s doing and be okay with $4,000 per month, he can increase his retirement timeline. He can also look to contribute more to his investments today which include his RRSP and TFSA or lastly, he can review if he’s comfortable being more aggressive with his investments today.

With the help of a financial planner, Bob can determine which option or combination of these options work for him to achieve his retirement goal.