You already know that funding your retirement means saving some of your earnings during your working years. But how much of your earnings should you be saving? The answer depends on multiple factors, including:
- How much you expect to spend in retirement
- How much you’ve saved to date
- How much you expect to receive in Canada Pension Plan (CPP), Old Age Security (OAS), and Guaranteed Income Supplement (GIS) benefits
- How long your retirement funds will need to last
- The rate of return you can expect to earn on your invested funds
To make matters more complex, each of these factors may change for you over time. As a result, planning your savings for retirement can feel like trying to hit a moving target.
The good news is that Common Wealth will help you design a retirement savings plan in a few easy steps. When you enroll, we will ask you for information such as your annual pre-tax income today, your target retirement age, and how much you’ve saved to date.
Based on information you enter, Common Wealth will calculate for you what your monthly savings rate should be. In its calculations, the plan incorporates various factors such as:
- Your target retirement income
- Statistical data about life expectancy to estimate how long your retirement savings might need to last
- Based on guidance provided by FP Canada (the body that awards the Certified Financial Planner designation in Canada), a projection period where the probability of outliving your savings is no more than 25%
- Approximately how much you can expect from government benefits (e.g. Canada Pension Plan, Old Age Security, and Guaranteed Income Supplement benefits)
- Investment return expectations; for planning purposes and based on guidance provided by FP Canada, Common Wealth assumes your invested funds will grow at the rate of 4.95% (net of fees) per year before retirement, moving to 3.35% (net of fees) once you transition into and through retirement
If you choose to contribute less than the suggested monthly savings amount, Common Wealth will ask if you would like to set up a feature called “auto-escalation“, which automatically helps you catch up to the suggested level of savings over several years.
Auto-escalation is an easy way for you to ensure that you are building up your savings as efficiently as possible. You can always update or opt out of auto-escalation if it doesn’t feel right for you.
You can log into your Common Wealth account at any time to make changes to your savings plan.