Two Adirondack chairs by the sea

Canadians are living longer than they ever have before. This is great news, of course, but it does make it hard to plan out your retirement. How many years will you need to save for? To alleviate some of your doubts about how much you need to save, you can create a retirement income floor. This floor is the amount of annual income necessary to meet your basic living expenses. The following are the steps necessary to calculate your income floor.

List Expenses

The first step is to make a list of your basic yearly living expenses. This list will include things like your mortgage payments, groceries, insurance, and health care, among others. Remember to stick to the essentials. “Nice-to-haves” like vacations or a new car should be separate from your income floor.

Calculate Guaranteed Income

The second step is to calculate how much you (and your spouse) will get annually from your Canada/Quebec pension plan and old age security. Next, add any other pensions or incomes you may have. We call these your guaranteed incomes. If they are sufficient to cover your list of expenses above, you are lucky. Most Canadians won’t have enough guaranteed income to meet their basic needs, so investments are needed to fund the rest.

Funding to the Floor

In order to fund the shortfall, and to ultimately save enough money to go above the income floor, you need to invest. There are many options to choose from, including GICs, annuities, Tax-Free Savings Accounts, and Registered Retirement Income Funds (RRIFs). On your own, it’s hard to tell which options best suit you and your family’s needs.

Talk to a Financial Advisor

This is where The Beacon Group of Assante Financial Management Ltd. can help. Your financial advisor will work with you to help choose the investments that best fit your needs. The strategy of calculating an income floor can be implemented before, during, or even after retirement. Our retirement planning specialists can help you with these calculations along with other important decisions concerning your retirement.

Benefits to the “Floor First” Approach

Calculating and reaching your retirement income floor does more than just meet your basic needs, it also gives you more freedom to pursue more growth-oriented investments that you can use as income to fund that trip to Europe you have on your bucket list. It can also help you with estate planning because you will have a clearer picture of what you will be leaving behind.