The Ontario Retirement Pension Plan has been brought front and centre courtesy of the federal election, and it’s renewing client questions about how much is enough to retire on?
The advice being doled out by advisors and financial planners on how much is enough for retirement still clings to the 80-85 per cent current income target – but there is growing evidence to show that the aim is far too high.
“How much income will you need during retirement? The myths and misunderstandings continue, despite growing evidence and research that debunk them,” says Peter Wouters, director, tax retirement and estate planning services, wealth, Empire Life. “One myth is that you need 70, 80-85 per cent of your current income level in retirement.”
Wouters says that a growing number of analysts and researchers on retirement income and spending patterns have found that most people will be fine if they target 50 per cent of their pre-retirement earnings.
“Statistics Canada has many years of supporting data on this,” says Wouters. “You see, the focus should be on consumption dollars, what you spend on yourselves and your own lifestyle. For most Canadians, that excludes mortgages, child rearing costs and saving for retirement – things you wouldn’t necessarily be spending money on during retirement.”
While details about the ORPP are just now being trod out, what is known is that if clients have an employer-matched RRSP plan, they will be expected to pay an extra 1.9 per cent from their paycheques for participation, with employers matching. Those plans are not considered adequate.
Defined contribution plans that meet the province’s standards will be exempt.
Wouters says that retirees will need 100 per cent of their consumption dollars and some extra money in the early, active years of retirement for those special trips and experiences they have dreamed about for years; with the actual replacement income goal dependent on marital status, whether they own a home, have children, or how much money was being earned.
“So the range can go from 40-60 per cent,” he says.