Don’t Plan For The “Average” Retirement; Plan For Yours

For some things in life, you know when they start and when they end. Like a vacation, a school term, or a car lease. Retirement isn’t like that. You may have a pretty good idea about when it will start, but you cannot know how long it will last.

Does your retirement income need to last 15 years? Or 20 years? With the average lifespan rising each decade, there is a greater number of Canadians living well into their nineties. Could your retirement nest egg sustain your retirement if it lasts for 30 years or more? Planning to fund your life, but not knowing how long your money will need to stretch can be a daunting task. There’s a lot to consider.

Calculators don’t consider all the variables

You might have turned to a retirement calculator to help you figure it all out. There is a multitude of calculators online, all designed to be quick and simple. You fill in the blanks (your age at retirement, life expectancy, expected retirement income, rate of return and inflation, and retirement income needed) and the calculator spits out a number that is supposed to represent how much you need to save for retirement. The problem is that most of the inputs into the calculator are variable, meaning that they can – and very likely will – change over time.

Take inflation, for example. It’s challenging to predict mid-term inflation and even harder to predict longer-term inflation trends. This is particularly true given that during the Great Recession (2007-2009) and the more recent pandemic, central banks have been printing money and keeping interest rates low. The FP Canada’s Financial Guidelines (published April 2020) proposed the use of a 2% inflation rate when creating financial plans. But as we’ve seen in the first half of 2022, inflation has risen quite dramatically. If you were to experience 3% or 4% inflation in retirement, when your plan uses 2%, your retirement experience could be very different from the one you envisioned.

Consider the life expectancy input. According to Statistics Canada[i], at age 50, the average Canadian will live another 34 years, to age 84. At age 65, the average Canadian will live another 21 years, to age 86. And if the average Canadian makes it to age 86, their life expectancy rises another 7 years, to age of 92 or 93. So, depending on when you input your “average life expectancy” into a retirement calculator, the question of how long your money needs to last is variable.

Most retirement calculators aren’t going to give you the answers you need. They operate on data rooted in assumptions and averages. They don’t consider who you are, how you live, what’s important to you, or what your retirement plans are. Before you can figure out how much you’ll need in retirement – a span of 10, 20, or possibly 30 years – you need to do some real work visualizing what your retirement will look like.

How much money do you need for retirement?

Much has been written about needing 70% of your pre-retirement income. This assumes that retirees will have lower taxable income and more opportunity to income-split in retirement. On top of expecting to pay less in taxes, retirees’ needs should theoretically be more moderate as they generally no longer need to commute to work or buy work clothes. 

But are these assumptions realistic for everyone? Are they realistic for you? The average calculator requires numerical inputs, but it doesn’t ask questions. Consider the following, all of which could significantly impact your retirement plan:

  • What do you plan to be doing during retirement?
  • Where will you be living?
  • What if you or your spouse has unforeseen health or mobility issues? How might these issues change your plans or costs?
  • What if you pass away prematurely? Will your spouse be able to sustain their standard of living on their spousal death benefits?
  • Do you want to spend all your assets in retirement, or are you trying to preserve wealth to pass on to family members?

If retirement calculators accounted for the variables while answering these questions, they could more accurately recommend the assets required to retire. 

Visualize your retirement with Retirement VIEW

To create a better understanding of whether you have sufficient assets for retirement, a calculator needs to take all of these factors into consideration, and it needs to be adaptable. 

At Tall Oak Private Wealth, our proprietary Retirement VIEW approach works in probabilities. When creating your retirement plan, we run 10,000 different potential scenarios that encompass many unknowns, such as investment returns. Our advisors then manage those scenarios, adapting them as the real-world environment changes. We project inflation expectations at different rates for basic expenses, discretionary expenses, and luxury expenses. 

We help you understand the level of security in your plan based on the assets you have and the income you need. This exercise is done not only as you approache retirement, but throughout retirement as well. This helps us to ensure that as life’s data points change – inflation, investment returns, needs, taxes – your plan adapts and evolves along with your retirement life.

If you would like to hear more about our Retirement VIEW, please click here to schedule a complimentary discovery call.


The views expressed in this commentary are those of Tall Oak Capital Advisors as at the date of publication and are subject to change without notice. This commentary is presented only as a general source of information and is not intended as a solicitation to buy or sell specific investments, nor is it intended to provide tax or legal advice. Statistics, factual data and other information are from sources Tall Oak believes to be reliable but their accuracy cannot be guaranteed. This commentary is intended for distribution only in those jurisdictions where Tall Oak Capital Advisors are registered. Securities-related products and services are offered through Raymond James Correspondent Services Ltd., member Canadian Investor Protection Fund. Insurance products and services are offered through Gryphin Advantage Inc., which is not a member-Canadian Investor Protection Fund. This commentary may provide links to other Internet sites for the convenience of users. Tall Oak Capital Advisors is not responsible for the availability or content of these external sites, nor does Tall Oak Capital Advisors endorse, warrant or guarantee the products, services or information described or offered at these other Internet sites. Users cannot assume that the external sites will abide by the same Privacy Policy which Tall Oak Capital Advisors adheres to.