The question one would most like
to know when planning one's retirement is: How long
am I (and/or my spouse) going to live? Once you've got
that nailed down, you can consider what sort of lifestyle
you can afford given the size of your nest egg. Nothing
to it. Except, of course, we don't know how long we're
going to be on this earth. That said, you can have a
stab at determining your death date and, not surprisingly,
there are a number of tools on the internet that help
you do just that. Simply point your browser to http://gosset.wharton.upenn.edu/
mortality/perl/CalcForm.html and fill in the blanks.
The Life Expectancy Calculator will analyze your answers
and kick out a number.
Obviously, take the number with
a grain of salt, but it will help you put things in
perspective. If you think, for example, that you'll
live into your nineties, your future investment choices
will be quite different than those you'd make if you
anticipated a retirement of less than 10 years duration.
How much will you need? The current fashion among the
financial cognoscenti is to suggest that you should
not anticipate any drop in your present level of living
expenses -- unless you plan to ratchet down your lifestyle
(most don't or can't). Tax rates now hit maximum levels
at just $60,000 in annual income, and have a habit of
going up, not down, over the long term. In all likelihood,
half of even your government pension will be taxed away.
The latest NRM survey of physicians'
finances indicates that almost 40% have a net worth
of over $500,000. Four percent of respondents estimated
their net worth above $2 million. A million dollars
invested at 6% would give you $60,000 a year. You might
hope for more -- blue chip stocks have average yields
in the 10% range over the long term -- but you might
not make the right stock picks. Best to stick to a conservative
6% for planning purposes. You might increase the yield
by purchasing an annuity. At age 65, a $1 million dollar
joint and last survivor policy would give you a tad
less than $6,000 a month or $72,000 a year. Enough to
live on? That's for you to decide.
If you need at least a million
in investments when you retire, it's clear that you
have to make prudent choices during your career. For
example, investing in your home makes sense because
the proceeds from the sale, if and when, are tax free.
Maxing out your RRSP contribution is also a good way
to save. The money you put in is free from tax and earnings
are allowed to accumulate tax-free until such time as
you take them out.
An RESP, to provide for your child's
education, is built with after-tax dollars and, despite
some help from the government, shouldn't be considered
until you've saved all you're allowed in your retirement
savings plan. (See "New
RESP rules sweeten the savings pot," page 13). After
that it's all clear sailing. All that's left to decide
is where to put your non-tax deferred savings. The expert's
easy answer: 60% in equities; 40% in fixed income investments.
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PERSONAL FINANCE
