How Much Do You Need to Retire?

Mar 14, 2023

Worried about retirement? Specifically about the cost of retirement and whether you will have enough money? If so, you’re not alone. According to recent surveys, over 60 percent of Canadians are concerned about being able to live comfortably in retirement.¹

Worrying Too Much?

Some studies have shown that perhaps we worry too much about our funds in retirement. One expert estimated that a couple could live on around $44,000 per year.² Government safety nets could supplement this amount if personal assets were exhausted. Many of us would dispute this assessment, as most would like retirement to go beyond subsistence!

If you are fortunate enough to have a defined benefit pension plan at work, you will have at least some idea of your retirement income. However, the world continues to change and defined benefit pension plans have become increasingly rare.

Registered Retirement Savings Plans (RRSPs) are the other major component of retirement savings for many Canadians. They are often converted to a Registered Retirement Income Fund (RRIF) to provide taxable income. How much can a RRIF provide? For those who are regimented in contributing, the RRIF may play a substantial role.

Need More Income?

The RRIF is flexible in the amount of income you can draw, so some may withdraw more than the minimum when needed. The Tax-Free Savings Account (TFSA) has also become a significant investment vehicle that can help to fund retirement. And in many cases, people do not stop working at age 65. While they may leave lifelong jobs, they may end up doing something else that is productive (and perhaps even profitable!).

For those concerned about longevity risk, the Canada Pension Plan (CPP) has the potential for greater payouts if payments are deferred to the age of 70. The current maximum annual benefit is $15,678³ for an individual who starts payments at age 65, but this rises by 42 percent at age 70. Yet, fewer than one percent of retirees delay CPP until age 70, despite studies that show it to be one of the more financially prudent decisions should you live beyond the average life expectancy of 82 years old.

How Much Can the RRIF Provide?

We Are Here to Assist. One of our roles is to help clients prepare for a comfortable retirement. We can assist with worksheets and tools to project your requirements as you plan for the future. Continue to look forward with confidence!

1. https://benefitscanada.com/pensions/retirement/new-surveys-highlight-discrepancies-in-retirement-readiness/;

2. https://www.thestar.com/business/personal_finance/opinion/2020/02/10/a-fulfilling-retirement-may-be-cheaper-than-you-think-heres-why.html;

3. Based on maximum monthly payment amount at the start of 2023 of $1,306.57. https://www.canada.ca/en/services/benefits/publicpensions/cpp/payment-amounts.html

Disclaimers

Forward-looking statements are based on current expectations, estimates, forecasts and projections based on beliefs and assumptions made by author. These statements involve risks and uncertainties and are not guarantees of future performance or results and no assurance can be given that these estimates and expectations will prove to have been correct, and actual outcomes and results may differ materially from what is expressed, implied or projected in such forward-looking statements.

The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Echelon Wealth Partners Inc. or its affiliates. Assumptions, opinions and estimates constitute the author’s judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results. These estimates and expectations involve risks and uncertainties and are not guarantees of future performance or results and no assurance can be given that these estimates and expectations will prove to have been correct, and actual outcomes and results may differ materially from what is expressed, implied or projected in such forward-looking statements. Echelon Wealth Partners Inc. is a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund.

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Lots of Bulls & Bears

06 May, 2024

Take your pick. There is no shortage of both good and bad news floating about the financial markets. To be fair, this is always the case. The hard part is understanding which side is stronger today and which side will be stronger tomorrow. With markets up low to mid-single digits following a very strong Q4 finish to 2023, most would agree the optimists are carrying the day at the moment. It is not just rose-coloured glasses; there is good news out there. Economic growth signs or momentum appear to be improving year-to-date. Dial back a few quarters, and the U.S. economy remained resilient while other economies softened or were rather lacklustre, including Canada, Europe, Japan, and China, to highlight some of the biggies. Today, while Canada is struggling, momentum in the U.S. has moved even higher, and there are signs of improvement in most jurisdictions.

Earnings Optimism

29 Apr, 2024

There are three things you should rarely ever bet against: the Leaf’s opposing team in the playoffs, the American consumer’s ability to spend, and corporate profits. As we are now about halfway through U.S. earnings season, once again, positive surprises remain the norm; 81% have beaten. It's a bit better than the 20-year average of 75%. The fact is that companies are good at managing analysts’ expectations. At least enough to beat them when the numbers hit the tape. The size of the positive surprises have been encouraging as well, at just under 10%. The highest surprise magnitude in some time. One of our reservations on the sustainability of this market rally over the past couple of quarters has been the flat earnings revisions. In other words, global markets are up over 20% but earnings estimates have remained flat or tilted down slightly. More often than not, markets trend in the same direction as earnings revisions. Earnings get revised up when companies raise guidance and/or analysts become more encouraged about growth prospects. That is a good thing for markets. Obviously, downward revisions are bad. Yet estimates have remained very flat as markets marched higher, a challenging combination.

Energy Stars Align

22 Apr, 2024

The oil market has been interesting lately and, to the surprise of many, has been the biggest silent outperformer this year. There is no shortage of geopolitical events to choose from that’s leading to a higher risk premium in oil with Brent breaking $90, whether it’s the Houthis missile attacks in the Red Sea leading to a massive re-route of trade, Ukraine’s drone strikes on Russian refineries, and the latest escalation between Israel and Iran leading to some news outlets using WWIII as click bait-y headlines. Given the run-up in oil prices, Canadian oil equities have clearly benefitted from the much higher torque. But there is a layer of even better news: The Transmountain Expansion (TMX) continues to look to be in operation by May, which would lead to much better pricing on the Western Canadian Select (WCS). With the current setup for the oil markets, some key questions that we often get from investors are: How sustainable is the rally in Canadian energy names? To determine if the oil equities are overstretched, we can look at the debt-adjusted cash flow (DACF) multiples of the major integrated oil names and see how the valuation has shifted in light of the recent oil move. From Exhibit 1, the DACF multiples for the Canadian integrated have been fairly range-bound over the last year, also in line with WTI, which has been in the $70 - $85 range. As a starting point, we can infer that the valuations of the companies have been commensurate with the movements in the underlying oil price deck and in line with where the equities should trade in the cycle historically over the last couple of years. Typically, in the commodities cycle, higher prices are usually coupled with lower multiples as market participants will usually price in lower normalized prices and vice versa, so a cause of concern would be if valuation starts trending towards the 6.5x – 7.0x+ area if oil prices continue to stay in the upper bounds of the $70 - $90 range or higher.