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How Much Income Do You Really Need in Retirement?

Written by Paul Williams

Tuesday, February 12th, 2019

If you're in your 50s, you're likely in your prime earning years. But if you're like many people, you may have a nagging fear — the fear that you're not saving enough for retirement. It might be the fear that pops into your head in the dark of night.

You moan to yourself, how are you ever going to be able to retire comfortably? Especially if you've been told that you'll need 70 to 80% of your pre-retirement income in retirement.

Roll over, count sheep and go back to sleep. It may not be that bad.

Spending Habits of a Nation

Statistics Canada conducts ongoing research into the spending habits of Canadian households. The latest study included 17,590 households from across Canada. The findings are illustrative.

Total expenditures tend to peak for households aged 40-54.[1] On average, households aged 40-54 spent $103,175 in 2017, including all goods, services, taxes and pension contributions.

Compare that to average spending of $60,359 for households aged 65+. That's 58% of the spending of the households aged 40-54.[2]

That's a little better than the 70 to 80% of your pre-retirement income many financial planners say you'll need.

In retirement, habits and behaviours change. So does your spending. You may sell your home and downsize or move somewhere where the cost of living is different. You might spend less on hobbies and things you're passionate about, or you may spend more.

The Good News About Retirement

Let's look at the good news. Many expenses go away or are greatly reduced. For example, shelter fell from $22,019 to $13,399 for households 65+, or to 60% of the average shelter of households 40-54.

Income taxes were 50% of household 40-54 levels. And insurance premiums and pension contributions fell to 20% of the average household aged 40-54.

On average, households 65+ spent less than households 40-54 – dining out (58%), cell phones (36%), pet expenses (51%), household furnishing (55%), education (13%) and alcohol (68%).

Transportation is one of the biggest household expenses. Peak-earning households spent on average $15,010[3] commuting. For households 65+, transportation expenses plummeted to $8,071, or 53% on a comparative basis.

Where Do Households 65+ Spend More?

Gambling claims $247, above the $200 households 40-54 on average spend on lottery tickets. Older households tend to spend more on healthcare, but surprisingly the numbers are not significant.[4]

Households 65+ also tended to become more philanthropic, and gave $1,180, or double the average spend of households 40-54.

[1] Stats Canada defines a household as a person or group of persons occupying one dwelling unit. Age is based on the age of the member of the household mainly responsible for its financial maintenance (e.g. pays the rent, mortgage, property taxes, and electricity).

[2] Of course there are caveats. Expenses vary across Canada. Spending may be affected by lifestyle and income. Different numbers of persons live in Canadian households, which may affect the data. 

[3] Excluding airplane travel. 

[4] Households 40-54 spent $2,673 on healthcare. Households 65+, $2,936.

 

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