Financial Simplicity - Part 18 - How Much Do You Still Need to Cover?

After accounting for government benefits and any pension income, the remaining gap in your retirement plan will need to be filled by personal savings - typically through RRSPs, TFSAs, or other investments. This is the number that matters most for setting your retirement savings target.

Let’s say your ideal retirement income is $50,000 per year. Government programs like CPP and OAS might cover $15,000, and your workplace pension adds another $10,000. That leaves $25,000 per year to be funded from your own savings. Multiply that by the number of retirement years, say, 20, and your savings target becomes $500,000 in today’s dollars. This is your retirement funding gap.

Of course, this is a simplified calculation. You’ll likely earn investment returns on your savings throughout retirement, which means you may need to save less upfront. But to keep it conservative and easy to understand, we’re working in today’s dollars without compounding just yet. You’ll see how we add those variables in the next chapter on investing.

The examples provided in this section show how this number varies widely depending on your income, retirement age, and lifestyle expectations. Retiring at 60 means more years to fund and government programs that aren’t yet available, while retiring at 70 reduces both the number of years and the amount you need to save. Conservative plans add a 20% buffer to cover the unknowns. Moderate plans use a 10% cushion. Aggressive plans assume the math is close enough and build flexibility elsewhere.

Knowing your personal retirement funding gap is a huge milestone. It turns vague goals into a real, actionable number one that you can plan for, track against, and adjust over time.

How this fits the matrix:
This article defines the final piece of your retirement funding formula. It gives you a dollar figure you can use throughout your life plan to make trade-offs, set priorities, and gauge progress.

How a financial advisor can help:
A financial advisor can help calculate your unique funding gap and customize a savings plan around it. They’ll also make sure your assumptions, like tax rates, pension estimates, or retirement duration, are accurate and realistic.

In the next article we’ll look at how many years your retirement savings need to last and why longevity is both a financial risk and a planning opportunity.

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Disclaimer: This content is for informational purposes only and does not constitute financial advice. Mutual funds provided through Carte Wealth Management Inc. Insurance products and services offered through Carte Risk Management Inc.

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