Aside from the actuaries I’ve highlighted in this blog (Malcolm Hamilton and Fred Vettese – our All Stars actuaries), this is the first time I’ve read an actual money manager admit that Canadians do not need 70 or 80 or even 100% of their working income to live well in retirement. And by living well, I mean the same standard of living as when they were working and raising a family.
This should come as a relief to many young people who are unable to save huge amounts of money when they are working and still have some fun while the kids are young.
My research has convinced me the number is closer to 50%, but 62% is not that far off. I’ll attempt to explain why the Sun Life number may be higher than the 50% number given by our All Stars actuaries.
1. The Sun Life data on spending came from a survey administered to 2000 retirees. The data used by our All Stars comes from Statistics Canada. I have more confidence in the Stats Can data only because it involves tracking spending for millions of retirees over multiple years. The Sun Life data is a snapshot at one moment in time from a group of 2000 people who may and may not really remember how much money they are spending. Let’s face it, most people do not keep accurate records of their spending.
2. The Sun Life data doesn’t take into account that there is research that spending decreases even further once retirees enter the later years of retirement. So a 67 year old who is still healthy and travelling will probably spend more than a 84 year old who may face some health issues. If you consider the spending habits over the whole retirement, the 62% could easily drop to the 50% our professionals found.
In any case, the report further proves that saving 15% of of your working income in order to be able to have enough money to spend 80 to 100% of your working income in retirement is unnecessary.
The easiest thing to do is save 6% each and every month (or boost it up to 10% if you believe that future stock and bond market returns will be lower in the future). Invest it in low cost index funds, and go on with your life. When the time comes to retire at age 65, you’ll be in great shape financially.
An another positive note, the Sun Life survey also found that 90% of retirees are happy in retirement, which is a good thing. There’s no value being financially sound when you’re bored and cranky all the time.