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Michel A. Saleh

Financial security advisor   *
Mutual funds representative   **
514 282-3276 1 866 665-0500, 23276

My financial chronicle

Planning for retirement

The question is not whether you'll have enough money to “live on” when you retire. The answer to that is “yes.” The question you should really be asking yourself is whether you'll be able to maintain about the same standard of living as before.

The nuance is important. Everyone who, like you, contributes to a private defined benefit pension plan will have enough money to survive after retirement. To answer the real question, the first-and very big-step is to try to determine your current standard of living as accurately as possible. If you're still far from retirement age, you should try to determine what your standard of living will be just before you retire, considering the debts you will have paid off, the children who will have left the nest, etc.

The best way to go about it is to draw up a budget-personal or family-using a form with predefined budget items. It's very difficult to do this with a blank sheet of paper because it's too easy to forget expenses. Make sure to calculate your budget on an annual basis as opposed to a monthly or weekly one, or you'll forget expenses. Once you think you have identified all your expenses, add your annual savings (60% of your savings if they're part of an RRSP, since that is their real cost).

To find out whether the figures add up, determine what your net income was for the year. This step is easy: take your net wages and multiply them by 26 pay periods. Now compare your total expenses plus savings with your net income. In theory, the two should be about the same considering you either spend or save your net income.

You should note, however, that it is normal for there to be a discrepancy if you have incurred any major, non-recurring expenses during the year (e.g., for home renovations). Simply take this into consideration if this applies to you. The figure you come up with represents your quality of life.

The second step is to figure out for each budget item how your expenses will change when you retire. This requires a bit more reflection. One of the most difficult expenses to predict is leisure and entertainment. This item may change quite a bit simply because you'll have much more time available to indulge yourself. Don't try to predict inflation. Instead ask yourself how much your expenses would be if you retired today.

You have now set your retirement objective in today's dollars. Now it's time to take into account the inevitable increase in the cost of living between now and the day you retire in order to express your retirement objective in terms of dollars at the time of retirement. If you do not have a financial calculator, the easiest way to do this is to multiply the amount in today's dollars by 1+ the average annual inflation rate you predict between now and your retirement (e.g., 1.03 if you predict an average annual inflation rate of 3%). Do this for each year between now and the day you wish to retire. That's it. You're all set.

Since La Capitale consulting services are available exclusively to Quebec public servants, your financial security counselor is the best equipped person to help you develop a strategy for a comfortable retirement. Make an appointment today!