“Am I on track?” Krista, a 34-year-old Montrealer, saves $20,000 a year

Q. I would like some advice on saving for retirement. I’m 34 years old and hope to retire at age 65 with a gross income of $70,000 a year. I currently earn $110,000 annually from my job at a law firm.

I recently ran a quick, non-scientific calculation and, assuming I die at age 100 (and I presume here that I have my grandma’s genes, as I definitely inherited her hips and likely her longevity—Grandma is 95 and still drives her car like a boss), I would need to save close to $2 million to afford this retirement. This is a scary number!

I currently save $20,000 a year for retirement and have about $200,000 in retirement savings between my RRSP and TFSA, which are invested in a mix of ETFs, government bonds and employer-sponsored funds in a group RRSP. I use an investment mix of 40% fixed-income and 60%  equity. I also co-own a $600,000 home in Montreal with my partner, and we have a two-year-old for whom we save in an RESP.

My partner and I are not married and don’t plan to marry, so I prefer to plan retirement saving as if I were single. Am I on track to retire at 65?
–Krista

A. Krista, you are doing a great job at saving. Congratulations! Based on your $110,000 income, your take-home pay would be about $76,000 which means your living expenses (minus $20,000 for savings) are about $56,000. Assuming a conservative inflation rate of 2.5% with your desired investment mix of 40% fixed income and 60% equity, a rate of return of about 4.5% gross annually, and savings of $20,000 per year, you can retire at age 65. Note, I’m also assuming maximum QPP and OAS benefits here, and in doing that I can forecast your income to age 100 will be about $62,000 annually (or $47,070 net in Quebec).

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I’ve made some assumptions—mainly that your income increases at the same rate as inflation over the years. If you want to increase your retirement income amount, you have some options. For instance, you can reduce your current expenses to allow for a higher annual savings amount, retire a little later (say age 67 instead of 65), earn a higher rate of return on your investments, or reduce the amount that you feel you’ll need to retire. Changes in any of those factors will change the desired number higher or lower.

As well, using an inflation rate of 2.5%, your half of your home could be worth about $600,00 when you turn 65, which could become another source of retirement income at that point.

Finally, make sure you are maximizing the matching contribution to your group RRSP that your employer makes. This will go a long way to beefing up these savings as well. Good luck, and keep going.

Janet Gray is a fee-for-service Certified Financial Planner with Money Coaches Canada in Ottawa. 

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