I don’t want to wait until I retire to find out if I have enough savings. Ideally, you should always be able to see if things are going well. All cases are unique. Consider Jack’s situation. His earnings have effectively tripled over his 40-year career, and he ends up earning twice the national average for him. If Jack retires at the age of 63, he should aim for a retirement allowance of at least five times his final year’s salary. The graph shows his two ways to get there. Jack said he would save 10% of his salary each year for 40 years or start saving until he was 35, from age 35 he would save 5% until he was 39, and in his 40s he would save 10%. He can save 20% from age 50 until retirement. It’s hard for Jack to uniformly save 10% when he’s just starting out, but it’s less risky if he gets fired or retires ahead of schedule. Savings on a 0-5-10-20 schedule fits better with how Jack’s disposable income grows throughout his career, but it’s not for the faint of heart. Note that it would take Jack another 14 years for his 0-5-10-20 approach to save him 1x his salary.
Frederick Vettese is Morneau Shepell’s former chief actuary, lifetime retirement income.