Please, no more polls from financial companies about how much money people imagine they need to save for retirement.
These polls reflect pure uninformed guesswork. One recent poll cited an average $1.54-million, while another said $1.02-million. In another poll, the average response from millennials was $2.1-million.
The purpose of these polls is to get media attention for the financial companies that sponsor them and initiate discussions on retirement issues. OK, here goes. Generalizing about how much people need to retire is a sure way to turn people off of retirement planning.
If you’re struggling to save, it’s unhelpful to hear a consensus that it takes a seven-figure amount. There’s an emerging capitulation theme in personal finance today - ‘I’ll never buy a home/retire, so why bother being disciplined with money?’ Setting high bars for saving perpetuates this.
Also, asking people how much they need to retire is pretty much pointless. The more relevant question is, how much do you see yourself spending in retirement? Once spending requirements are set, the next step is to project an individual’s retirement income based on current and expected future saving, plus the Canada Pension Plan, Old Age Security and, for the fortunate minority, company pensions.
Gaps between expected spending and projected retirement income can be handled. Maybe you ramp up retirement saving, or pare your expected future spending. Working longer can also help with any saving shortfalls, and so can upgrading your skills and seeking a higher-paying job.
Another problem with those polls saying people think they need $1-million or more to retire is that they focus attention on investing, rather than planning. Yes, you have to put money aside and invest it for retirement. But planning is how you find out how much you need to invest over the years, and the right mix of stocks and bonds for your needs.
What a lot of people hear when those retirement polls are published: “You’re not saving enough.” In personal finance, this kind of nagging rarely works.
A better approach is personal empowerment, which means helping people find out where they stand and what they need to do going forward to reach their retirement goals. The federal government offers a very good free tool for getting this discussion going. It’s called the Canadian Retirement Income Calculator and it does exactly what the name suggests.
Plug in your retirement details and get an estimate of what your income might look like when you stop working. If you need more, there are lots of steps you can take.