You don’t want to wait until you retire to find out if you have saved enough. Ideally, you should be able to check if you are on track at any point in time. Every case is unique. Consider Jack’s situation. His earnings triple in real terms over a 40-year career and he finishes with pay that is double the national average. If Jack retires at 63, he should aim for retirement savings that are at least five times his final year’s pay. The chart shows two ways to get there. Jack could save 10 per cent of his pay every year for 40 years or he could wait until age 35 to start saving and then save 5 per cent from 35 to 39, 10 per cent in his 40s and then 20 per cent from 50 until retirement. Saving a flat 10 per cent is hard to do in Jack’s early working years but it is less risky if he is laid off or retires earlier than planned. Saving based on the 0-5-10-20 schedule fits in better with how Jack’s disposable income increases throughout his career but it’s not for the faint of heart. Note it takes Jack 14 more years to save one times salary under the 0-5-10-20 approach.
Frederick Vettese is former chief actuary of Morneau Shepell and author of Retirement Income for Life.
