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For a 30-year old, the income replacement may be more than 60 per cent with a 10 per cent annual savings rate and age 65 retirement. A 50-year old getting a late start may only replace about 45 per cent of their income by 65.
In the absence of someone taking the time to assess their unique personal circumstances, the “How Much to Save?” study highlights the benefit of a retirement planning recommendation that can be tweeted in 280 characters or less.
So, I am willing to suggest that a mid-career saver aims to put aside roughly 10 per cent of their income if they are looking for a quick answer to how to replace about half of their income by age 65. 10 per cent is better than nothing at all. However, the “right” amount could range from 0 per cent to 20 per cent, or less, or more.
Asking a financial planner for a generic answer on how much to save for retirement is like asking a doctor to prescribe a drug that your whole family can take for any illnesses they have over the next 20 years. There is a reasonable chance an aspirin will help, but maybe not.
In order to stick with generalities to keep saving simple, if you have a group savings plan with an employer matching contribution, you should probably participate. The match provides an instant rate of return beyond other saving options. If not, you should consider an RRSP if your income is relatively high, but favour a TFSA if your income is relatively low.
Your investments should always match your risk tolerance, but the more exposure to stocks, the higher your long run returns will be despite the increased short run volatility. The higher your returns, the less you will need to save, the earlier you can afford to retire, and the more you can safely spend in retirement.
