You may have heard of the 70 per cent rule: it urges you to assume you're going to need 70 per cent of your working income when you reach retirement. But there aren't many financial planners who hold you to that number.  

Assume 100 per cent and see what life throws at you, suggests Beth Hamilton-Keen, director of investment counselling at Mawer Investment Management Ltd. and global chair of the CFA Institute.

A retirement full of travel, children who need support, a period of long-term care — any of those events could mean you'll need as much in retirement as you did when working, she says.

Fred Vettese, chief actuary at Morneau Shepell, disagrees. It's unlikely to be more than 50 per cent, he says.

Vettese reasons people typically live on less than their full income before retirement, so why would they need more in retirement?

"If they raise children and pay the mortgage, which is the majority of Canadians, then they are living on 30 per cent of their income for most of their lives," says Vettese, who is also author of The Essential Retirement Guide: A Contrarian's Perspective.

'My suspicion is we're not saving enough.' - Beth Hamilton-Keen, of Mawer Investment Management

In addition to the mortgage and child-raising, he says money is also doled out on income tax and saving for retirement.

"When you retire, those costs go away, except income tax," Vettese says, noting even income tax is less in retirement due to shifting into a lower income bracket, and the age and pension credits.

Throw out the 70% rule

Vettese says the 70 per cent rule works to the advantage of the financial services industry, which has a vested interest in seeing people save more because it makes its money from investment fees.

"We hear it so often because it keeps on being repeated – it doesn't mean it's so," he says.

Hamilton-Keen is a big advocate for getting into the habit of saving, saying you should start in your 20s so you're ready for a possible maternity leave or loss of a job. Then you should carry that habit into later years, she says, when you need to look ahead to retirement.

"My suspicion is we're not saving enough," she says, pointing to the 2008 downturn that had forced many to postpone retirement.

There are lots of curve balls that can land in the 10 years leading up to retirement, and can make a big difference in your financial picture. She says the big three include:

  • Loss of a job
  • Marital breakdown
  • Health-related setback

Having savings makes a big difference when life threatens to throw you off course, no matter what your income.

"People with low income can save very successfully," Hamilton-Keen says.

Lining up the risks

"Someone with high income, if they are not making wise investment decisions, like saving, they can be disadvantaged going into retirement because they have different expectations."

She likes to leave a safety margin for the retirement years, because there is a risk of outliving your money.

She said many people find their costs go up in early retirement, when people have time to travel or spend time at the vacation home they've always wanted. That stage lasts about 10 years, but many find they cut back on travel at age 71, when the cost of travel insurance increases.

'There are some minor differences, but eventually we'll become our parents.' - Fred Vettese, of Morneau Shepell

Then there is a period in late retirement, usually when someone is in their late 80s, when they have to face the costs of assisted living or home care. Those costs are rising more quickly than inflation, Hamilton-Keen says.

Don't worry about long-term care costs, counters Vettese. Most people need care for less than two years and even then, there are affordable alternatives.

The unlucky few who end up needing care for a longer period will probably sell their home in order to afford it, he suggests.

Vettese says the current generation of baby-boom retirees may start off spending more, but eventually, they stay home and garden. "There are some minor differences, but eventually we'll become our parents," he says.

We're better at saving than we think

Vettese believes it's a myth that Canadians aren't saving enough — one based on a bad interpretation of data.

"We hear only one-quarter of Canadians put money into RRSPs and isn't that terrible. But that...includes retirees and 18 to 25 year olds who have a summer job," he says.

Among those in their peak earning years of 35 to 55, 80 to 90 per cent are either putting money in an RRSP or a TFSA, or they have a company pension plan, Vettese says.

He cautions there is still a cohort of middle-income and upper middle-income people who are doing none of these things – and that 15 per cent of Canadians are the ones to worry about.

"Some people are not saving enough," he says. "They will be able to get by, but will have a substantial drop in their standard of living."

So what's the verdict? Plan to spend more, plan to live on less or just plan to plan?

"It really does come down to the individual and the choices that they are making," says Hamilton-Keen.