Avoid Outliving your Savings in Retirement

Retired couple on a dock

One of the most common fears amongst retirees is outliving their savings. Luckily, with enough planning, you can minimize this risk to help ensure your golden years are comfortable.

Understand your Life Expectancy

When planning for retirement one of the things you will need to know is how long you will be relying on your savings. While nobody can predict the future, factors such as your retirement age, health status and family history can provide you with some information to help in your planning process.

Follow the “Safe Withdrawal Rule”

You may have heard that you can safely withdraw 4% a year from your retirement savings. This amount gives you an income stream (in addition to CPP and any OAS you are entitled to) while maintaining a balance that can continue to grow through the power of compound interest.

Keep in mind that the 4% rule covers all expenditures; taking extra money out of your retirement savings for a large purchase will impact the principal, reducing the amount of compound interest your savings will accrue. This can hurt the longevity of your savings. Instead, incorporate large expenses such as a new vehicle or trip into your budget.

Make a Retirement Plan

What do you want your retirement to look like? Do you want to travel, or would you prefer to stick closer to home? No matter what your plans are, you need to plan for it to ensure you have a budget in place that does not violate the 4% rule. If your retirement plans are more lavish than you can currently afford with your savings, consider delaying your retirement or working part time for a few years before retiring completely. Even working for an extra year or two will give you the opportunity to increase your RRSP by a significant margin, leaving you with a larger principal in retirement.

Looking to plan your retirement or check the status of your retirement? Try out Cambrian's retirement calculator