Retirement: What’s Your Worry Index?

There are many levels of retirement income anxiety. Gordon Pape identifies each and gives strategies to cope.

“How much money do I need to retire comfortably?” It’s a question I get asked a lot. I wish it were one I could answer!

Unfortunately, there is no easy response and no magic formula. It all comes down to: “It depends” – and a whole lot of other variables.

Start with your planned retirement age. Time was when 65 was the standard, but not any more. Retirement has become a moving target with an increasing number of people working into their 70s.

About the only thing we can say with any certainty is that the idea of retiring young – the old “Freedom 55” slogan of the London Life advertising campaign – has become an elusive dream for most people.

The longer you plan to work, the less you need to save for retirement. The math is simple: more years of employment income and pension credits, fewer years of living off pensions and savings.

Next, think about your retirement lifestyle. It will almost certainly be more active than that of your parents and grandparents. An active lifestyle is a lot more fun than staring at the TV all day, but it costs money to travel, play golf, spend winters in the Sunbelt or whatever.

Then there’s the question of how long you’ll be around. Many people worry about outliving their money, and they’re right to do so. Life expectancy has increased at an almost unbelievable rate in the past century and continues to do so.

According to Statistics Canada, a girl born between 1920 and 1922 had a life expectancy of 61 years. A boy born in the same period could expect to live to 59. Half a century later, in 1970-72, a newborn boy had added 10 years to his life expectancy. Girls were projected to live 15 years longer, to age 76. The rate of increase has slowed somewhat since, but the trend is still in place. Girls born between 2005 and 2007 have a life expectancy of 83 years while boys have reached 78.

And the older you are, the greater your life expectancy. Statistics Canada found that in 2007, the average 65-year-old could expect to live another 19.8 years – 18.1 years for men and 21.3 years for women.

Of course, the longer you live the more money you’ll need to carry you through. In an ideal world, we’d die on the day our money ran out, but that’s not the way it works.

All of this reinforces my “It depends” answer to the question of how much money you’ll need. Since I cannot offer a meaningful number, let me go at it another way. I’ve devised what I call a Retirement Worry Index. Look it over and see which category you
fit into. That will at least be a start toward answering the “How much do I need?” question.


1. Worry Index: Very Low You work for a place that has a generous defined benefit pension plan sponsored by a federal or provincial government, the military, the police or a powerful union (e.g., teachers). You also have personal savings, own your own home and have little or no debt.

Strategy: You’re in great shape. Enjoy your retirement years.

2. Worry Index: Low You have a defined benefit pension plan from a corporation or a regional or municipal level of government. You have some personal savings, own your home and have little debt. You are probably in good shape, but there is a chance that your pension could be at risk, even though it is “guaranteed,” if the sponsor runs into financial problems. It happens: Nortel pensioners have been in a protracted battle to get at least some of the benefits they expected and the fight is still going on as this is written. In Hamilton, employees of U.S. Steel Canada were locked out in November 2010 when they refused to accept changes to the pension plan that would, among other things, end indexation for some 9,000 people who have already retired. This loss of pension rights used to be unheard of. But the Great Recession of 2008-09 changed a lot.

Strategy: Protect yourself by adding to your savings.

3. Worry Index: Medium You have a defined contribution pension plan, some personal savings, own your home and have little debt. A defined contribution plan does not guarantee a specific level of pension at retirement, but it is better than nothing, especially if the employer is matching your contributions. These plans are structured in such a way that you have your own personal pool of cash to invest in the many options that are offered.

Strategy: The amount of your pension will ultimately depend on how well your investments perform, so it is essential to pay close attention to that money and manage it carefully.

4. Worry Index: High You have no pension plan. You have some RRSP/TFSA savings but not as much as you think you need. You own your home and have modest debt.

Strategy: This is not a hopeless situation by any means, but it requires some immediate action. You need to pay off the debts and begin to boost your savings rate. The more years you have left until your planned retirement, the less of a financial strain this will be as long as you don’t procrastinate.

5. Worry Index: Very High You have no pension plan and limited RRSP/TFSA savings. You still have a mortgage and are carrying credit card debt. You’re probably thinking that a combination of the Canada Pension Plan and Old Age Security will provide for your needs. These will certainly help but unless you plan to scale back your lifestyle considerably, they won’t be enough.

Strategy: You need to pay off your credit card debt as fast as possible and then cut up the card so you don’t incur any more. Once that is done, direct all the money that went to the monthly card payments to an RRSP and use the refund to pay down the mortgage. Depending on your age now, you may have to postpone your target retirement date for a few years.

6. Worry Index: Extreme You have no pension plan, hardly any savings, a big mortgage, other debts and you’re supporting other family members such as an aged parent. This is a scenario that demands immediate attention.

Strategy: You should seek the help of a financial planner to get your affairs on track, but if you are within 10 years of your planned retirement age, your options may be limited. You may be forced to depend on federal income-tested programs such as the Guaranteed Income Supplement (GIS) to make ends meet after you stop work. If that appears to be a possibility, don’t put any savings into an RRSP because withdrawals count as income and will reduce your GIS payments. If you are able to save anything, use a TFSA instead.


I hope very few readers will fall into the Very High or Extreme categories. But if you do, you need to take corrective action to improve your financial prospects after retirement. Otherwise, you may have to keep working for a lot longer than you planned.


(May 2011)