The amount you should be saving for retirement should vary depending on your “spendable income.” This term encompasses most of your expenditures, including household maintenance, travel and entertainment, clothing, grooming, furniture, automobiles, property taxes and insurance. It excludes only child-raising expenses, mortgage payments and income tax. Keep in mind, this chart presumes adults are parents and homeowners with mortgages.
In the chart, the thirtysomethings have spendable income equal to only 20 per cent of their gross pay. This is partly because of daycare expenses. They can’t afford to save 10 per cent of pay for retirement since that would leave only 10 per cent for everything else they spend money on.
The middle-aged couple are in a much better position. Not only is their spendable income nearly 40 per cent of pay, but that pay level should be substantially higher than for the thirtysomethings. This middle-aged couple has to find a way to save at least 10 per cent of pay and preferably closer to 15 per cent.
The couple nearing retirement is in a much more comfortable position since their incomes are higher, while child-raising costs and mortgage payments are lower. They should be saving at least 20 per cent of pay for their retirement and possibly more. This will make up for the early years when they couldn’t save enough.
Frederick Vettese is former chief actuary of Morneau Shepell and author of the PERC retirement calculator (perc-pro.ca)
