When it comes to retirement, Americans and Canadians are grappling with a mix of hope and anxiety. From how much money they need to save, to fears about government benefits and inflation, many are searching for clarity in an unpredictable landscape. Let’s break down the top concerns and what you need to know.
How Much Do You Need to Retire Comfortably?
According to recent surveys, Americans today believe they will need at least $1.26 million USD saved to retire comfortably. This figure is a significant increase from previous years, reflecting growing concerns about longevity, rising healthcare costs, and lifestyle expectations.
Similarly, Canadians estimate they will need at least $1.7 million CAD to retire comfortably, according to national surveys. This number highlights the impact of longer life expectancies and potential gaps in workplace pension coverage.
However, the “right” retirement number varies widely depending on individual circumstances such as where you live, your health, your spending habits, and whether you have other sources of income. Financial experts suggest using a simple rule of thumb: aim to replace 70% to 80% of your pre-retirement income annually.
To work toward this goal:
- Start early and contribute consistently to retirement accounts like 401(k)s, IRAs, RRSPs, and TFSAs. In doing so, ensure that this aligns with your cross-border tax status and objectives.
- Take advantage of employer matches, if available.
- Invest wisely with a balance of growth and stability as you age.
Will Social Security, CPP, and OAS Be There When You Retire?
In the United States, concerns about the future of Social Security are particularly pronounced among Generation X – individuals born between 1965 and 1980. Many fear that by the time they retire, the system could be significantly depleted or changed.
The good news: Social Security is unlikely to disappear. The program is funded primarily through payroll taxes, and even if its trust fund reserves are exhausted, which current projections estimate could happen around 2034, ongoing tax income would still fund about 75% of scheduled benefits.
In Canada, fears about the future of the Canada Pension Plan (CPP) and Old Age Security (OAS) are far less pronounced. The CPP is widely regarded as financially sustainable for the long term, thanks to reforms made in the late 1990s that moved it to a partial funding model supported by investment income and contributions. Recent actuarial reports project that the CPP will be able to pay benefits for the next 75 years and beyond without making any changes.
As for OAS, it is funded from general government revenues, and although demographic pressures are real, there is a strong political will to maintain the program. Recent enhancements, such as increased benefits for seniors age 75 and older, indicate that OAS is expected to continue, although adjustments to eligibility ages or benefit amounts could happen over time.
However, changes will likely be needed in both countries to ensure full benefits for future retirees. Potential solutions include raising the retirement age, increasing payroll taxes, or adjusting benefits. It’s wise to approach retirement planning with the assumption that Social Security, CPP, and OAS will serve as supplements, rather than main sources, of income.
Will Inflation Erode My Retirement Savings?
Another major concern is whether inflation will continue to rise after retirement, reducing purchasing power and making it harder to maintain a comfortable lifestyle. Given the recent spikes in inflation, retirees are understandably nervous.
While periods of higher inflation are part of economic cycles, most economists expect inflation to moderate over the long term. However, planning for some level of inflation is essential.
Here’s how to protect yourself:
- Diversify your investments, including assets such as stocks that historically outpace inflation.
- Consider inflation-protected securities like Treasury Inflation-Protected Securities (TIPS) in the U.S. and Real Return Bonds (RRBs) in Canada.
- Adjust withdrawal rates cautiously to avoid depleting your savings too quickly.
- Plan for healthcare costs, which often rise faster than general inflation.
In Conclusion
Retirement planning is filled with uncertainties, but careful preparation can provide peace of mind. Saving diligently, investing wisely, and planning for variables like changes to Social Security, CPP, OAS, and inflation will position you to enjoy the retirement you envision—whether that starts at 62, 67, or beyond.Ultimately, while $1.26 million (USD) or $1.7 million (CAD) may be today’s “magic numbers,” the real key is a personalized plan tailored to your unique cross-border goals and circumstances. The earlier you start preparing, the better your future self will thank you. Contact a Cardinal Point cross-border financial planner to discuss your unique situation.