The Goal of Retirement is to Achieve Financial Independence

Today, the goal of retirement is more about achieving financial independence, than it is golfing, traveling, and doting over grandchildren.

There was a time when Canadians retired at age 65. Government benefits and employer pension payments began, and together they were enough to take care of you; even if you had no other savings. Let's face it, that traditional idea of retirement is a thing of the past. Increasingly, your ability to retire depends upon how much you save for retirement and how you manage your own money.

Today, the goal of retirement is more about achieving financial independence, than it is golfing, traveling, and doting over grandchildren. It's about reaching a point in your life where your career and lifestyle choices are no longer driven by financial necessity. Nowadays, people are saying goodbye to a full-time career in their early 60s, but are still able to maintain their lifestyle through investments and by working part-time or under a contract.

Before you can consider leaving your full-time job, you need to determine where your retirement income will come from. A single person enjoying a middle class retirement should expect to spend $28,000 to $49,000. If you were to retire at 65 with annual government benefits of $15,000 per person, you will need to make up the remainder with personal savings of $325,000 to $850,000. If you plan to retire before 65, you’ll need a bit more.

If you don’t have enough money to retire, then you’ll need to reconsider. You may need to cut back your retirement spending, or find a way to save more. The only other option is to work longer and earn more money. Now, this doesn’t mean that you have to hold your "nose to the grindstone" doing something you despise. Semi-retired workers have a growing number of part-time, contract and temporary jobs to choose from. On the other hand, if you don’t like the idea of working longer, you’ll need to significantly increase your savings. That is going to take discipline; especially if you are in your late 40s or early 50s.

I remember a time when you could put your savings into government bonds and earn 10% to 15% interest. Today a 10-year Government of Canada bond yields 2% if you're lucky. That investment return is barely able to keep up with inflation, let alone earn a healthy income. Don't get me wrong, it is important to keep a portion of your portfolio in low-risk investments so you don’t get devastated if your stock investments lose value, but you need to constantly be on the look-out for better returns.

Although fixed-income investments – like bonds - can protect your savings, you’re not likely to grow your wealth with them. To stay ahead of inflation and earn a steady income, you’ll need to keep a portion of your portfolio in investments that pay monthly and earn more than the rate of inflation.