Retirement Needs Analysis - Instructions

This illustration is the standard calculation of how much the client must save in order to retire at a predetermined age with a few variations. This illustration can be used to explain the following key points about saving for retirement.

1
 the effect that small increases in the average yield can have on the amount that must be contributed.
2
 the negative affect that even small increases in the inflation rate can have on savings.
3
 the more income you need the longer you live.
4
 the value of contributing to your RSP in advance.
5
 the benefit of contributing through monthly payments rather than once a year.

Before entering data, be sure you have an accurate estimate income at retirement. This should include benefits from both private and government pension plans and any other sources. If you are talking to a husband and wife, include income from both people.

Desired income is usually higher than existing pension income, otherwise you may as well as suggest that they spend their money rather than save any for retirement as their needs are already taken care of.

There may be an inclination to underestimate required income at retirement. In most cases, spending patterns will not change radically and may increase due to travel, change of dwelling, etc. Remember, all values are expressed in today's dollars. Don't inflation adjust them, the program will.

It is probably best to first base a projection on current portfolio returns and contribution patterns, if there are any. Commonly, this will return annual or monthly contribution figures which will shock the client. Next, using a variety of return rates, you can illustrate the value that even modest improvements will have on the amount required

A few assumptions can be made when entering data:

1
 although inflation is currently low, an average in the 3% - 5% is not unreasonable. We have had periods of much higher rates.
2
 a projection using a mortality age of 90 is not unreasonable; people are living longer.
3
 yields on investment after retirement may be only slightly lower than those before retirement. Many investors want to see the same higher returns that helped them build their retirement savings.

Data Entry Guidelines

*
 Enter all values in today's dollars, the inflation factor makes the adjustment for future values.
1
 Enter the projected total pension income you will have at retirement.
2
 Enter the projected total non-pension income you will have at retirement from sources such as investments.
3
 Enter the amount of income the client expects you will need at retirement. The system will calculate the surplus of shortfall. If there is a surplus, there is no need to run the calculation or you can increase the income level.
4
 Enter the market value of existing investments planned for retirement from both registered and non-registered sources.
5
 Enter your current age.
6
 Enter your planned retirement age.
7
 Enter the term for which to project income. This is usually based on life expectancy.
8
 Enter the projected average inflation rate.
9
 Enter the projected average portfolio yield on investments prior to retirement. This is commonly higher than the yield post retirement.
10
 Enter the projected average income yield on investments post retirement.
11
 Indicate when you will make their contriubution into the investment plan - at the beginning of ending of the month (as selected below). If you choose the beginning, you are allowing more time for money to grow and thus reduce the amount that must be contributed.
12
 Select the investment frequency, monthly or yearly, by clicking on the bullet.