Alison Griffiths

Last week's column about over 50s working until they drop generated a flood of questions asking me for the magic number — the amount of income needed upon retirement.

Sorry, there is no retirement number decoder ring! Back when we thought the banks and advisors had all the answers and before Canadians distinguished themselves by racking up record personal debt levels, the rule of thumb was 70 to 80 per cent of the last five years of pre-tax income.

Of course, that assumed one was fully employed in the five years leading up to the typical retirement age, averaging 62 years old nationally. The recommended percentage also assumed that anyone over 60 had little or no debt. Wow, to think that was more common than not a generation ago!

These days, it's far trickier to determine a magic number. Each situation is different. But that doesn't mean you can't get a sense of how much you might require. You just have to factor into the equation your personal retirement variables, namely; pension income (workplace, CPP, Old Age Security), debt (the retirement killer), health, location, post-retirement lifestyle and estate considerations (whether you care about leaving one or not).

The first step to calculating a retirement number is determining spending needs, which will drive income requirements. I know it's an obvious point, but from experience I'd guess about 75 per cent of Canadians don't really know how much they're spending and on what.

The second step is examining expenditures to figure out which ones will continue into retirement. Don't forget rising property taxes, condo fees and insurance, especially if you plan on travelling outside the country.

Be sure to examine the carrying costs of your debt now and estimate what it will be upon retirement. To be safe, project a higher rate of interest than you are currently paying.

The third step is comparing projected retirement costs with expected income, including anything from part-time work. You will find considerable information on Service Canada's website. It takes about 15 minutes. Beware, it doesn't factor in proposed changes in the 2012 budget to the Old Age Security Act. The site currently allows for annual inflation of two per cent but that may not be sufficient to cover age related increases to travel, medical and life insurance.