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70% of Income Rule is Flawed

4726 Views 4 Replies 5 Participants Last post by  Saniokca

I'm not sure if I would be entirely comfortable with the idea of saving less for retirement but I do agree with the idea that everyone has their own retirement number.
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Yes, it is flawed, mainly because of the variability of the expenditure side. If you are still paying rent, or paying a 40-year mortgage, 65-70% is not a bad rule of thumb. But most homeowners aim to retire mortgage-free, with their kids no longer financially dependent on them. If they manage this, then they don't need 70% to maintain the same life style.

It might be more accurate to say that the 70% rule is based on a statistically average wage earner, with statistically average living costs. The principle is that after retirement you no longer have to pay:
CPP, Pension or RRSP Contributions; EI; Union Dues; or other work-related deductions and costs. These, together with lowering your taxes, mean that a 70% gross pension income will net about the same net take-home pay.
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