A Canadian based study was conducted by three University of Waterloo researchers, entitled “Basic Living Expenses for the Canadian Elderly”, to determine the basic living expenses required by Canadian seniors living in different circumstances in terms of age, gender, city of residence, household size, home ownership / renter, means of transportation, and health status.  It assesses the minimum level of income required in retirement and the adequacy of savings and income security programs.  Using Halifax, Montreal, Toronto, Calgary and Vancouver as base urban centres, the study looks at identifying what the elderly income threshold is for these urban areas for an single elderly individual and an elderly couple for 2001.

The paper’s conclusions suggest that individual circumstances, rather than age, are the primary drivers in determining the cost of basic expenses.  The thresholds resulting from the study provide a general impression of the necessary after tax income needed to cover basic needs.

A no frills retirement – couple rents rather than owns, owns no vehicles but uses public transit, low clothing expenditures, and has very little or no extra cash for minor indulgences (like cable, alcohol and entertainment) – would have an annual cost of between $20,200 to $27,400.  Some comfort is out there for those concerned about those annual cost numbers because the Old Age Security (OAS) and Guaranteed Income Supplement (GIS) programs for low income seniors gets close to covering these basic needs – just barely or very close depending on the city you live in.  If you add the Canada Pension Plan (CPP) payouts, if you worked most of your life, you will get more – a bit less than $30,000.

I’m sure most would look at a no frills lifestyle and cringe but there will be income.  Most Canadians want better than the no frills version and expect the same or similar levels of comfort they enjoyed while working.

Another article that discusses the noted study presents some info regarding how much income to you need.  It assumes you receive about $30,000 from CPP and OAS as a base.  For a more active lifestyle than the no frills lifestyle described above, an extra $10,000 to $30,000 a year would be needed.  Some financial planning research suggests you need retirement savings of 25 times your annual retirement spend (excluding CPP and OAS) if you want to keep spending that much for the rest of your life.  Statistics Canada indicates that median spending by a couple over 65 is about $40,000 a year and average spending is about $51,000 per year.  At the $10,000 value that would mean a nest egg of $250,000.  A higher end lifestyle, at the $30,000 value, would mean a nest egg of $750,000.  If you want to be a big spender with an extra $100,000 a year of disposable income, your nest egg would have to be $2.5 million.

This all goes to show that you need to match wants to means – find a retirement lifestyle that fits your budget.  A more lavish lifestyle will be supported by an appropriately sized nest egg.  For many, going back to work part time can provide additional cash for extra lifestyle improvements.  Ideally finding part time work doing something you enjoy so you would love the work as well the extra money.

Refer to http://ideas.repec.org/p/mcm/sedapp/240.html to download a copy of the study.  Information from one of the authors can be found at http://www.naylornetwork.com/cia-nwl/articles/?aid=31031&projid=2080.

Refer to http://ca.finance.yahoo.com/retirement/article/moneysense/42/retirement-three-magic-numbers for an article about the study plus additional related data.