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Your Money Month: When is the right time to retire?

ANALYSIS: I once asked Malcolm Hamilton, who was then an actuary and has since retired from Mercer, "How do you really know when it is the right time to retire?" He looked at me and without hesitation said, "When the frustration or burden of going to work exceeds the pleasure you get from it." And then went on to say that of course: "That only works if you have the financial clout to have the luxury of choice."

He also debunked the theory that you need 70 percent of your pre-retirement income in order to sustain the same standard of living you enjoyed prior to retirement. The fact is most of us will live very modest lives in retirement doing things similar to what we did before retirement and that will not require 70 percent of pre-retirement income.

To reinforce this point, when researching for a book on retirement, I asked people what they hoped to do when they retire. The standard response was travel. When I further asked if they travelled a great deal before retirement, they said no. I then asked if they were travelling now that they had retired. Again, they said no.

The moral of the story - you may only need 50 percent of your pre-retirement income and not 70 percent. Lifestyle drives retirement savings strategies.

As you start to wonder if in fact you have the luxury of choice and really have enough to see you through YOUR retirement, consider a few things:

Many have hit a stride in terms of income earning potential in their 50s. And it’s quite possible you’re an empty nester and if mortgages are not paid off, they're darn close. There is a lot of disposable income coming in and it is so easy to think it can and will continue. But the sad reality is, if you have children, you may still be getting them to a point of self-sustainability. This may include funding a post-secondary education. Another thing to consider is that if you’re paying off/down your mortgage, you may be left with insufficient money tucked away for your own retirement. Freedom 55 is a brilliant marketing campaign, but a myth.

But it doesn’t have to be all doom and gloom. By confronting your retirement facts and understanding your data points, you can decide when to retire on your terms. How much you have saved? How much do you owe? What sort of lifestyle do you want in retirement? These questions are good starting points, coupled with a clear appreciation of your retirement income sources.

There will be gaps and your 50s is when you can shore up those gaps. Plus, you will have a much better grasp of what your fixed costs in retirement will be. As you enter your 50s, you have the luxury of choice when deciding how to spend disposable income - current lifestyle or future lifestyle. Choice is yours and a privilege and luxury.

As the Chief Financial Commentator for CTV News, Pattie Lovett-Reid gives viewers an informed opinion of the Canadian financial climate. Follow her on Twitter @PattieCTV

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