For some reason it's become common practice to peg retirement income needs on 60% to 80% of pre-retirement income. Perhaps it was initially based on mirroring the monthly stipend provided by defined contribution pensions, or maybe it just seemed reasonable. 

But the truth is there is only one reason clients need to save for retirement: to provide them with enough cash flow to cover the basics and support their lifestyle through the remainder of their non-working years. Calculating post-retirement cash flow requirements based on projected retirement expenses can generate a more accurate picture of how much income is actually needed.

When estimating how much monthly cash flow a retiree will need, many factors must be considered. When any of these variables are missed, the client is unlikely to be set up for success.

Here are some of the most common factors influencing a client's retirement income needs. 

1. Committed & spendable cash flow

To assess cash flow needs for retirement, you need a simple and efficient way to evaluate a client’s current cash flow. You can take the traditional approach of examining bank statements or getting the client to make a general guess about their monthly spending, but those tend to be time-consuming and aren’t that helpful. 

It’s easier to see a client’s cash flow and provide advice if you split their expenses into what we call committed and spendable cash flow categories. These categories let you see their high and low-risk expenses separately. From their current committed cash flow (low-risk), you can more easily predict how much retirement income they’ll need just to pay their bills, and their pre-retirement spendable (high-risk) will give you a good sense of their day-to-day spending needs. The combination of those committed and spendable numbers will provide you with a reasonable estimate to use to create a projected retirement income.

For more on committed and spendable, check out this recent presentation.

2. Debt

Given that so many Canadians are retiring in debt, it's unlikely that a majority of your clients will be debt-free by retirement. Do you know when each of your clients is on track to be entirely debt-free? Talking about debt can be very challenging, but it's crucial - especially now. Inflation is likely to turn clients who are comfortable into clients who may struggle to fund their retirement plans fully. 

And clients who are on track to retire with a mortgage or other debt will need even more income to cover the costs of those debts. So ensure you include all lines of credit, credit cards and car loans when calculating your clients' debt management time horizons. 

For an effective strategy to help get more debt information from clients, check out the proactive question section of our on-demand Behavioural Cash Flow Planning Workshop. You'll find that section at about 38 minutes. You can watch the entire session and take the quiz at the end to earn 2.57 FP Canada-Approved CE credits as well!

3. Taxes 

Of course, a client can only live off the income they can keep after tax in retirement. It can be tempting for clients motivated by tax refunds to focus only on maxing out RRSPs during their working years, leaving their TFSAs for any overflow. However, RRSP and RRIF withdrawals in retirement are fully taxable as new income. The hope is that the client's marginal tax rate is much lower in retirement, but it's typically not zero. Retirement accounts that create taxable income require the client to withdraw a larger amount to net the same after-tax income as a TFSA withdrawal. When clients have to draw enough funds to cover both their income needs and taxes, those funds will deplete faster than the same amount in a non-taxable account.. 

Having a client's assets erode faster doesn't just affect the client. It will also reduce the value of your book of business at a more rapid rate. Helping clients carve out more cash flow towards retirement can make them feel confident they can afford to fund TFSAs and RRSPs simultaneously. Knowing their cash flow-based retirement income needs can help you guide them on which account should be prioritized.

4. Goals 

It’s also important to know the type of retirement lifestyle your client is seeking, especially in the first few years of retirement when their cash flow demands might be higher. J.P. Morgan found one retirement surprise is that people don’t reduce spending overnight when they retire, and often use more of their nest egg in early retirement. Those larger earlier withdrawals can put a dent in future financial stability. It’s crucial to build in the types of goals your clients might fund during retirement well before they’re drawing on their assets. Are they going to build a cottage or winterize one they already have? Are they going to spend their winters down south, or take a trip around the world? Are they going to cover the cost of a child’s wedding or university expenses?

One ill-timed larger withdrawal can wipe out years of future retirement income meant for down the road. Consider the idea of clients keeping an empty (no balance) line of credit on their homes, so they have options to fund lump sum costs if they need those funds when the market is down. A line of credit can provide you and your clients more control over the timing of the withdrawal from their assets and protect months, if not years of future income in the process.

5. Inflation 

Inflation is difficult to predict and can have a double whammy effect on clients' retirement cash flow if they  also carry debt. How does your client's retirement cash flow stand up against a 3% to 7% inflation rate? Do they run out of funds years sooner? That inflation figure may be much higher than the typical inflation rate financial professionals generally use in their projections. Still, clients need to be prepared to sustain periods of higher inflation without putting too much pressure on their resources.

6. Emergencies 

Most people should stop saving for emergencies only once they've stopped breathing. Your client's septic tank doesn't decide not to leak because it knows they are retired and living on limited income. Cars don't go through decades of retirement, never needing an unexpected repair. Ensuring your client not only retires with an emergency savings account intact, but that they continue to keep it topped up is key to providing them with a greater chance of a stable retirement income.

7. Relationship status

Single retirees may need a higher income than the standard estimate, which is targeted towards couples. For instance, they can’t benefit from cost-sharing during retirement. The cost of one person living alone in an apartment is generally more per person than the cost of two people living in that same apartment. A couple also typically has double the guaranteed income sources from government pensions, which reduces pressure on client-controlled retirement assets. Single retirees can be protected from some of these risks by having a cash flow plan, and considering some lifestyle downsizing for several years leading up to retirement. It’s also crucial for single individuals to build up assets that are not taxable upon withdrawal so they can maximize their after-tax income. 

Helping your client see their retirement needs based on their cash flow projections can make it much easier to gain commitment to their overall retirement plan. Without an ah-ha moment, many clients are easily distracted from longer term goals by mantras like “life is short,” and many are convinced they’ll spend very little retirement. Putting more away for the future doesn’t mean clients forgo living for today; luckily, they can do both with a cash flow plan!  

Looking for some simple strategies to project spending in retirement? In our next webinar, we’ll take you through some simple exercises to do with clients to help them get a reliable estimate of post-retirement cash flow. Even if you have clients nearing, or already retired, it’s not too late to help them make changes to ensure a more sustainable retirement. Check out our on-demand webinar: Cash flow strategies for retired clients.

About CacheFlo

CacheFlo is a financial education company that builds eLearning and tools to help financial professionals and individuals make behaviour-based changes, which allow them to get more life from their money. We want to make it easier for people to predict the impact of their financial choices before they make them.

About the Certified Cash Flow Specialist (CCS) program

CCS professionals go through enhanced cash flow-based training to develop the skill set to deliver behaviour-based cash flow advice. They start the financial planning process with a cash flow plan to genuinely help their clients get more life from their money.


Roy, K., Kim-Seiner, Y., (2019, Jan 21) Three retirement spending surprises. [URL] J.P. Morgan Asset Management