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How much you need for retirement may surprise you

My better-looking but much older brother Larry lives by the philosophy that "I want the last cheque I write to bounce.

My better-looking but much older brother Larry lives by the philosophy that "I want the last cheque I write to bounce." Indeed, Stephen Pollan and Mark Levine wrote a national bestselling book titled "Die Broke," saying not to worry about leaving your kids an inheritance because "it will force you to put the quality of your death before the quality of your life."

Laura McDonald and Susan Misner later wrote about "10 Ways to Stay Broke . . . Forever," concluding that "the ultimate luxury is not a new car, designer wardrobe or scarlet-soled shoes; it's savings pure and simple," while at the same time warning against "leading a meagre and impoverished life, only to die with millions in the bank."

But planning to spend your last penny the day you die is harder than it used to be. Time was that everyone retired at age 65, and in 1979 Albertans lived to an average age of 75.2 years, according to the Centre for the Study of Living Standards. But nowadays most people retire between age 60 and 70, and in 2014 Albertans lived 81.6 years. Adrian Mastracci, portfolio manager with KCM Wealth Management, says that "retirement is the world's longest coffee break."

A starting point in preparing a retirement plan is an actuarial forecast of how long a person will live. That takes into account family longevity, personal medical history, whether a person has high blood pressure, is overweight or underweight, and how much they exercise. One rule of thumb is to budget $10,000 a year in retirement for either health care or travelling, including insurance costs for both. How healthy you are is a major factor in now much you travel. Mastracci says health care costs are a prime reason people can outlive their retirement savings, given the soaring cost of medications, doctors and dentists, plus home care or nursing home fees.

A study by BMO Wealth Management last year showed retired Albertans spend $31,776 a year, compared to $28,800 nationally. Canadian retirees have average monthly expenses of $669 for housing, $581 for bills, clothing and transportation, $442 for food excluding eating out, $282 for travel, $167 for entertainment and $151 for medical expenses. ATB Financial reports that despite the economic downturn, retail spending by Albertans this April was higher than the monthly average since the beginning of 2015.

Most people consider preparing budgets a waste of time because many expenses are unpredictable. An easier exercise is to start a spread sheet and each month enter your bank account withdrawals and credit card purchases into categories like those listed above. Knowing where your money goes gives you an idea of how much you're spending, and where you can cut down. I once prepared a retirement plan for a person who claimed his living expenses were about $1,000 a month. I told him my computer calculated his expenses to be $2,750 a month, and his bank and credit card statements averaged $2,500 a month. Said the client: "I know I eat and drink a lot, but I didn't realize it was that much."

If you don't want to itemize your living expenses, an easier way to calculate them is to take all your income for the year, then subtract savings contributions, income and property taxes, regular loan payments and major one-time expenses like a new vehicle. The difference is your living expenses.

Pollan and Levine suggest you can Die Broke by having insurance and by investing in mutual funds where diversification reduces risk, and you should focus on your annual cash flow (income minus expenses) instead of your net worth, without setting age timetables because every life journey is different.

Equifax credit agency reports that older Canadians have taken on the most debt in the past year, but are also the best at paying it off. As of July people aged 56 to 64 had average debt (excluding mortgages) of $27,594, up 3.3 per cent over the previous year, while those age 65 and over averaged $15,001 debt, up 8.2 per cent in a year. But only 0.9 per cent of those groups were delinquent in paying off debt, lower than all other age groups.

Ray Turchansky is an income tax preparer.