Most Canadians don’t feel very good about the amount of money they are putting away for retirement, according to a recent survey from Toronto-based Bank of Montreal.

Only a slim majority of survey respondents indicated they were “somewhat satisfied” with the amount they were saving, and four in 10 expect their retirement to be considerably less comfortable than the lifestyle they currently enjoy.

Despite this, according to research from Toronto-based pen-sion consultants Morneau Sobeco, many Canadians are not nearly as badly off as they think when it comes to retirement savings. However, according to a recent report published by the firm entitled Saving for Retirement, Part II, most people do a poor job of setting a suitable retirement income target, then complicate things by ignoring certain types of assets that can be turned into income.

For decades, Canadians have been told they will need about 70% of pre-retirement income to fund their retirement years. However, Morneau Sobeco’s findings indicate that the real number may be closer to 50% for many middle-class, two-parent families.

The Morneau Sobeco report suggests that investors who focus on replacing some percentage of income at retirement don’t pay enough attention to what they are really going to do with their money. What they should be looking for instead is what the report calls an “equilibrium point” — the percentage of current income inves-tors need to save in order to achieve the same disposable income in retirement as they enjoyed during the latter part of their working life.

Most Canadians have certain expenses during their earning years that usually drop off by retirement, such as commuting costs, contributions to CPP, mortgage costs and income taxes. As well, if retirees are prepared to tap into less traditional sources of retirement income, such as the proceeds from downsizing their home or taking out a reverse mortgage, the ratio changes yet again, thanks to lower tax assessments and increased capital.

This is why individual circumstances rather than any particular rule of thumb should be the primary driver in determining the cost of a successful retirement, suggest University of Michigan professors John Karl Scholz and Ananth Seshadri in their recent paper, entitled What Replacement Rates Should Households Use?

In other words, some households should be saving more but many can comfortably save less.

Perhaps the biggest and most obvious limitation centres on family size, says the U of M paper. That is because rules of thumb tend to be the same, regardless of the number of children in a family.

However, the amount of money needed to get by comfortably in retirement is probably much less if household resources during the pre-retirement period are devoted, in large part, to raising children, the U of M paper points out. Similarly, when children are born will affect a family’s consumption profile as well as the target replacement rates.

In most cases, saving as much as possible is the preferred solution. But, it appears, automatically stretching for the popular 70% target isn’t always the way to go. IE