Financial Retirement Planning


How Much Do You Need to Retire

How Much Do You Need to RetireSo How Much Do You Need to Retire? When it comes to financing their retirement, confusion reigns among Canadians and Americans. Some think the magic number is at least $550,000, while still others believe they need to save at least $1 million. This is to meet their lifestyle and to last for the length of time they will live during retirement. Many are realizing that they do not have enough saved. They will need to continue working after the normal retirement age of 65.

There are many other issues to the uncertainty are myriad of retirement savings theories, assumptions, and rules of thumb.  For example how much money you need to save, rate of returns, how long you will live, what old age homes costs. Whether you want to give money to your kids and when you should do that. We will stick to focusing on retirement and living comfortably and not about bequeathing something to the family in this post.

How Much Do You Need to Retire

Determining how much money you will need to save for retirement is unique for each individual. It is often more complex than using a simple theory. There is no one-size-fits-all solution. Common retirement savings theories should be carefully reviewed before being adopted. There are a number of areas we will discuss and we urge readers to draw their own conclusions. They should make their personalized decisions based on their situation and their needs.

Government Pension Plans – CPP, OAS, social Security

The belief that one’s retirement can be adequately funded through government pay-outs and public pension plans is a myth. Canada Pension Plan or US sponsored Government plans will not provide enough.  It is true these payments will certainly help with your retirement. They will not replace in a substantial way your current income unless you are already on the poverty line. For example in Canada,  if you were making $50,000 a year, then you can expect somewhere around $17,000 from the CPP and OAS per year. This is roughly  about 35% of your current income. This is a huge drop in income if you have no other income to rely on.

Company Sponsored Pension Plans

If you are lucky enough to have a company sponsored pension plan, then you are well ahead of the majority of consumers who do not have a company sponsored pension plan.  Employees are encouraged to request an estimate of what their pension plans will be when they retire if they maintain current contributions. There are many different types of plans so it is important to review the detail. Speak with the benefits group to understand what your payments will be.  The most common plans are “defined benefit plans” and “defined contribution plans”.

Do You Need All of Your Income in Retirement

The theory that one needs 70 per cent to 80 per cent of their pre-retirement income is just that a theory. It is a good starting number to aim for since many of your expenses will be lower during retirement. For example, you will no longer need to contribute to unemployment and pension plans. This can be a significant drop in requirements. Also you are no longer going to work so any expenses associated with travel to work are also not required.

However, you have to do something and many people like to travel and pursue some of the activities that you never had time to do while working. The best approach is to make a list and a budget of ongoing expenses and outline the things you want to do during retirement. Whether it is hiking or cruising, you will need some money to do these things. You will soon know whether you have enough money or not.

Is $1 Million Enough

The “magic” $1 million dollar assumption is really that just an assumption. It really depends on your lifestyle and when you plan to retire. Someone who retires at 65 and does not plan any major travel or expensive projects may find that $1 million is more than enough. While retiring at 55 and planning major trips every year may find that they will not have sufficient funds. Again prepare a budget and plan out your expenses vs. your income. For example you can withdraw $50,000 for 20 to 22 times depending on interest rates before the $1 million is gone.

Five Percent Withdrawal Plans

Using four per cent to five per cent of accumulated savings annually during retirement is a pretty common approach.  If your investments earn more than 5% then your investments will likely last during your retirement. If you investments earn less than 5%, then they will decrease each year and you may run out. Focus on good quality income earning investments to avoid running out of funds.

Delayed Retirement

Planning to delay retirement and continue contributing to your savings plans is always a good thing  in order to afford retirement. Even delaying retirement by two years can make a huge difference in your assets and help to make sure that your investments last longer.

So, How Much is Enough?

There are many considerations when it comes to planning one’s retirement and consumers are urged to develop different scenarios and evaluate how much money they will have for retirement.  The variables you should consider include:

  • The age at which you wish to retire
  • Pension plan income you will receive at retirement
  • The type of lifestyle you want to lead
  • Your health
  • Whether you have outstanding debts going into retirement
  • Your expected retirement expenses, such as, housing, food, etc.
  • Your current savings in registered and non registered accounts

It is important to know your retirement goals and objectives, identify your sources of retirement income and start planning as early as possible. Review your plan at least once per year and more often if you have a major change in your life. These changes can include – loss of job, death in the family, moving,  and of course retirement.

You may find that your retirement goals and lifestyle choices change over time and, consequently, the amount of money you need will change.

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2 Responses to “How Much Do You Need to Retire”

  1. Surveillance Camera Says:

    Hi Guy, this good blogs, thanks

  2. […] How much do you really need to retire? this is the question that many millions of people are asking themselves as they approach the time in their lives were they might consider retiring. We wrote an extensive post about this subject mack in March 2010 and felt that we should repeat some of the ideas once again this year to remind everyone that a little planning will go along way to answering this question. For the older post , click here. […]

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