[CanadianCapitalist]

There are two schools of thought on how much money is needed for retirement. One school, pushed typically by the money management business and based on rather shaky foundation, is that most people need about 70 percent or more of their pre-retirement incomes to enjoy a comfortable retirement.

• Fidelity's Retirement Math
• Are Canadians Saving Enough For Retirement?
• Are Canadians Saving Enough For Retirement? Part 2
• Fidelity’s ‘Scary’ Retirement Findings

The other school, the most prominent of which is Malcolm Hamilton, argues that there is little data to support the notion that most Canadians need nest eggs of $1 million or more to retire at the traditional age of 65.

• Research on Financial Circumstances of Retirees
• Spending Patterns in Retirement

I think the latter school has a sounder argument. Most Canadians retiring at the traditional age of 65 will probably find OAS and CPP will provide most of their required income. A modest nest egg of a few hundred thousand dollars should suffice for the rest. Whether most Canadians of working age who don't have traditional pensions are on track to save up even modest nest eggs is a different story.

 

[Sampson]

I've always thought that the requirement for 70% of current income was ridiculous. Maybe we're TOO frugal - but I know if our housing is paid for - we could live off 35% of our current income.

I think the problem stems with the fact that most Canadians don't give enough forethought to retirement - and get themselves in trouble.

I suppose the other contributing factor is that since most Canadians have well below average returns on their investments - they have to aim for a nest egg that will give them 70% of their current income, but after fees and expenses to the financial industry - their nest egg will only provide 40-50% of current income.

 

[FrugalTrader]

I've always thought that the requirement for 70% of current income was ridiculous. Maybe we're TOO frugal - but I know if our housing is paid for - we could live off 35% of our current income.

I think the problem stems with the fact that most Canadians don't give enough forethought to retirement - and get themselves in trouble.

I suppose the other contributing factor is that since most Canadians have well below average returns on their investments - they have to aim for a nest egg that will give them 70% of their current income, but after fees and expenses to the financial industry - their nest egg will only provide 40-50% of current income.

The thing about the set percentage is that the retirement requirement is a moving target as wages tend to increase with age. Instead, I like to look at it in the "Why Swim with the Sharks" perspective. Basically calculate your retirement expenses that you expect to have, and aim to have your portfolio/cash flow cover that. You'd be surprised as to how much you really need when you take away RRSP contributions/savings/work clothes/cars etc.

 

[stephenheath]

To me the biggest factor was not what % of my income, but how many years I expect to live. Most of my family has been active and healthy well into their mid to late 90's. Assuming I retire at 65, that's 25 years if I'm as lucky that I would need... and as medical advances continue that might even increase.

Once you start living on your income, even if you aren't depleting your principal, your principal is now no longer keeping up with inflation. Let's say right now you wanted $50,000 a year to live on, being conservative and assuming a 4% return on your principal, you would need 1.25 million dollars. That's great for year one. But year two comes along and there's been 2% inflation. Your principal is now still 1.25 million dollars, and it still gets you $50,000, but in today's dollars that's only $49,020. And in 25 years, because each year you've spent the income, you still have that 1.25 million, but that's got the purchasing power of $30,475.

To compensate for that (assuming you don't want principal depletion due to worries about long life) you actually need $75,000 per year... $25,000 to increase the value of your principal, and $50,000 to live on.... and for me, that's the main reason I'm targetting returns equal to 75% of our current income, even though I only expect to spend 40-50% in the early years (I realize that number may go down as I get closer to 90, but at least while insurance is still cheap I want to travel a fair bit).

 

[mfd]

Rough estimates put me at needing 1.5 to 2.5 million future dollars 25 years from now. Like I said this is rough and only looks RRSP savings and a little of the cpp. I haven't fully account for the fiances pension and non-rrsp investments. I'm in the process of mapping the actually total requirement for my retirement

 

[Jon Chevreau]

$2 million invested at 5% = $100,000 a year.

Seems like reasonable target to shoot for. If you don't aim high, you won't get close. Overshooting wouldn't be tragic, particularly if you love your work.

This assumes, of course, no Defined Benefit plans, which are becoming an endangered species, particularly for the younger generation. It also doesn't factor in government income sources like CPP and OAS. Many financial planners I talk to view CPP/OAS as a bonus but it's a worthwhile exercise to calculate how much capital you'd need to generate a reasonable retirement income, and not counting on DB or government pension incomes.

Book:

www.financialpost.com/fd

Blog:

www.wealthyboomer.ca

 

[Hazelnut]

I just roughly calculated my pension, CPP and OAS & personal savings and if I live to age 98 (my grandmother lived to 94 and her mother to 106) then I will have live on 1.9 million. Being the frugal person I am I think this will be more than enough.

 

[Retireat50]

As noted by others, you really need to account for lifestyle, debt, company pensions, indexed or not all play a huge factor in the selection of the right number. I think if you do not have a company pension you will need anywhere between 50 to 70 percent of pre retirement income not taking into account cpp/oas.

 

[2 yen]

I tend to work backwards....calculate all expenses on a monthly basis and multiply by 12 for a year. That's what I need in retirement. CPP / OAS are certainly not a bonus as a previous poster's advisor implied. For a working couple, with full careers, that's over $32000. As a non-resident, planning a return to Canada, we won't have much of either CPP or OAS, so the monthly expense method seems best for us. Our answer is blue chip dividend paying stocks. They should, and it's a big should, cover inflation.

 

[archanfel]

$0. OAS+GIS should be more than enough.

 

[ethos1]

$0. OAS+GIS should be more than enough.

as well, dont forget the CPP and to max on the GST credits, that, by todays numbers all-in is about $2500+ per-month for a couple.

I dont suppose that you have a company pension plan of any kind?

Are you expecting any of your investments that you have now r will build on and that you may hold at retirement which may include a combination of TFSA & RRSP's to yield zero & that you will simply be able to live from the OAS, CPP, GIS & GST credits - if so that is absolutely fantastic ... well done

 

[Ben]

It's important to track your spending over the years so you have a really good idea what you spend, and where. Once you know how much you spend, you know how much you need to bring in. Important to account for changes in your spending patterns as well.

For now, I assume that CPP and OAS won't be there for me, and save accordingly. As the years pass, and the probability of government funding becomes more (or less) certain, I'll adjust the scenario accordingly. If the plans are fully funded when I'm 60, then there's a good chance I'll be able to count on them. For now, that time is too far away to be confident the money will be there. If it is, bonus.

I would like to be able to fund retirement lifestyle purely from income, withdrawing say 4% a year without touching principle.

And early retirement (or perhaps financial independence...) before age 65 is a tough thing mainly because those government funds aren't flowing yet. That income is not insignificant, and requires a substantially larger nest egg to take the place of that income stream.

 

[ethos1]

$2 million invested at 5% = $100,000 a year.

Seems like reasonable target to shoot for. If you don't aim high, you won't get close. Overshooting wouldn't be tragic, particularly if you love your work.

This assumes, of course, no Defined Benefit plans, which are becoming an endangered species, particularly for the younger generation. It also doesn't factor in government income sources like CPP and OAS. Many financial planners I talk to view CPP/OAS as a bonus but it's a worthwhile exercise to calculate how much capital you'd need to generate a reasonable retirement income, and not counting on DB or government pension incomes.

$2-million for someone that is retiring today seems like an awful lot of money - but is it

The $100k gross per-year from investing the $2-million will probably net you after tax about $60k-$70k, but is that enough for the long haul to someone like FT who is not yet 30 years old?

For someone retiring today at 55 -65, its possible that the $60-70k per-year net without government security benefits, that amount may or may not be enough.

At 65+ today with $2-million, even if it was not invested and you began drawing down $60k/yr out of the capital, the money would probably last just over 30-years, at which point whatever is left over could be willed or be shared amongst any living relatives or donated to charity

 

[FrugalTrader]

For now, I assume that CPP and OAS won't be there for me, and save accordingly.

From "The New Retirement", the author mentioned that CPP is viable for the next 75 years. Mind you, the book was written in 2007 before the market correction. However, I think it may be safe to say that CPP will be available when it comes time to retire.

OAS, on the other hand, is another story where it's paid out of the current tax base. I can see OAS being reduced somehow (perhaps increasing the age qualification) as demographics are trending towards more retirees (claiming OAS) and less workers (paying for OAS).

 

[archanfel]

as well, dont forget the CPP and to max on the GST credits, that, by todays numbers all-in is about $2500+ per-month for a couple.

I dont suppose that you have a company pension plan of any kind?

Are you expecting any of your investments that you have now r will build on and that you may hold at retirement which may include a combination of TFSA & RRSP's to yield zero & that you will simply be able to live from the OAS, CPP, GIS & GST credits - if so that is absolutely fantastic ... well done

I expect my TFSA account to be fully funded whereas my RRSP account will be zero by the time I reach 65. Hopefully I will also have purchased by dream house on the east coast or some quiet Ontario town by a lake with full solar/wind power. With no car, no rent, low property tax, low utilities, I suspect my monthly expense should be minimum and either the TFSA or the OAS should cover me. Ah, one can always dream.

 

[ethos1]

I expect my TFSA account to be fully funded whereas my RRSP account will be zero by the time I reach 65. Hopefully I will also have purchased by dream house on the east coast or some quiet Ontario town by a lake with full solar/wind power. With no car, no rent, low property tax, low utilities, I suspect my monthly expense should be minimum and either the TFSA or the OAS should cover me. Ah, one can always dream.

why dream, it sounds reasonable too me & doable

Good luck

 

[Ben]

From "The New Retirement", the author mentioned that CPP is viable for the next 75 years. Mind you, the book was written in 2007 before the market correction. However, I think it may be safe to say that CPP will be available when it comes time to retire.

OAS, on the other hand, is another story where it's paid out of the current tax base. I can see OAS being reduced somehow (perhaps increasing the age qualification) as demographics are trending towards more retirees (claiming OAS) and less workers (paying for OAS).

I agree with you on both counts. On the CPP, although I believe it will be there for me, it seems most prudent for now to save like it won't, and be pleasantly surprised when/if it is. As my silver years approach, and if CPP continues to fair well, I would be more likely to include the payments in my retirement income scenario. Has the CPP made public yet how it faired in the market downturn? I recall they had made some changes in their investing philosophies over the last decade, which served them well in the good times... I imagine they are pouring over their figures as we speak.

And the OAS, and many other tax-based programs, will almost certainly be altered in the face of demographic changes.

 

[CanadianCapitalist]

Has the CPP made public yet how it fared in the market downturn?

You can check the numbers on the CPP Investment Board website. The fund has about 40% in fixed income, so the effect of even severe market corrections should be limited.

I agree that CPP will likely be there when we need it in another 30+ years and OAS probably not. Then again, 30 years is a long time, so who knows? Maybe they will increase the age at which you can qualify for full CPP benefits as some are suggesting already.

 

[Jon Chevreau]

Sure, there's a "sticker shock" to the $2 million figure but if it gets you moving, it's not a bad number. If you have a great DB plan you may not need even a fraction of that but who does these days, especially among the folk that frequent this forum?

And sure, some people can get by on less than $100K/a year though it would be hard if you live in a big city and you have children. Diane McCurdy tackles this topic in her book, How Much is Enough? When I pushed her for a rock-bottom minimum, she gave me $450,000. That's someone with a very modest lifestyle, likely debt free in the country, with basic government pensions and probably no cash drain from dependents.

 

[ethos1]

Sure, there's a "sticker shock" to the $2 million figure but if it gets you moving, it's not a bad number. If you have a great DB plan you may not need even a fraction of that but who does these days, especially among the folk that frequent this forum?

And sure, some people can get by on less than $100K/a year though it would be hard if you live in a big city and you have children. Diane McCurdy tackles this topic in her book, How Much is Enough? When I pushed her for a rock-bottom minimum, she gave me $450,000. That's someone with a very modest lifestyle, likely debt free in the country, with basic government pensions and probably no cash drain from dependents.

For some folks on here not yet 30 like FT that believe at 30, 35 or 40 that $1-million in assets will be enough to retire for life - to that I say you will need to revisit your needs, possibly work longer towards getting to the one, two, possibly three million dollar mark.

Then again, everyone has their own desires, needs, dreams & expectations and possibly as Diane McCurdy points out, $450k may be enough