What’s your number: How much is enough to retire?

My long-time clients, Norm and Mary, suffer from extreme retirement anxiety. They don’t have to stress about their retirement as they’ll have more money than they’ll ever need – yet they worry constantly.

Mary has a nice Alberta government pension. They have the usual CPP and OAS pensions and investments of $350,000 that I manage. They own two residential properties.

(Norm and Mary’s names and certain details have been changed for privacy.)

Norm and Mary will have more than enough to retire. When I write that they worry constantly, it’s no exaggeration. Mary stresses over money so they hole up in their house, watching TV and clipping coupons. I’ve told them that they can afford to spend some but they can’t bring themselves to enjoy their money.

It’s sad.

No one really needs to be the richest guy in the graveyard, but everyone wants to know that they’ll have enough for a comfortable, worry-free retirement.

Related Article: Top Retirement Tips

How Much is Enough to Retire?

The question is important for everyone, more so as we get closer and closer to retirement age.concept image used for article. Subject: how much is enough to retire

Vancouver-based financial planner Diane McCurdy deals with it in her latest edition of her book, How Much is Enough?: Balancing Today's Needs with Tomorrow's Retirement Goals.

Unfortunately, McCurdy writes, there is no easy, one-size-fits-all answer. Everyone’s “enough” number is different, and they can differ wildly. Your personal number depends on several variables – your age at retirement, your desired retirement lifestyle, the income you need to last for roughly three decades, your life expectancy, expected CPP and OAS incomes, employer pensions, whether you’ll retire fully or work part-time or after leaving full-time work, other possible income sources and other factors.

This entertaining book provides good advice to help you find your retirement number and then shows you how to create a plan to reach your savings target. I recommend it even for folks who hate reading about personal finance.

Falling Short?

Unfortunately, that will be the case for many Canadians – with savings rates near an all-time low. If you’re short then you have some decisions to make. For example, you could work a bit longer, work part-time for two or three years or reduce your income expectations. There are other tweaks you might consider.

Imagine that you want to retire at age 62 with after-tax income of $55,000, but your projections show that you can sustain income of only $46,000. If you work two years longer that’s two years that you won’t be drawing from your savings and two more years to save. Maybe if you also reduce your spending needs to $52,000 you may be able to erase that deficit.

Your income projections will tell you if you’ll be fine. If not, it’s best to know immediately so you have more time for course adjustments. If you are short a delay in taking action can turn a small problem into a big one.

McCurdy encourages people to separate needs from wants and mentions the B word (budgeting). Don’t spend too much and sacrifice priorities such as proper insurance to protect loved ones in the event of a death or a disability. You also need an emergency plan, and to save for retirement and to assist children with their post-secondary education. If you aren’t doing those things, McCurdy would tell you to budget.

Get rich slowly, McCurdy advises, as there is no good way to quick wealth.

“There are no rules for getting rich quick,” McCurdy writes. “There are, however, rules for getting rich slowly.” Trying to get rich quickly can make you a lot poorer really fast.

Related Article: How Much Will I Need for Retirement?

Wrapping Up

McCurdy discusses the typical life stages…for 20 and early 30-somethings, she recommends starting a lifetime savings habit, saving 10 percent of your income every year. For ages 35-50, McCurdy suggests investing into RRSPs, starting non-registered investments, establishing an emergency fund and paying down the mortgage. For ages 50 and older, she suggests clearing off any remaining debt and starting to save much more as the kids leave home.

Written by Wayne Rothe

Wayne Rothe, Certified Financial Planner/Branch Manager, Wayne Rothe & Associates Wealth Management, Manulife Securities Investment Services Inc., [email protected], 780-962-1146, Spruce Grove, Alberta. These comments are the author’s and not necessarily those of Manulife Securities. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

15 Responses to What’s your number: How much is enough to retire?

  1. Question for you,I have two years of banked time which I can use and stay on the payroll. Do I stay on the payroll and increase my pension ,receive company benefits or take cash payout for the two years and pay huge taxes and collect my pension early. I have no debt,150,000 in the bank. I’m 60 years old and in good health and 26 years of service. I would appreciate your feedback. Thanks

  2. i wish someone would figure out what “that number is” for a single woman who rents an apartment for 1200$ in Ottawa,who does not have a company pension….who is still working at 67 years old and has approxmitely 320,000 that is everchanging….and part of that came from a divorce settlement put into a LIRA GIF,and who gets approximately 820$ spoual support geared to a cost of living.I want desperately to leave my totally stressful job…..any idea??

    • Dear Rhonda,

      For the record, I have no formal financial background, my only experience is through trial and error with my own investments. Having said that;

      Unfortunately, there are no set numbers for anyone.

      However, a factor in what will make up “your number” is how much your expenses are/will be (to allow for inflation, lifestyle creep and healthcare costs to mention a few). Do you have any idea what that number is?

      As for your income in retirement, given your age, you are eligible for CPP ($653 to 1,114 (https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-benefit/amount.html), OAS ($585 https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/payments.html) and possibly GIS. Note that I don’t know how long you’ve worked in Canada but let’s say that the CPP and OAS amounts to $1,300 a month.

      You say that you receive $820 a month for spousal support. I’m not sure how long that will last but added to the other amounts, you’re up to $2,120 (Gross).

      If that was all you made, you’d pay Federal and Provincial tax on the amount less your personal deduction amount so $13,805 (not sure if you have to pay on spousal support, I’m not great with taxes, I like this calculator, http://www.taxtips.ca/calculators/canadian-tax/canadian-tax-calculator.htm). You’re probably looking at $1,900 a month to live.

      Probably not enough, especially considering your rent (which sounds reasonable). But, maybe you could change your living arrangements, move out of the city, leave the country, cut cable, grow your own veggies, ride your bike, there are so many ways to live with less money but still be happy.

      You mention that you have $320,000 in a LIRA. As of age 55, you can start to access that money (https://beta.theglobeandmail.com/globe-investor/investor-education/how-do-i-access-cash-from-my-lira/article36125615/?ref=http://www.theglobeandmail.com&).

      If you haven’t maxed out your TFSA contribution room, I would suggest doing that. Any money earned is tax free. If you took it out slowly and managed to shelter it all, at 2.5% dividend income, you’d be making $8,000 a year and would not need to touch the capital.

      Personally, we live off passive income generated through dividends, however, you might want to consider other investment options such as annuities, bonds, GICs (not an exhaustive list).

      No one can tell you if you have enough right now or ever will. You need to crunch the numbers and decide what kind of life you want for yourself, what you can afford and if you’re willing to make any changes to get where you want to be sooner.

      I hope that you reach your goals.

      Regards, Sarah.

  3. I am 64 and live in a Rent Controlled Apt. in Toronto, paying $1,500 per month. I plan on retiring in June 2019 when I’ll be 65. I have NO Co. Pension, just savings of $200K + CPP & OAS ($2K x Mth.). I did a spreadsheet to determine how long would my Funds/Income last with an Annual Rate of Return of 3% and Monthly Expenses of $3,000.
    EXPENSES:
    RENT $1,483.20
    LTC Ins 166
    CII Ins 84
    HomeIns 25
    Grocer 00
    Beer 100
    Rogers 48
    Cell 60
    BnkChgs 30
    DineOut 400
    News/Mag 70
    Misc. 25.00
    Charity 295.50

    Total $2,986.70

    I believe I should be fine until at least 85!

  4. Call CPP at 1-800-277-9914, and ask them to calculate your CPP amount if you retired today. If you took time away from work to stay at home and raise kids, tell CPP, as your CPP monthly amount may increase.

    How much is your OAS? It’s $570/month if you have been in Canada long enough.

    Your $320,000 LIRA should pay you about $1,400/month after taxes as an annuity for life.

    So you have CPP + OAS + $1,400 + $820 per month. Quit the stressful job, cut back on expenses immediately, and find a job you enjoy. Love life and live.

  5. I hate this.
    1) Separate needs from wants – DOH !
    2) buy my book.
    3) There is no number.
    I came to this website to get a number and I got nonsense, nothing I did not know. I’ve been following Jim W for some time. This is a disappointment.

  6. I went to Amazon to buy the book. Im glad I read the reviews. It’s dated and American. Many of the recommendations not apply in Canada. In addition the reviews say it is just basic information… know what you need, save more and start early….yawn

  7. Rhonda,

    It’s simple, but not easy…it depends, every day, due to the constant of living, change.

    It’s Simple: Assuming your expenses stay the same, you replace you paycheck with your portfolio (income streams).

    But Not Easy: All expenses and income change, before and after retirement.

    Consider this question…”If not now when, will I retire?” It will help you focus on planning. Ready or not you will retire one day for some reason/s really beyond your control and you will live on what you have and it will be “it is what it is.”

    What I hear you really saying is am I really ready to retire?
    Escaping the job is understandable but must be done wisely with the right attitude, you get to choose.

    Traditional retirement looks at the financial life arena but the New Retirement looks at planning comprehensively all of life’s arenas. The key to retirement will is to have an attitude…you are in control and you will adapt to change. Retirement is constant change and learning, not just money and leisure life.

    You are in the 3rd and grandest stage of life now, welcome to your bonus years to unpack and embrace your dreams.

    Here’s tools I found helpful in my retirement and journey to become ageless…

    Dana Anspach – Best comprehensive financial planning book ever, no nonsense, free webinars…check out the one for single women planning.
    https://www.sensiblemoney.com/independent-financial-planners/

    Bogleheads – supportive online community who will give you there collective wisdom 2-cents on what ever you through out there. I would read the various threads of dialogue first that may be related to your unique situation.
    https://www.bogleheads.org/

    Sageing International – Best comprehensive ageing to sage-ing wisdom community. After retirement honeymoon, aging angst will need to be addressed next. This will be helpful.
    http://www.sage-ing.org/

    Wheel of Balance – Quick peek at your priorities balance.
    http://retiresuccessfully.co.za/wheel-balance/

    Retirement Options Coach – Life Options Profile (LOP) Assessment is comprehensive in assessing how prepared you are in each life domain. A coach can help you sort it out some more so you become crystal clear to move forward, wisely.
    http://www.retirementoptions.com/

    While not Canadian, we all face very similar issues..hopefully, these will be helpful in pursuing your retirement dreams.

    In CommUnity… Bob

  8. Wayne,

    You really scratched an itchy, scabby sore this time!

    In the day, almost all financial gurus I met said that CPP would collapse. So I ignored that component in the decision process.

    Today I would recommend ignoring CPP, OAS, GIS because they would be a safety net rather than a goal.

    But to place a realistic number on how much one needs for retirement income, figure out a reasonable annual cost of living for today. Consider that some expenses would no longer exist – such as commuting or a $5 latte – but that you may spend a bit more on entertainment such as golf or a cruise or whatever.

    But what will that number be or could be in 10, 20, 40 years in the future? The first answer is “I don’t know”; the second is we can guess, project.

    The major factor is inflation. Let’s use the government’s target inflation rate of 2% – or 3% to be really conservative. How about a compromise of 2.5% since there is no crystal ball involved here.

    72÷2.5%=28 years. Google “rule of 72”.

    Roughly it will take 28 years or so for today’s value to double.

    The other major contributor to the cost of living is debt. Simple don’t have any. No mitigating factors in the planning of retirement regarding debt.

    I’d like to include government taxes in the projection, but that’s impossible other than to say “reduce income tax, sales taxes, sin taxes”. Income tax is the only one you can control by reducing the rate of taxation.

    Income tax-wise, the simplest, best friend is a TFSA that holds income producing assets. Real estate may help, but I don’t know how.

    Zero income tax, zero fees (as of October 2017).

    Your worst friend, income tax-wise is an RRSP. Income tax is applied on 100% of funds from that account.

    Your second best friend is a Margin Account at a discount broker that holds income producing assets.

    Income tax-wise, any income from here that is called “interest” such as bonds of any type is to be avoided at all costs because it’s 100% is taxable.

    Income tax-wise, the generated income in the portfolio can be:
    • dividends; $50,000+ is tax-free and may even cause a reduction in income tax – google “cra bc income tax table” & select what applies to you
    • return of capital; 50% taxable at time of sale – you may hold the asset for 20 years and receive a monthly income tax-free until the asset is sold
    • capital gains; 50% taxable in tax year
    • capital gains/losses from sale of assets

    Why a Margin Account? Because you can borrow very cheaply, instantly and the only collateral is the stock/fund/ETF/whatever you own in the account.

    Income tax-wise, the Margin Loan Interest is 100% income tax deductible each tax year.

    Here’s the fun part: remember the Margin Loan interest is 100% tax deductible and…
    • dividends are very, very tax-advantaged, but Margin Loan interest is 100% tax-deductible
    • return of capital: 50% taxed at sale of asset, but Margin Loan interest is 100% tax-deductible
    • capital gains: 50% taxed annually, but Margin Loan interest is 100% tax-deductible

    How much capital do you need to generate the income you would need today? How much income can you expect from that capital?

    The rate of income is the final answer. The lower that is, the more capital you will require. Can you accumulate all that capital in your time before retiring?

    So you need a high rate of return that you are comfortable with to accelerate the building of your retirement capital.

    Here’s the formula based on your annual living budget or I-ncome, your annual R-ate of return:
    C-apital=I/R
    Example: I=40000, R=10%(0.10) C will be $400,000 today (That Capital would theoretically remain unchanged if you use only the Income at retirement).

    Apply rule of 72 to see what would happen today if you had R=0.10 to see how long it would take to double your C. That’s the effect of compounding. What about an R of 0.04, or 0.12?

    Finally, I repeat, don’t rely on the safety nets (CPP, OAS, GIS) as you may need to cover unexpected medical or living expenses in the unpredictable future.

    I’m exhausted…☺

    • Thank you both for your kind attitude.I am scared out of my mind..but I do not want to retire on 1 day and die the next day….

      • …then don’t die or don’t retire.

        Mean? No. I think what you’re really fearing is boredom.

        You could use a stimulant. Set a retirement goal like volunteering at something you like, or learning photography as an art form, work at a library reading stories to children, cook special meals or desserts, etc…

        There’s no end to what you can be involved in once retired.

        Need feedback? Figure out how to make more money, then give it away or spend it foolishly on wine, men and song.

        I preferred not dying some years ago.

  9. Just a few comments:

    1. At 65, you can make $20K of income and pay ZERO tax in Ontario;

    2. Max CPP and OAS combined come to $20K of income per year;

    3. If you need to rent, just rent a room and kitchen – share bathroom. The room can be made into a living room with a sofa that turns into a bed. I did it when I was in university and loved it. The cost would be about 60% of renting a whole apartment and usually no utility costs other than, maybe, cable;

    4. Pitch your car and take public transit – would save you a bundle – thousands of dollars per year of after-tax income;

    5. Forget life insurance when you are retired:it’s just too darn expensive. Your children – now grown up – can look after themselves and your spouse will not need it – better spend the money on enjoying your retirement years together;

    6. Stay away from fancy financial plans unless you have plenty of money to go around;

    7. In retirement, aim to have plenty of food; a warm roof over your head; basic clothing; a bit of spending money for entertainment; use public transit; have no debts; take advantage of free things, like library books and movies;

    8. Apply for GIS (guaranteed income supplement)if you qualify: it can be quite a tidy amount;

    9. Learn to do without the other material things not listed above: they probably do not really matter.

    My two cents’ worth.

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