Many financial calculators spit out a number to answer the question ‘how much is enough?’ Those that know me know that I wonder whether there is really such thing as enough?

The problem is retirement is not a number. Whatever the number is, it does not really solve our problems. In fact it just leads to more questions. One of those questions is How much income will I get from my investments?

## Using withdrawal rates

One of the ways to **ballpark** the amount of income you can take from your portfolio is to use a withdrawal rate. The debate over what is a safe withdrawal rate will continue and change but let’s use an example of 4%. If a withdrawal rate is 4%, then on $100,000 you could expect $4000 per year from the portfolio.

Obviously, this approach is a little simplistic and depends on the rate of return you can expect on the portfolio. As safe withdrawal rate assumes a retiree should be in a safe, conservative portfolio. and is meant to ‘annuitize’ the total asset. If you invested in a balanced portfolio and achieved an average return of 4%, then your $100,000 capital would be preserved. The greater the returns, the greater the potential risk in the portfolio and therefore, the greater the variability of returns. When this happens market volatility can really destroy portfolios that are paying out an income because the math works against you.

## It all depends

So let’s get back to the question “How much will $100,000 pay you in retirement?” the answer is what is so often is “It depends”

The income off a portfolio depends on many different factors:

- when are you going to retire and take income?
- when are you going to die?
- what rate of return will you get?
- how much volatility is there in the portfolio?
- do you want to preserve capital?

If you look at this question from a purely mathematical perspective, it really boils down to 2 things – how long will you live and what rate of return can you expect on your money.

In our retirement workshops we use a little table with these two variables to help answer the question. Here are some different outcomes for different scenarios

- If you are retired and plan to live 21 years and will make 5% on your money, $100,000 will pay you $7800 per year or $650 per month
- If you are 70 years old and plan to use your money over 10 years and will make 3% on your investment, that same $100,000 will pay you $11,720 per year or 977 per month
- If you are 55 and plan to live 30 years but hope to make 7% on your investment, every $100,000s will pay you $8060 per year or $672 per month
- If you plan to live 25 years of retirement but are optimistic about earning 10% on your investment, that same $100,000 will now pay you $11,020 per year

As you can see, the range of outcomes can vary dramatically depending on how many years you will receive income and what return you will earn on your investments. We all want a simple answer and often default to the ‘safe withdrawal rate’ but that method is overly simplistic.

You can download a little cheat sheet that I use to help estimate a safe withdrawal rate based on these two variables.

### Download this – How much will $100,000 pay me (annually)? (11238)

## Withdrawal calculators

Another way to figure out how much $100,000 will pay you is to use some free online financial calculators. I’ll share a couple that I use.

The Money-Zine Withdrawal Calculator is a really simple calculator. It’s a US calculator so if you put $0 for pension and social security, you just have to punch in data for 5 other boxes and you can get a sense of how much monthly income a lump sum will pay you.

The Retirement Withdrawal Calculator does much the same thing as the Money-Zine calculator but it allows you to account for inflation on your income as well as preserving a lump sum amount of your asset.

The financial calculators I use the most come from Mackenzie Financial. They are easy to use and free. There are many calculators on this page but I use the * Investment and Regular Withdrawal Calculator* a lot with clients.

Jim,

How about $8200 per year for life? Guaranteed.

Taxes payable about $750 a year.

Called annuity.

cheers,

Brian

annuity’s purchasing power is washed away by inflation!

I had read a lot about this subject before I stopped working and decided to take 4% from my portfolio per year. I stopped working in 1999. Then came 2000 and then 2008. I changed my mind and I only take out the equivalent to dividends earned each year.

The fluctuations in markets is the exact reason why taking out only the income is the perfect strategy.

The actual capital is secondary as long as it produces the income we need.

It’s another reason RRIFs are a flawed retirement income vehicle.

Hi claude,

Can you please elaborate further.

I am new to discussion!

Thanks,

Rahat,

Search my name on this website. Take charge of your finances, don’t rely exclusively on others.

Educate yourself about retirement income; attend free seminars, lookup tmxmoney.com.

Brian

What age are you basing your 8200 on? That’s just short of 700 per month. Best I can see for annuities is about 500 per month on 100k. Please provide more details.

My financial advisor told me not to bother buying an annuity at these ultra-low interest rates because returns are too low.

I always find these articles do not discuss the complexities associated with the minimum and maximum withdrawal rates for LIFs and RIFS. No one can just arbitrarily select a flat percentage rate for withdrawals if their money is in registered funds. The great majority of today’s investors would fall into that category.

Mary,

I realized this particular problem would occur as I learned a little more each year about my RRSP; how do I get the money out when retiring?

When I found out the amount was fixed by some ambiguous complex rules subject to change at any time, I decided to liquidate my RRSP before 71, and I also decided to look into other means to accumulate and regulate my retirement income.

So far, so good. Even going through this January 2016 stock market rout.

Claude,

What was the result/tax impact of liquidating your RRSP before 71 and how did that strategy help?

Ramesh,

At present there’s only ±$15,000 left in my RRSP. So not much impact. Most of my withdrawals over the were of similar size.

In previous years, the withdrawals were partly deposited in my TFSA. Any tax withheld was mostly refunded.

Most of my income is from dividends, some from Return Of Capital; I pay very little income tax because of 2 major factors. I have no interest income at all in my taxable account.

One can earn ±$53,000 in dividends before paying any income tax. Return Of Capital is income tax deferred until I sell the stock/fund; it’s not even counted on my tax return; the deferred income then becomes taxable like capital gains.

My major portfolio is a Margin Account; that interest is 100% tax deductible from my taxable income. (My income is very tax advantaged and my interest expense is 100% tax deductible)

Because I’m way over 20, I’m not perfect anymore. Any stock losses are applied against any stock profits.

The highest income tax percentage I’ve paid (line 435 ÷ line 260) since 2008 is 8.8%.

My portfolio focus is how much income I can generate with my portfolio. The value of my portfolio is the least of my portfolio priorities.

I know, I know… Another rant but I wasn’t busy Sunday.

Jim:

I am glad I came across your informative site.

I have a question relating to estimating my CPP benefits at the age of 65. I just turned 56 and planning to work full time until 65.

Currently, If I were 65 today,you could receive a monthly retirement pension of: $608.37 according to Service Canada

Regards,

Kalib

Kalib – You haven’t asked a question, but this article might answer it: http://retirehappy.ca/understanding-cpp-statement-contributions-soc/

I am a 58 year old with 70-80K P/Y income for last 10 years. Since last year I am working partially with same employer due to a work related disability and my total annual intake is dropped to 30-35K.

I will appreciate if someone could advise as to what are my options and should I continue working with modified schedule (with less hours) as this may affect my CPP entitlement if I retire at 60.

Nahk,

Two things come to mind.

If you retire at 60, will you still be working?

Since you now have paid time on your hands, and you are showing interest in managing your money, educate yourself about investing – the types of investments and investment income like dividends and their implications on income tax, the plethora of free reputable Internet tools available like tmxmoney.com.

The learning process is very personal and depends only on you; no one can advise you on how to take your financial future in hand. The alternative is finding someone who will perfectly address your situation at any cost.