How much money will you need to retire?

We’ve calculate the nest egg you’ll need for different levels of income.

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by

From the Summer 2013 issue of the magazine.

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The amount you need to save depends on the lifestyle you want in retirement. Here we show what you’ll need in today’s dollars. Everyone spends their money differently, but to give you an idea, think of a “basic middle class” couple as being able to afford a used car that they keep for eight years or more. Vacations are mostly driving holidays, with occasional jaunts outside Canada. “Average middle class” couples can buy a new car and trade it in more often, and enjoy foreign holidays with average accommodations. “Upper middle class” couples can buy a new car every five years, or have two cars that they replace every eight years or so. They can also enjoy higher-end international travel. howmuchwillyouneedtoretire
Notes: (1) Retirement income is before tax. Assumes no debt in retirement and for all categories except Bare Necessities, a paid-for home. (2) Typical amount for OAS and CPP based on fairly long work career at average wages or better. Assumes OAS started at 65. People born after March 1958 will start OAS later and need to adjust calculations. Figures shown assume no employer pension (although employer pension income can be added to this column if applicable.) (3) Assumes initial withdrawal rate of 3.5% for retirement at 60 and 3.8% for retirement at 63, plus inflation. Adjustments also made for starting CPP at early retirement date and for bridging OAS equivalent until OAS start date. (4) Calculated by taking (annual retirement income minus government benefits) x 25. This assumes a withdrawal rate of 4% of initial portfolio plus inflation. (5) Withdrawal rate 4.2% of initial portfolio plus inflation adjustments. Adjusted for OAS and CPP start at 67. (6) Retirement income necessary for “Bare Necessities” derived from Basic Living Expenses for the Canadian Elderly by Bonnie-Jeanne MacDonald, Doug Andrews and Robert Brown, based on typical basic senior’s living expenses averaged for five Canadian cities. Amounts in study adjusted for inflation using Statistics Canada Consumer Price Index. Government benefits in this case comprised of CPP, OAS, and the Guaranteed Income Supplement and vary widely but ensure roughly that necessities at least are covered. People born after March 1958 have to wait longer than age 65 to collect OAS and GIS.

Read the full article, “What’s your magic number?”

6 comments on “How much money will you need to retire?

  1. This info is incomplete as the number of years in retirement these amounts would cover is missing. Is this based on the average retirement age of 65? Also, living costs vary even among the various classes based on location and debt. What about someone retiring with a company pension?

    Reply

    • is the amount needed to retire the amount i need in savings or my total net worth. ie. if i have a home i know i will sell later in life or a cabin can i assume these values are part of the total amount needed? thx

      Reply

      • Better late, than never I suppose.

        The article is quite clear . . . . it is the amount of cash you need to have available to generate income on the retirement date. It assumes you have a fully paid off home (and says NO DEBTS). The retirement age is the number at the top of the column.

        So your cabin is not a source of revenue and is not included in the total.

        Reply

    • EXACTLY

      Reply

  2. Just sold my business after 20 years put the proceeds 5 million between GIC and investments last year I received $75,000 in interest .half was realised gains .Hardly enough for a 55 year old couple to have a handsome retirement

    Reply

    • This is a principal depletion model. The notes below the table clearly state the estimated annual income value for each scenario assumes between 3.5% to 4.2% annual principal depletion depending on retirement age, in addition to interest income. In your case at age 55, adding 3% (a guess since they do not provide a column for retirement at 55) of your principal, or $150,000, to your interest income of $75,000 would be plenty enough to live on!

      Reply

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