How much money will you need to retire?

We’ve calculated 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?”

11 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?

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    • 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

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      • 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.

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    • EXACTLY

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  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

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    • 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!

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    • Maybe so, but you still have the 5 MILLION – that should do you!

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  3. what do you use as a basis to increase your increase in monies needed each year, CPI or Core inflation?

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  4. This calculation omits inflation from now until retirement. It shows what you need if you are retiring today. If you are retiring 20 or 25 years from now, you should double the amount needed at retirement. For example, an upper middle class couple wanting $70,000/year – $30,000 from government = $40,000 in today’s dollars. Add 25 years inflation at 3%, that will be about $80,000 per year in future dollars. Multiply by 25 and you get $2 million nest egg needed in future dollars.

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  5. This analysis does not directly speak to housing cost. Which is one of the biggest if not the biggest expense most seniors have. Are we supposed to assume that all retirees have fully paid off homes?

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  6. When a couple’s retirement age is entered, does one just average the ages? For example, I am retired at age 58 and my husband is still working at 65. If he retires at age 66, would we read the table for retirement for couples at age 62?

    Reply

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