Q. If my spouse and I retire at age 60 in about three years—and want to have $45,000 net annually to spend—how much money will we need to have saved? We have no company pensions—only full CPP and OAS. We expect to live to age 85.
– Brenda B.
A: Brenda, there are several ways you can set up your investments and drawdown strategy in retirement to accomplish this.
Here are a just few questions to guide you:
- Will the $45,000 come from RRSP/RRIF, TFSA, or non-registered accounts?
- When are you planning to start your CPP? Age 60, 70, or somewhere in between?
- Do you have children? Are you planning on leaving them anything?
- What rate of return are you expecting?
- If you’re spending $45,000 a year. at 60, will you be spending the same amount at 75?
Did you know that if you receive the maximum CPP and OAS you’ll have a combined income of $44,876/year at age 65? That’s almost all the money you need! Most of your savings will be used to get you from age 60 to 65.
Related: Can this couple retire at age 59?
I’ve modelled a few different solutions you can see in this video. Depending on the solution that matches your circumstances, you will need to save anywhere between $220,000 and $313,000 by the time you reach 60.
Now let’s take a look at some different solutions, and as we go, I’ll give you some things to think about.
Solution #1: 100% non-registered; Investment return 5%; CPP starting at age 65.
Amount needed to be saved = $231,000
Combined CPP and OAS = $44,876/year.
Bottomline: You’ll deplete most of your savings by age 60, and at 65 you’ll only have about $33,000 left. CPP and OAS will provide you with most of your income needs. With such a quick drawdown you may consider a more conservative portfolio and potentially lower return, requiring more savings.
Solution #2: 100% non-registered; Investment return 5%; CPP starting at age 60.
Amount needed to be saved = $235,000
CPP @ 60 = $21,760, OAS will kick in at 65 for $14,080
Bottomline: Starting CPP early means a reduced pension for the rest of your life, so you need to save a little more; however, you don’t have to draw your money as fast, and at age 65 you’ll still have about $161,000 saved.
Related: How to retire at 55 with $586,000
Solution #3: 100% non-registered; Investment return 5%; CPP starting at age 70.
Amount needed to be saved = $313,000
Combined CPP and OAS at age 70 = $53,688.
Bottomline: If you don’t draw your CPP until age 70 you will need to save a lot more to get you there. At age 70 your CPP and OAS will more than cover your income needs for as long as you live. This is a good option for those with enough savings to get to 70 and no pension.
Solution #4: 100% non-registered; Investment return 3%; CPP starting at age 65.
Amount needed to be saved = $260,000
Bottomline: Back to the first solution but with a lower return. You need to save a little more, but it is the safer way to go when you’re depleting your savings so quickly over five years.
Related: Can this teacher retire in 9 years?
Solution #5: 100% RRSP/RRIF; Investment return 5%; CPP starting at age 65.
Amount needed to be saved = $267,000
Bottomline: This one’s probably obvious to you. All RRSP/RRIF withdrawals are 100% taxable so you’ll need more savings to pay the tax. Be fair to the RRSP, if you’re able to save the non-registered amounts in the other solutions, then you should have a lot more in the RRSP. Here is a past video on how to make an RRSP contribution.
Solution #6: 100% non-registered; Investment return 5%; CPP starting at age 65, stop inflating your spending at age 75.
Amount needed to be saved = $220,000
Bottomline: Most people spend less money in the later stages of retirement. Projecting fixed income need ($45,000 for life, inflated) will over-estimate the amount of money you need to save.
Brenda, you should also be aware of what happens to CPP and OAS when your spouse passes. Your spouse’s OAS will stop, and if you are receiving the maximum CPP you will not receive any of your spouse’s CPP. If your spouse should pass away early you won’t have enough money following one of the solutions presented.
It started as a simple question but I think you can see it is a good idea to play with the what-ifs to help you find how much you will need to save.
Allan Norman, M.Sc., CFP, CIM, Atlantis Financial/IPC Investment Corp
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