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How Much Money You Will Need To Retire

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The 2013 Summer edition of MoneySense magazine offers a chart on how much money you will need to retire. Naturally, this information differs according to perspectives and goals but at the end of the day, these kind of charts are a good benchmark for planning a comfortable retirement. We decided to replicate the MoneySense data to illustrate the needs associated with various stages of  “middle class” income levels:

Basic middle class couples — keep a used car for eight+ years and enjoy driving vacations with occasional jaunts outside Canada. Average middle class couples — buy a new car and enjoy foreign holidays with average accommodations. Upper middle class couples  — buy a new car every 5 years (or have two cars that they replace every eight years) and enjoy higher-end international travel.
Annual Income Gov’t Benefits Income Age 60 Income Age 63 Income Age 65 Income Age 67
Bare Necessities $25,000 varies varies varies $0 $0
Basic Mid Class $40,000 $30,000 $520K $350K $250K $140K
Avg Mid Class $55,000 $30,000 $950K $750K $625K $490K
Upper Mid Class $70,000 $30,000 $1.380M $1.140M $1M $850K
Deluxe $100K $30,000 $2.240M $1.930M $1.750M $1.570M
Bare Necessities $18,000 varies varies varies $0 $0
Basic Mid Class $28,000 $15,000 $490K $390K $325K $260K
Avg Mid Class $28,000 $15,000 $800K $680K $600K $520K
Upper Mid Class $28,000 $15,000 $1.12M $970K $875K $780K
Deluxe $75,000 $15,000 $1.830M $1.620M $1.5M $1.38M

How This Chart Helps

Using the above chart, plan your nest egg savings regimen this way:

  1. Start with the annual retirement income you want (eg. age 63)
  2. Subtract government benefits (CPP, OAS, GIS) & employer pension benefits

This will give you the income that you’ll need to have in your nest egg to draw from.  Then, multiply this income amount by 25 (years) …and you’ll have your retirement “survival” amount to start building toward.

Saving Schools of Thought

Saving for your retirement goals may seem ominous but there are two schools of thought for reaching them:

  1. The “Wealthy Barber” way — Committing to saving 10% of your paycheck over a long period of time
  2. The “Mortgage First” approach — Focus on paying off your home and becoming mortgage-free in your 40s, at which time you would commit to saving 20-25% of your income to savings.

Regardless of the approach that you use, make the additional effort to build your RRSP savings. Alternatively, people facing lo-income scenarios will want to open a Tax-Free Savings Account because they’re more withdrawal-friendly and unlike RRSPs, don’t penalize you for GIS payments.

Something To Remember About Retirement

Lastly, when considering how much money you will need to retire, don’t forget that expenses are usually much different in retirement because…

  • Children are independent & in control of their own savings/expenses
  • Mortgage is significantly paid down (or paid off)
  • No work-related costs (ie. transportation, clothes, lunch, etc)
  • Retirement savings are done (you’re using them)
  • Lower income means lower taxes

…so, if the income levels seem low, don’t worry. They may very well be enough.   MarketWatch has a complimentary read about saving for retirement.


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