How Much Money Do I Need To Retire? US Financial News

Have you asked that same question, how much money do I need to retire? There are many factors, such as when you plan to retire and how much you would like to spend. Because of this, knowing what you need to retire in Canada is not a simple answer, but there are a few simple calculations that might help to give you an idea.

The 4% Rule

The 4% rule says that you can withdraw 4% from your portfolio in the first year. Then in future years you withdraw the same amount plus the adjustment for inflation. This allows you to decide if you have saved up enough money to cover your desired income level in retirement.

The Rule Of 20

The rule of 20 suggests that for every $1 of annual retirement income you would like, you’ll have to have $20 saved up. So if you’re looking for $20,000 over and above CPP and OAS, then you’ll want to have portfolio worth $400,000 by the time you retire.

The 10% Rule

While a little too simplified, the 10% rule tells us to save 10% of our gross income towards retirement. The idea being that it will give us a retirement income equal to what we’re used to now. My issue with this is the effect of this level of savings is dependent on what age someone starts saving towards retirement. The later you start, the higher percentage you might need to put away.

The Rule Of 72

You can find out how long it should take to double your money with the rule of 72. Fir this calculation, you divide 72 by your expected return. so a 5% return would take 14.4 years to double your money. Of course with this rule, you’ll need to have a realistic percentage you expect for a return, you can’t always expect double digits in every single year.

So, how much money do I need to retire?

Hopefully these retirement calculations will help you see what you’ll need to save to have the retirement you’re looking forward to. Keep in mind that a couple that have worked most of their adult lives and retired at 65 can expect CPP and OAS to pay as much as $30,000 a year. So work that into your numbers and you’ll likely be pretty pleased with how easy it can be to retire comfortably with just a little planning!

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4 Responses to How Much Money Do I Need To Retire?

Sustainable PF January 17, 2011 | 6:49 am
All of the above! Kidding of course. The one part of retirement saving I am having issues with is how to evaluate our pensions (government based). Do we forgo bonds (at least for now) due to the stability of the pensions?

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krantcents January 17, 2011 | 9:40 am
Although I do not live in Canada, your question is still relevant. Most of my retirement income will be fixed (social security and pension), I will supplement with various tax deferred and other savings. My theory is to replace my current income adjusted for cost of living.

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BeatingTheIndex January 17, 2011 | 11:44 am
If you’re young ,don’t count on CPP and OAS too much as no one knows where things will be 30-40 years from now. Work out your retirement as if these programs did not exist and you will do just fine by then.

Reply
Ralph January 17, 2011 | 1:17 pm
Good post exploring some options to consider when planning for retirement. I think many people are seeking help in this area.

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