What's Your Number? (For Retirement)

[Red]

Originally Posted by CliffFletcher

The amount of money some people expect they’ll need seems excessive to me too.

I recently took over my parents’ finances as they succumbed to dementia. Their fixed expenses at age 75-80 are less than $3k a month for the two of them. That’s property taxes on a fairly typical Calgary home, utilities, insurance, and operating a seven year old Toyota Camry. That’s all covered by CPP and OAS.

So savings have to cover the rest. Grocery bill are less than $800 a month. Dining out maybe $600 (or was pre-covid). Clothes and misc shopping maybe $400. And for home maintenance and unexpected expenses, let’s throw in a liberal $500. So we’re at less than $3k a month total for the two of them needed from savings.

Travel was two trips a year at $5k each. So call it another $1k a month.

So $4k a month total (or $2k each) beyond CPP and OAS affords a retired couple what I consider a comfortable retirement. And that number will drop by age 80.

I think you are being very generous here. That's 70K after tax money a year. More than majority of working Canadians bring home. And that's Canadians with mortgages, car payments, student loans and kids to raise.

Fixed expenses you listed at 36K a year seem really high. 2K for home and car insurance, 3.5K property tax, 7K for utilities + 2K for cable/internet. That's less than half of that 36K.

Then you have 900 for misc. spending + 600 for eating out while spending 800 on groceries. Probably on the high side as well.

I mean what you presented is a pretty good retirement. Much better than most would need.


The way I see it people can live on much less than we see proposed here.
Your CPP+OAS will cover your home expenses. So tax+ utils, cable etc.
Your spousal CPP and OAS will cover the food and miscellaneous.

So all you need is "fun" money. Vacations, spoil the grand kids, bingo , a wine tour here and there. So how much would that be a year? 20-30K? 2 vacations at 7K each, then a few hundred a month for the wine and golf.

If you have 1M and that earns you 4%, that's more than enough to cover those fun expenses. And that's without touching the principal.

But even if you don't invest it and just start taking cash out, that's 30 years of fun money. Most people are not spending that, not when most of it would be funding their fun in your 80s and beyond. Very few will have the ability to have this fun at that age.

I don't want to sound like I am discouraging people from saving for retirement, but if you top up your RRSP and TFSA from a young age, say 25, and invest it somewhat conservatively you will die with a crap lot of $$$ in the bank. Which is great, but not a need. Use both vehicles and you will be more than fine. No need to double up on your work pensions or saving for retirement outside of that.

So don't stress it, have fun now

[tvp2003]

Oh look, a CP humblebrag thread. “Yeah, I’d only be satisfied with $8.6M is assets in order to maintain my current income. Seems high, but I already have $8.5M in my portfolio, and I wouldn’t quit my job anyway because it lets me write off the private jet.”

Seriously though, I’m impressed people have actually thought of this question... I guess if your goal is to work, save and retire early (or maybe you’re just independently wealthy), it makes sense. But the question appears to be more so “how much will I need/want to retire comfortably?” I gotta say, a lot of factors play into it, but I agree with the sentiment that some of the numbers seem pretty high, and would be likely be out of reach for many, many people.

Outside of housing costs, I’d say we spend below our means so I’d like to think we could live pretty lean and still be happy in retirement. Especially once the kids have left the nest. Also, I look at my parents (who are now retired but don’t have a huge nest egg) and think about whether they might need financial support in the future. Lots of variables.

To be honest, if I’m still alive and not eating cat food by the time I’m 75, I’ll consider that a success. Assuming my health holds out, we’re definitely on track to surpass that looking forward to necro-bumping this thread in 2054 to confirm

[Fuzz]

You are neglecting inflation in your numbers. Over 20 years inflation is 43% higher. So if you think his numbers are twice as high as they should be, well, inflation's got you there.

[GGG]

Originally Posted by Fuzz

You are neglecting inflation in your numbers. Over 20 years inflation is 43% higher. So if you think his numbers are twice as high as they should be, well, inflation's got you there.

I always assume when people talk about retirement they talk in inflation adjusted numbers. So to calculate future value you only add 4-5% return and don’t include 2.5% inflation. The “4%” rule includes an inflation adjusted withdrawal each year.

[Red]

Originally Posted by Fuzz

You are neglecting inflation in your numbers. Over 20 years inflation is 43% higher. So if you think his numbers are twice as high as they should be, well, inflation's got you there.

I am just questioning the calculations he presented. Those are today's dollar figures.

Additionally, inflation also drives higher interest rates and investment returns. It's all relative.

[Doctorfever]

So just to be clear, as a basic rule of thumb, I can go with the 4% rule. The day I retire, whatever my expenses are (and what I want to be able to spend), I will have enough to retire, including inflation?

I am asking because I am not well versed.

Can a person count on $650 (per person) monthly for OAS and $1200 per person who has maximized CPP?

[Samonadreau]

Originally Posted by Manhattanboy

^^ is an average 8% annual return realistic from age 35 to 60?

Seems high but I would take it.

I dont think its high. Im self directed TFSA. Aim higher my friend

[GGG]

Originally Posted by Doctorfever

So just to be clear, as a basic rule of thumb, I can go with the 4% rule. The day I retire, whatever my expenses are (and what I want to be able to spend), I will have enough to retire, including inflation?

I am asking because I am not well versed.

Can a person count on $650 (per person) monthly for OAS and $1200 per person who has maximized CPP?

If you Google trinity study 4% you can get much more info but the study reviewed if you started investing at any year in the past 100 years and had a 30 year retirement and withdrew 4% of your initial investment adjusted for inflation each year what is the maximum amount you could withdraw and not be bankrupt in year 30. So if you started the day before the Great Depression or in the rapid inflation era of the 80s you would have been fine.

The big assumptions is it doesn’t account for currency risks or home country bias for Canadian investments and it assumes that past results = future results. An example of it not working would be Japan where they have had stagnant growth for a long time.

But in general the 4% rule is reasonable as a target.

For CPP you need to be careful as it essentially assumes 47 years at Max contributions with some exceptions so if you retire early you lose 2% per year of early retirement or if you have years where you did not make full Max. Also depending on age the CPP enhancement will increase that amount over the next 15 years.

[Jason14h]

A lot of people leaving out day to day expenses associated with driving a car and owning a house ! That house you've paid off that you are going to live in for 30 years will require upkeep. Cars require upkeep.

And the inflation point is fantastic. Insurance, Food, etc will (probably) all be 50% higher in 20 years.

From my peer group there are two types of people - Over saving and under saving for retirement. It seems to relate more to the person's mindset then to their income level.

[Red]

Originally Posted by Doctorfever

So just to be clear, as a basic rule of thumb, I can go with the 4% rule. The day I retire, whatever my expenses are (and what I want to be able to spend), I will have enough to retire, including inflation?

I am asking because I am not well versed.

Can a person count on $650 (per person) monthly for OAS and $1200 per person who has maximized CPP?

Pretty much.
Inflation will directly affect your returns on investment so if it goes higher, so will your investment returns.

In a way a higher inflation is advantageous to retirees. 2-3 extra % on your million dollar portfolio is a lot more than 4-5% of your yearly expenses.

[Red]

Originally Posted by Jason14h

A lot of people leaving out day to day expenses associated with driving a car and owning a house ! That house you've paid off that you are going to live in for 30 years will require upkeep. Cars require upkeep.

And the inflation point is fantastic. Insurance, Food, etc will (probably) all be 50% higher in 20 years.

From my peer group there are two types of people - Over saving and under saving for retirement. It seems to relate more to the person's mindset then to their income level.

Car insurance for seniors is dirt cheap. And you won't have to commute to work so less wear and tear. So it will be cheaper overall. My car insurance is cheaper now than it was 20 years ago. And not by a little either.
As for house repairs, that's so overblown lately. A house has very few moving parts, I've been a home owner for 30 years and have yet to endure any major repair bills. Not saying that things can't happen, but it's a lot less common or expensive that some think. It's not thousands a year. Just do your roof and budget for a major repair (5-10K) before you retire.

[Lubicon]

Rather than a specific target number for total savings what are thoughts on determining what is needed by using a % of pre-retirement income? ie if I make $100k what is realistic for an equivalent income after retiring? Seeing lots of numbers out there but ~65% seems to be a common one. So $60/k post retirement and then work your required savings based on that.

[Slava]

Originally Posted by Doctorfever

So just to be clear, as a basic rule of thumb, I can go with the 4% rule. The day I retire, whatever my expenses are (and what I want to be able to spend), I will have enough to retire, including inflation?

I am asking because I am not well versed.

Can a person count on $650 (per person) monthly for OAS and $1200 per person who has maximized CPP?

You can count on those values for CPP/OAS, but be aware that the average payout for CPP is about half of that. It depends on your contributions through your working career and what you're earning basically. They do make allowances for years of lower income due to staying home with children or education and that sort of thing, but overall you need 32 years at the maximum with those allowances (40 years of full YMPE total) to get full CPP.

[MoneyGuy]

Originally Posted by tvp2003

To be honest, if I’m still alive and not eating cat food by the time I’m 75, I’ll consider that a success.

I imagine the quoted part is mostly in jest but in case it’s not I want to say that I would consider that a failure. For 25 years I essentially worked 1.5 full-time jobs, mostly because I wanted to and enjoyed what I was doing. Sixteen months ago I sold a business to work less and do things I love to do such as extensive travel. Then guess what, we’re in a pandemic and can’t travel. I still have big retirement dreams. We’ll just have to step up the travel, I guess.

[Weitz]

Can you really just say I need xxx amount per month to retire?

The first 5-10 years of retirement are going to be much more expensive than the years that come afterwards.

[Cappy]

Originally Posted by CliffFletcher

The amount of money some people expect they’ll need seems excessive to me too.

I'll never fault anyone for trying to save too much.

The great part about my generation retiring (millennial) is that i should still like video games by then offering an insanely cheap entertainment option when i am too old to keep pace.

[Slava]

Originally Posted by Weitz

Can you really just say I need xxx amount per month to retire?

The first 5-10 years of retirement are going to be much more expensive than the years that come afterwards.

In my experience planning for people, it's exactly this. That first decade (or so) people are doing a lot more and kind of doing things they always wanted to but weren't able to before (or didn't think that they could/should). If you wanted to go to Asia for your entire life and see the Great Wall, for example, they do that trip in their 60's. But the idea of a 10-12 hour flight in your 70's seems quite a bit less appealing, even if you could still qualify for health coverage and wanted to make that trip.

It's not just 4%/year and call it a day. I think that's a decent enough rule of thumb, but in terms of practicality it can leave something to be desired.

[tvp2003]

Originally Posted by MoneyGuy

I imagine the quoted part is mostly in jest but in case it’s not I want to say that I would consider that a failure. For 25 years I essentially worked 1.5 full-time jobs, mostly because I wanted to and enjoyed what I was doing. Sixteen months ago I sold a business to work less and do things I love to do such as extensive travel. Then guess what, we’re in a pandemic and can’t travel. I still have big retirement dreams. We’ll just have to step up the travel, I guess.

Haha, yes -- mostly in jest. If anything it was to suggest that living to 75 will be a success in and of itself. Lots of things in life you can't control despite the best planning and intentions (I acknowledge this also doesn't mean you don't plan at all).

[MoneyGuy]

Originally Posted by Weitz

Can you really just say I need xxx amount per month to retire?

The first 5-10 years of retirement are going to be much more expensive than the years that come afterwards.

No. Everyone is different.

It’s like you bought a small car for commuting so that’s what I need, too, when the vehicle I need is a truck for hauling stuff. Or you need a five-bedroom house for a large family but I only need a modest house because it’s just two of us. Everyone’s needs are different.

[CliffFletcher]

Originally Posted by Slava

The numbers people put might seem excessive, but frankly it depends on how they live before retirement and what they want to do. Let’s say you’re retiring at 60. People have touched on needing to do things, and let’s be honest most of those things cost money. I also think that if you have a household income pre-retirement of say $150k, to suggest you would spend nearly that from age 60-70 isn’t insane. Not many people would retire at 60 and dial back from the $150/yr to say $50/yr and be thrilled with that. Could you do that? Sure. Would you plan to though? Unlikely.

How many people who earn $150k spend close to their full income? They’re typically putting a big chunk of income into their mortgage, into RRSPs, into TFSAs, probably into RESPs. They’re not going to have those expenses at 65. Nor the expenses that go with working, like a second car, gas to fuel it, nice clothes, frequent restaurant lunches.

I know you’re a financial planner. But let’s be honest and recognize that most people who use your industry’s services are in the top quartile in income, and that you have an interest in promoting an aspirational, high-end retirement plan to them. The more the wealthy set aside for retirement, the more money flows through the hands of the people who manage that money.

30 per cent of Canadians currently have no retirement savings. A further 20 per cent have less than $50k. The average sum saved at retirement is $184k, and I’d wager the median is considerably lower than that.

https://www.bnnbloomberg.ca/32-of-ca...-poll-1.991680

All of this talk of $1 mil vs $1.5 mil is completely out of touch with reality. Shouldn’t Canadians be talking about what our average experiences of retirement are going to be like rather than presenting scenarios that are out of reach for the majority of people?