What's Your Number? (For Retirement)

[Sylvanfan]

Originally Posted by tvp2003

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).

For me the number one factor for a happy retirement will be good health. For me nothing contributes as much to happiness as good health does.

I'd rather be broke and healthy than be 72 with terminal cancer and 8 million dollars saved up. Good health gives you a lot of potential cost effective activities like Paddle sports and hiking to pass the time. So really I do try and save money so I don't have to hunt crows and collect berries in the wild to eat. But if I'm healthy, I'll be able to do that if I need to.

[CliffFletcher]

Originally Posted by Red

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.

Absolutely. I inflated the actual numbers by about 30 per cent to show that even then you don’t need more than about $20k a year of savings for the first decade or so of retirement to be very comfortable, and even less after that. So you can retire very well with $300k in savings.

[Slava]

Originally Posted by CliffFletcher

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?

Sure, my client-base skews my view on this and I can admit that. But it's also a bit of a chicken and egg scenario because people that work with planners might be higher income to begin with, but they're also savers. They're more prepared for retirement in part because of the work that they do with their advisors and in part because they save money in the first place.

And yes, some expenses do disappear on retirement. Some don't though. People want to do things for the first years of retirement, and like I say, whatever those things are, they're generally not free. It doesn't mean that everyone needs $2m to retire comfortably, and it doesn't mean that you can't do it with much less. I've go retired clients with millions and they fret about whether they will be able to live comfortably, and clients with small fractions of that who haven't got a care in the world on that front. It depends on how you live, but it also depends on your personal psychological relationship with money to a significant extent.

[stone hands]

Originally Posted by tvp2003

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.

Do you have a budget? Use a product like mint or ynab and it makes it less of a question than an end goal. If you dont know where every dollar is going, it's impossible to even begin to figure any of this out.once you quantify what your monthly expenses are, you have something to work towards

[tvp2003]

Originally Posted by stone hands

Do you have a budget? Use a product like mint or ynab and it makes it less of a question than an end goal. If you dont know where every dollar is going, it's impossible to even begin to figure any of this out.once you quantify what your monthly expenses are, you have something to work towards

Admittedly, budgeting in a strict sense is not my strong suit. But yes, I have a general budget and monitor monthly income versus expenses. Savings were more of a priority early on, but less so now that we have kids (expenses have gone up) and db pension contributions to make.

I think the majority of people are in one of these categories:

1) How do I get to the end of my paycheck?
2a) How do I get out of this debt?
2b) How do I save enough to put a down payment on a house?
3a) How do I start saving for retirement?
3b) How do I pay down my mortgage earlier?
4) How can I build my retirement savings?

The notion of "what would I need to retire early" is probably next on the list, perhaps followed by "I'm sitting on a crap load of money/assets, what should I do with my time now?"

Don't want to detract from the OP though -- by all means have that discussion, as if you've gotten to that point that is obviously a good thing.

[Slava]

Originally Posted by tvp2003

Admittedly, budgeting in a strict sense is not my strong suit. But yes, I have a general budget and monitor monthly income versus expenses. Savings were more of a priority early on, but less so now that we have kids (expenses have gone up) and db pension contributions to make.

I think the majority of people are in one of these categories:

1) How do I get to the end of my paycheck?
2a) How do I get out of this debt?
2b) How do I save enough to put a down payment on a house?
3a) How do I start saving for retirement?
3b) How do I pay down my mortgage earlier?
4) How can I build my retirement savings?

The notion of "what would I need to retire early" is probably next on the list, perhaps followed by "I'm sitting on a crap load of money/assets, what should I do with my time now?"

Don't want to detract from the OP though -- by all means have that discussion, as if you've gotten to that point that is obviously a good thing.

Once people are near retirement, or middle aged the conversation begins to shift toward "do I have enough, or will I have enough?" and "I've got all this saved, so how do I make that into an income and make sure that I don't outlive it?"

[GGG]

Originally Posted by CliffFletcher

.

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?

Thats really a failure of education and money management. For 45 years it works out to .76 cents per hour to save up 184k. Targeting 1 million inflation adjusted is $4.13 for a single person. Saving 10% of pre tax household income for the median family income shouldn't be difficult. For the top 50% of Canadians 1 vs 1.5 million is a very reasonable discussion and shouldn’t be phrased in terms of a trade off of live for today or save for the future.

[The Yen Man]

Originally Posted by Red

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.

Even major house repairs like windows, roofs, furnace, etc. are done once every 20 years or so. So even if they say cost $30K in total, over 20 years, that's what? $1,500 a year?

[flamesfever]

Just a few things I have picked up through the years regarding retirement.

According to a well respected friend of mine, a worldwide study was done in the early part of the 20th century, regarding what should be the age of retirement, and they came in with 65. I was told that they chose that age because that was the time when a person's health started failing and the average person didn't live much past that age. The person who told me that, said in his opinion, the best age to retire was 60.

Personally, I think if someone is enjoying their work, they should remove retirement from their dictionary, and continue working as long as they are happy doing so. I have had geological friends, still selling plays in their 80s.

As for living a long life, studies suggest that social relationships are the most important factor. So I guess the thing to so is to keep in touch with your friends.

As for the amount of money you need, you can probably get by on 70% of your past salary. I tend to agree with CF that you don't need the millions that many aspire to.

The important thing is to enjoy and be grateful for each day. Life is full of surprises...both good and bad.

[chedder]

Let's not forget that every defined benefit pension plan of $50,000/year for life is the equivalent of that person having minimum $1,250,000 in savings (using the aforementioned 4% rule).

Totally off topic, I know, but it seems that some on here believe it's out of touch to want to save that much yet think nothing of the value of these golden pension plans that many public servants and others have.

[CliffFletcher]

Originally Posted by GGG

Thats really a failure of education and money management. For 45 years it works out to .76 cents per hour to save up 184k. Targeting 1 million inflation adjusted is $4.13 for a single person. Saving 10% of pre tax household income for the median family income shouldn't be difficult. For the top 50% of Canadians 1 vs 1.5 million is a very reasonable discussion and shouldn’t be phrased in terms of a trade off of live for today or save for the future.

My parents gave me a copy of the Wealthy Barber when I was 25. Did I start setting aside 10 per cent of my income? Nope. I was making $24k a year as a reporter and it’s not particularly easy to set aside $2.5k a year on that salary. I suppose if I stayed home every weekend instead of going out with friends I could have. But I had ####loads more fun in my 20s than with that money than I’m going to have in my 60s and 70s. I did save up around $5k at one point in my 20s and backpacked around Europe for 3 months, and it’s the best money I ever spent.

Even people who earn a median income often don’t reach it until they’re in middle age. Lots of people who earn $70k at age 45 were making $40k or less at age 30. A lot of people these days don’t buy a house until their mid-30s, and that often drains all of their savings to that point. The experience of those who get a degree and immediately enter a well paying profession at 24 and get on the property ladder at 28 are not typical.

So sure, Canadians could stand to save more. Though I’d argue that’s more a matter of temperament than education. It’s like pointing out there would be a lot less obesity in Canada if everyone consumed 10 per cent fewer calories - knowing it and doing it are two different things. Regardless, I don’t think most Canadians are set up much before 35 or so to start setting aside substantial retirement savings. And the average Canadian certainly doesn’t need $1 million or more set aside to have a comfortable retirement, unless by comfortable you mean either much earlier than typical, or enjoying a more affluent lifestyle than what 80 per cent of Canadians experience in their pre-retirement lives.

[Oling_Roachinen]

Originally Posted by chedder

Let's not forget that every defined benefit pension plan of $50,000/year for life is the equivalent of that person having minimum $1,250,000 in savings (using the aforementioned 4% rule)

Edit sorry, I misremembered the 4% rule but the 4% rule does account for inflation while a defined benefit does not.

A person using the 4% rule would be withdrawing much more than $50,000 a year after 30 years of post-retirement living while the defined benefit pension would still be a flat $50,000.

[mrkajz44]

I'll side with GGG here and say saving 10% of your pre-tax income is not overly difficult, so long as you started doing it early. I'd say most of us had some pretty low paying first jobs, but if you are used to always only getting 90% of your salary, you learn to live within those means pretty quick.

To stack on that too, if you are putting that 10% in an RRSP, you'll save the tax on it and only be out of pocket for even less, say 6-7% of your paycheque.

[chedder]

Originally Posted by Oling_Roachinen

Edit sorry, I misremembered the 4% rule but the 4% rule does account for inflation while a defined benefit does not.

A person using the 4% rule would be withdrawing much more than $50,000 a year after 30 years of post-retirement living while the defined benefit pension would still be a flat $50,000.

Was going to say before you edited. It wasn't a slight on pensions. It was a comparison when people think it's crazy to want to save over a million dollars for retirement. Yes, the 4% rule is meant to prevent outliving your money not to make sure you never touch principal.

Edit. In looking it seems many public sector pension plans do index for inflation.

[Oling_Roachinen]

I was wrong again, my bad. Looks like the big ones in Alberta do have inflation adjustments.

So yeah, we should all just be getting on these defined benefits lol

[RichieRich]

Originally Posted by tvp2003

Admittedly, budgeting in a strict sense is not my strong suit. But yes, I have a general budget and monitor monthly income versus expenses. Savings were more of a priority early on, but less so now that we have kids (expenses have gone up) and db pension contributions to make.

I think the majority of people are in one of these categories:

1) How do I get to the end of my paycheck?
2a) How do I get out of this debt?
2b) How do I save enough to put a down payment on a house?
3a) How do I start saving for retirement?
3b) How do I pay down my mortgage earlier?
4) How can I build my retirement savings?

The notion of "what would I need to retire early" is probably next on the list, perhaps followed by "I'm sitting on a crap load of money/assets, what should I do with my time now?"

Don't want to detract from the OP though -- by all means have that discussion, as if you've gotten to that point that is obviously a good thing.

Allow me to reword some key points:
2a) How do I identify and avoid unnecessary debt so I won’t have to struggle getting out of debt? This might include avoiding high cost phone or cable plans, subscriptions, frequent eating out or coffees, etc...
2b) Should I realistically be considering buying a house or condo or does it make more sense for me and my situation to rent? Have I completed a reasonable economic review whether this aligns with my retirement expectations?
3a) How and when do I start saving for retirement? Do I understand the power of compound interest? Do I need help?
3b) Given current interest rates versus investment gains does it make sense to accelerate mortgage or debt repayments?

Let’s add:
What is the opportunity cost of spending “X” amount of money on a new [insert spendy item name here]? For example- new car, truck, house, bike, cell phone, other other expensive item that probably has a lower or no cost option.

[GGG]

Originally Posted by mrkajz44

I'll side with GGG here and say saving 10% of your pre-tax income is not overly difficult, so long as you started doing it early. I'd say most of us had some pretty low paying first jobs, but if you are used to always only getting 90% of your salary, you learn to live within those means pretty quick.

To stack on that too, if you are putting that 10% in an RRSP, you'll save the tax on it and only be out of pocket for even less, say 6-7% of your paycheque.

I think the key is never having the money. People have no problem saving to cover their CPP payments adding an additional 10% to that number as long as you don’t adapt to having more. Did I follow my own advice though? Nope, I was pretty terrible with money until I was 30. Would I have had just as much fun if I had saved more? Absolutely, the amount of waste in that money being spent was high.

I do agree with Cliff that telling people to save is like telling them to diet.

[mrkajz44]

Originally Posted by GGG

I think the key is never having the money. People have no problem saving to cover their CPP payments adding an additional 10% to that number as long as you don’t adapt to having more. Did I follow my own advice though? Nope, I was pretty terrible with money until I was 30. Would I have had just as much fun if I had saved more? Absolutely, the amount of waste in that money being spent was high.

I do agree with Cliff that telling people to save is like telling them to diet.

Agreed - this is the key. If the money never comes into your bank account and is automatically diverted elsewhere, then it's very easy to live of 90% of your paycheck. Literally the best retirement planning I've done to date is ensuring I get 10% diverted from the paychecks automatically at every job I've had. I've literally never been paid 100% of my salary.

[flamingchina]

Originally Posted by GGG

I think the key is never having the money. People have no problem saving to cover their CPP payments adding an additional 10% to that number as long as you don’t adapt to having more. Did I follow my own advice though? Nope, I was pretty terrible with money until I was 30. Would I have had just as much fun if I had saved more? Absolutely, the amount of waste in that money being spent was high.

I do agree with Cliff that telling people to save is like telling them to diet.

This is why the CPP change in 2019 is so important, as it increased that CPP amount for people going forward

[Jason14h]

Originally Posted by CliffFletcher

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?

Is 1 million really out of touch

If you have 30 years until retirement:

Even with an average annual return of 10%, you'll have to save $481 per month to get to $1 million before you retire. At 6%, you would need to save $1,021 per month.

If that 'out of touch' ? $500-$1000 in savings a month? And thats starting with 0$ at age 35 for an age 65 retirement