How Much Do You Need To Retire Comfortably?

There have been a few good articles of late in the Globe and Mail about how to retire comfortably. According to a recent BMO study, you will need about  $1.7 million dollars. But I thought I would add a bit more to help you in your planning process. One idea I hear often from clients is around the “Canadian Plan” of selling your home and living off the proceeds. As many of you know, there seems to be a smaller number of living accommodations that are affordable in this country once we stop working and many of us will have to start to have to dip into savings.

Keeping that in mind here are some other planning tips that might help in your process and planning to retire comfortably. First, you will need to Calculate the amount you’ll need to retire comfortably and this is a personalized process that depends on various factors, including your lifestyle preferences, anticipated expenses, expected retirement age, life expectancy, and desired level of financial security. While I can provide you with a general framework, it’s important to consult with a financial advisor or planner who can offer personalized guidance based on your specific circumstances.

Here are some steps that may help you estimate your retirement savings goal and retire comfortably:

1. Determine your retirement goals: Consider the lifestyle you want to maintain during retirement. Think about factors such as housing, travel, healthcare, hobbies, and any other expenses you anticipate. Be realistic about your expectations and the costs associated with your desired lifestyle.
2. Estimate your retirement expenses: Estimate your annual expenses during retirement. Start with your current expenses and adjust them based on changes in your circumstances, such as the mortgage being paid off, healthcare costs, and any new hobbies or travel plans. Remember to account for inflation and potential healthcare expenses, as they tend to rise over time.
3. Assess other sources of income: Consider any other sources of income you expect to have during retirement, such as OAS & CPP, RRSP, pensions, or rental income. Determine how much you can reasonably expect to receive from these sources and incorporate them into your calculations.
4. Calculate your retirement savings target: Once you have an estimate of your annual retirement expenses and other sources of income, you can calculate the amount of savings you’ll need to generate the income gap. This is typically done using the concept of the “4% rule,” which suggests withdrawing 4% of your retirement savings in the first year and adjusting subsequent withdrawals for inflation. Divide your annual income gap by 0.04 (4%) to determine your target savings amount.
5. Consider investment returns and time horizon: To refine your savings goal, consider the rate of return you expect to earn on your investments and the number of years until retirement. A longer time horizon allows for potential growth and compounding of your investments. You may want to consult a financial advisor to help determine a reasonable rate of return based on your risk tolerance and investment strategy.
6. Regularly review and adjust: It’s important to review your retirement plan regularly and adjust your savings goals as needed. Life circumstances, financial markets, and personal goals can change over time, so periodic reassessment is essential to ensure you stay on track.

Remember, this is a simplified framework, and everyone’s retirement needs are unique. Working with both a legal and a financial professional can provide valuable insights and personalized advice to help you plan and achieve your retirement savings goals.

Link to BMO research study summary

Read our Blog Post on Why You Should Prepare Your Beneficiaries About Their Inheritance