In planning for retirement, the big questions are always:
- What age can I retire?
- How much do I need to retire?
Basically, in either case, what’s your number?
The answer is as unique as you are – “it depends”
It depends on:
- The age you WANT to retire
- How long you will live
- What kind of lifestyle you want in retirement
An average family (which you will also see in the Retirement Calculator tool I make available for free) brings in roughly $100k per year. If you want roughly $75k in retirement per year between you and a significant other (let’s assume you have paid off your mortgage and other costs will be lower) you need to bring in that much per year either through what you have saved or pensions or government assistance.
Let’s start with Government Assistance and build from there. The maximum you can bring in from CPP and OAS is about $1800/month or $21.6k /year. If there are two parties that combines to about $40k/year (and you are short $35k from your yearly goal). And in actuality the AVERAGE take home across Canadians is $15.6k – so that’s $31k per year per couple.
(note – if you are a couple you can’t actually bring in this much as the government claws some back in a couple situation – and the Government will also claw back if you actually have other income like RRSPs or pensions – yes, it sucks).
Anyway, if you are 65 when you retire and start to draw Government benefits (more assumptions) – Your $31k per year is $45k short of what you need to live. So, you need to add on any pension you have (and pensions are rare these days unless you are in the Public Service) and then and RRSPs/TFSAs on top of that.
If you assume you have a $20k pension, you need RRSPs, etc. of $25k per year. If you don’t have a pension at all, you need to find another $45k/year.
A rule of thumb for RRSPs is 4% (you can withdraw 4% per year and not run out of money for 30 years). Again, another huge assumption, but for the cases above:
- For $25k per year, you will need to have $625k of RRSPs
- For $45k per year, you will need to have $1.125M of RRSPs
All of these figures are inter-related – if you wait longer to take government benefits, you will take home more. If you can live on less money, you will need less RRSPs.
We’ll explore scenarios more in detail. But, for an average family, with a boat load of assumptions, you now can see some of the magic numbers…