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How Much To Retire?

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RRSPs RRIFs and TFSAs
Seniors
Stocks and Bonds -> How much money is needed for retirement?

How much money do you need to retire?

Answer:  $961,245.98.

Unfortunately, it's not that simple.  Every person will need a different amount, depending on what income they will have, and what they want to do after they retire.  However, everyone should have a home, and no non-tax-deductible debt before retiring.  Hopefully by now you have defined your goals, have a budget, have maybe purchased a home, are in the process of paying off your debt, and have started to invest.  The next step is to figure out how much money you will need, and where it is going to come from.  To do this, take your current budget and revise it to suit your retired life.

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The following are probably items you will no longer need to spend money on after you are retired:

bulletbuying a home
bulletraising children
bulleteducation costs
bulletsaving for retirement

The following are items you will probably spend less money on:

bulletalarm clocks
bulletclothes
bulletpurchasing automobiles - you will probably be driving less, so your vehicle will last longer
bulletauto insurance - may be cheaper if you are not driving to work
bulletauto gas and maintenance
bulletother forms of transportation if you did not drive to work
bulletlife insurance - may not be needed if you have no mortgage
bulletdisability insurance
bulleteating out

Your spending on the following items will probably not change:

bullethouse insurance
bullethome maintenance (until you're too old to do it yourself)
bulletgroceries
bullettelephone
bulletcell phone
bulletcablevision or satellite
bulletinternet access
bulletbooks/subscriptions
bullethousehold furnishings
bulletentertainment

Your spending may increase on the following budget items:

bullettravel
bullettoys (boats, atvs, etc.)
bulletleisure activities
bullethealth care
bulletdonations
bulletheat & light, because you will be home more
bulletgifts (grandchildren?)

In order to plan your new budget, you should group your expenses into mandatory and discretionary.  Different people will put different things into these categories, so we will leave it up to you.

You need to compare your total expenses to the total of the income that you know you will be getting, such as

bullet

Canada Pension Plan,

bullet

Old Age Security (OAS),

bullet

possibly Guaranteed Income Supplement (GIS)

bullet

company pension plan

bullet

annuities

bullet

dividends from stocks held outside of RRSPs/RRIFs

Tax Tip:  Plan to live off your dividends

In order to make sure you don't run out of money in your retirement, we recommend that you have enough dividends from Canadian stocks (better tax treatment) to cover any shortage of income from the above sources.  When you draw money out of RRSPs/RRIFs, you should buy mainly Canadian dividend-paying stocks with the money.  You should hold these stocks forever.  If you can live off the dividends from your investments instead of selling investments, you are in the best financial position.

However, if this money is not adequate to support your spending after you retire, you will need to either

bullet

earn income from a part time job or a business

bullet

reduce your discretionary spending, or

bullet

as a last choice, withdraw money from savings or RRSPs/RRIFs and spend it

This job may seem daunting, but there are plenty of resources on this website which can help you with your planning.  The thing to remember is that this is just planning, and plans can often go astray.  For this reason, you need to leave yourself some wiggle room in your estimating.

To help determine how much annual income your non-registered investments can provide, see our Annual Retirement Income Calculator.  Keep in mind that this calculator is reducing your investments to provide part of the annual income, and this is not advisable.

Use our RRSP/RRIF Calculator to estimate the annual withdrawals from your registered plans.  These withdrawals should be used to purchase mainly Canadian dividend-paying stocks.  When you finally have all of your investments outside of your RRIF, they should be made up of about 60% to 80% Canadian dividend-paying stocks and 20% to 40% foreign stocks.  This will provide some protection against a falling Canadian dollar. 

See our Borrow to Invest article and Calculator for information on how borrowing to invest can help you build up funds for retirement.

Tax Tip:  Plan ahead for a good retirement!

 

Revised: April 05, 2014

 

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