Dear Nancy,
How much money do I need to save to retire? I am 44 years of age and with longevity in my family, I think I should plan that I will expect to live to 100. I would like to retire at age 60. I have savings of $450,000 presently.
My friends say that I'll need a million dollars to retire in any sort of basic comfort. Is this a million per person in a couple? Or is it a million for each person in a couple? Do I really need a million dollars to retire? Right now my household annual income is about $75,000. How much do I need to save in order to have that amount annually?
Thanks in advance for the answer!
Beth
Dear Beth,
To help you with this answer I used a retirement savings calculator to plug the figures in. This helped me find out what you need at retirement and then what you need to save each year until you retire to achieve that amount.
I made an assumption of 5 per cent annual return on your existing and future savings with a 2 per cent inflation rate. This means you would have a 3 per cent real rate of return.
If you adjust your $75,000 for inflation, the amount you would need in 16 years is $2,730,759. That generates the $113,675 of income in future dollars. In addition to your existing savings and its growth, you will need to save an additional $55,218 annually to meet your goal.
One thing to consider is that this has not taken into account other future sources of income such as OAS and CPP. Also consider that when retired, your daily work expenses such as travel costs, meals, clothing, etc, may lower your spending budget.
If the annual income that you need is reduced to $50,000, for example, the savings required to meet your goal would be $24,686 per year.
If you choose to work until age 65, and need $50,000 in today's dollars, you would need to save $10,322 each year. This creates an asset base of $1,690,755, including $1,253,683 future value of your present savings asset, for you to retire on.
As you can see, changing the parameters of years to retirement, income goals can greatly change the amount you need to save from your income.
So, with all that said, the answer to your initial question is, yes, you need a million dollars to retire. It seems like a lot but we can't predict what the cost of a loaf of bread will be in 16 years if you retire at 60!
(This response is specific to Beth's case and should not be misconstrued that all retired Canadians need $1-million to reture)
Nancy Woods, CIM, FCSI, is an associate portfolio manager and investment advisor with RBC Dominion Securities Inc. To ask her a question, send an e-mail to asknancy@rbc.com or visit her web site at nancywoods.com
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