Consider what you spend for your enough number
Earlier this year, I wrote one of the biggest retirement questions and potentially one of the most frequently asked retirement questions is “How much is enough”?
The answer to this question at that time was “it depends” but there is a better answer than that.
The “it depends” response was in reference to the latest edition of Diane McCurdy’s book How Much Is Enough? In her book Diane encourages aspiring retirees to separate needs from wants but personally, I always look at these things together for my retirement plans.
Determining what you need and want to spend…that is your “enough” number.
When it comes to our personal finances, we strive to max out contributions to our TFSAs (Tax Free Savings Accounts) and then contribute to our RRSPs (Registered Retirement Savings Plans). We consider this a powerful 1-2 long-term savings punch.
When it comes to spending in retirement you need to consider the following:
- What is your base spending?
- What other expenses do you expect to have in retirement?
- Will you be taking trips?
- Will you be buying new cars every few years?
- Do you want to renovate the family home?
- Are you planning to leave an inheritance?
Looking at our finances, here is a quick list of basic expenses we intend to have.
You’ll see our expenses drop quite a bit once the mortgage is gone in a few years.
| Key expenses | Monthly | Annually | Semi-retirement comments ~ 2024 |
| Mortgage | $2,240 | $26,880 | We anticipate the mortgage “dead” before the end of 2024. |
| Groceries/food | $800 | $9,600 | Although can vary month-to-month! |
| Dining/takeout | $100 | $1,200 | |
| Home maintenance/expenses | $700 | $8,400 | Represents 1% home value per year, increasing by inflation. |
| Home property taxes | $500 | $6,000 | Ottawa is not cheap, increasing by inflation or more. |
| Home utilities + internet/TV/cell phones, subscriptions, etc. | $400 | $4,800 | |
| Transportation – x1 car (gas, maintenance, licensing) | $150 | $1,800 | May or may not own a car long-term! |
| Insurance, including term life | $250 | $3,000 | Term life ends in 2030, will self-insure after that without life insurance. |
| Totals with Mortgage | $5,140 | $61,680 | |
| Totals without Mortgage | $2,900 | $34,800 | As you can see, once the debt is gone, we’ll be in a much better place for financial independence! |
Add in other spending/miscellaneous spending to the tune of $1,000 per month and that’s our budget.
We figure we need/want our portfolio to deliver between $4,000 – $4,500 per month.
(This excludes international travel or major vacations.)
Here are the expenses I’m not expecting to have before I retire or in retirement:
- No mortgage / no debt.
- No saving for retirement, especially contributions to my RRSP or our RRSPs.
Factoring in inflation in the coming decade or so we estimate our semi-retirement lifestyle will cost $75,000 per year in 2024 dollars.
Thankfully beyond our investment portfolio, some income will eventually come from government programs like the Canada Pension Plan (CPP) and Old Age Security (OAS). However, for the purposes of our base spending needs, I’m not counting on CPP or OAS. I will be too young to retire and collect either CPP or OAS anyhow!
There are many variables that go into your “enough” number.
Check out these retirement essays – folks that have “been there and done that” to figure out their enough number. Figuring out what your retirement lifestyle might look like is probably the best way to get a handle on it.
What are you doing to determine your “enough” number? Using rules of thumb? Tracking expenses?
Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.
hey mark. where you looking over my shoulder — lol. i see you have (2) after the car in your list. we had 2 vehicles for about 3 years after we retired. we put 3,000. k on it in three years. i think after you both retire you will do most things together so a second vehicle is not necessary. if one of us goes away for a weekend with the boys or girls we simply rent a car — much cheaper than ownership. great post!
Yes, I have two cars on the retirement list. I figure my wife will have plans with friends now and then, and I have 4 golf courses that are <10 min. from my front door I need to play often 🙂
Two cars are needed. Use of the second vehicle will be rare in retirement and I might put 5,000 km per year on it. It should last a good 20 years. We’ll see!
I’ve started to save some money for my retirement but the real question always on my mind is if it will it be enough when I eventually do retire or should I invest this money in shares or in a small business which can give me some support when I will retire instead. What are your thoughts? Do you think I should invest my money in shares or start a small business.
Of course the decision to invest (in equities or bonds) or invest in a small business is a personal one but I prefer investing.
Have you thought about your small business model? Do you have a plan for it? Project revenues? Start-up costs? etc.? Lots to think about. Some elements of investing are much less complex than that.
Thanks for stopping by the blog, I hope to interact with you more in the future!
Mark
thanks for the article , It is something that i really have to start working on as i really dont have any sort of plan for this
I will hopefully have rid myself of many of my expenses by the time i get to retirement age
No sweat for the article. I hope you keep coming back and checking out more on my site.
Cheers!
Todd Tresidder in his ebook How Much do I need to Retire made an interesting commnet which changed my thinking. To paraphrase his comment, a half assed retirment plan is better than none as it forces you to confront this issue (and not bury your head in the sand.
So for me I punched a bunch of numbers into excel and discovered
A: I don’t like inflation
Opps not sure how I did this but I cut off half my comment, but I was saying that the numbers surprised me. Between our government pensions (Canada, Germany) and our projected investments we’ll be doing OK, even taking into account inflation (specifically rent) etc.
Great work Rob. I hope I don’t need OAS actually, I want to rely on me.
What surprised me when I did call the CPP people was we were both eligible for OAS, pleasant surprise I must say.
Pleasant surprise indeed!
Definitely a half-assed plan is better than none at all. I think my calculations for my wife and I are pretty good. I’m pretty sure, if no mortgage or RRSP contributions today, if we were retired, $54 K after taxes would be more than fine.
Regarding inflation, that’s the wildcard isn’t it? Could be 3% Could be 4% Could be more? That would be scary, over 4%, year over year!
Wow, I don’t even spend that much in a month with my mortgage and student loan payments! But you never know what might change. I’d think that $3000 would be enough for me to live on with my mortgage paid off and I’d live a pretty good life, but then inflation.. so we’ll see. I’m planning for $3,000-$3500
Good for your Daisy. Well, we have a fat mortgage right now, so our $4,500 is actually higher! 🙁 I think $54 K for my wife and I is a very healthy retirement income. Hopefully the dividend-paying stocks will take care of 50% of that income.
https://www.myownadvisor.ca/dividends/
I figure the rest of the income will come from pension, RRSP and when I get to be 60 or 65, CPP. OAS will be 67 or later for me, so not really including that number in my retirement calculations since I should be/plan to be done working at age 55 or 60.
I’ll just run my blog after that.
I think what we can live on and what we actually want to live on are often two different things and it is important to consider both when determining your real number. I could be worthwhile to work for a couple of extra years if it means a big difference to your lifestyle.
Agreed Zach, wants and needs must be factored together. You strip away the wants if your needs aren’t met first.
What is your “enough” number annually?
This is exactly the right approach, and one that is often skipped right over in favour of a big, round number. I deeply distrust any planning approach that doesn’t start with “it depends” and moves directly into how much you’re actually spending right now vs. how much you’ll realistically spend in retirement. That kind of analysis comes WAY before announcing anyone’s “enough” number.
Thanks for stopping by Sandi. Just reaching for a number is pointless. Having an understanding of what you may spend (and thus do) in retirement can really help your financial plan take shape. I’m sure my forecast has flaws but it’s certainly better than no forecast at all 🙂
See you at CPFC13!
It also makes sense that you can really change what your retirement will look like if you can shave down some of your essential expenses. I think it’s great that you’re looking for that “enough” number, not many people have one in mind!
Thanks for the comment FI. When you track your expenses, at least you know where the money is going. That goes for today and for retirement. We can certainly get better at watching where our money goes, making better choices, but we’re making progress. All of that work helps us calculate our “enough” number.
According to statcan men aged 55 to 64 made on average $53,400 in 2008 so your expected retirement income sounds pretty good 🙂
http://www.statcan.gc.ca/pub/89-503-x/2010001/article/11388-eng.htm
With a wife and kids things will obviously change but as my current situation stands I will only need about $25K a year in retirement. So far I have about $5K of passive income, so still awhile to go but patience is a virtue. I know what you mean about CPP and OAS. It’s nice to have, but neither of us will probably receive any benefits at the time of our retirement. If anything, the qualifying age to receive payouts will probably go up over time 😛 #FirstWorldRetirementProblems
Cool link, thanks for that. $5 in passive income is great. You’re doing very well at a young age. In other 20 years, that should triple in value and provide you with a good chunk of income to pay for any expenses you want.