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!|
|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 an inflation rate of 2% between now and the coming decade or so, and 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?