How much is enough for retirement?
We’re all told to save, invest and stay invested for the long-term. Sound advice for sure in our asset accumulation years. But most of us will want to spend what we’ve worked so hard for in retirement during our “asset decumulation” years.
We’re far from being retired yet nor perfect investors but we feel the importance of planning and re-planning for retirement is critical.
If you do the same, I have great confidence you’ll get to where you are going as well.
We’re “not there” yet in terms of drawing down our portfolio but those days are getting closer. We’re more than halfway to this major financial goal that should fund most of our retirement expenses. When we realize this goal I have full confidence we’ll be able to leave the workforce for good or at very least work on our terms.
Thanks to various reader questions of late, I’m going to revisit our “how much is enough” question about any retirement planning. I’m doing so today in hopes of helping you figure out your “enough number”. I’ll highlight a few recent reader questions in this post that relate to this theme and over time, I’ll update this post as new questions come into my inbox. OK, let’s go.
Mark, how do you know when you’ll have enough? You write about dividend income and not spending the capital but won’t you consider drawing down your portfolio eventually?
Back in this older post, I estimated our basic expenses in retirement might around $4,000 – $4,500 per month excluding any major discretionary spending and excluding any international travel (after taxes).
I write about owning a million dollar investment portfolio not because it’s a nice round investment number (although it is) but because we believe the income derived from this portfolio value (excluding workplace pension values; excluding government benefits paid to us in the form of CPP and OAS) should be enough to cover most expenses.
Using TaxTips.ca (no affiliation but a great free calculator!), you can calculate how long your registered money might last. Here is one example for early retirees who may want to consider drawing down their RRSP(s) before taking their Canada Pension Plan (CPP) or Old Age Security (OAS); and/or workplace pensions; and/or withdrawing any money available in other investing accounts. This is something we’ll probably do. Individuals or couples who have worked hard to amass a portfolio value of $500,000 by age 55 will be able to enjoy a modest income from their RRSPs before taking government benefits – benefits that make sense you defer in many cases.
Mark, I have read your articles about your journey to owning million dollar portfolio. I would be interested to know how you would invest if your RRSP (Registered Retirement Savings Plan) was maxed out; what would you do next?
Another good question. I can answer this question rather honestly because it is (the RRSP) maxed out. Although we have some work to do, to maximize contributions to my wife’s RRSP in the coming years (before early retirement) my RRSP has been maxed out for about three years now.
If you’ve been diligently contributing to your RRSP for many years like I have (and good on you too!), then I would strongly consider maxing out your Tax Free Savings Account (TFSA) as your next step. I mean, this account is an absolute gift!! I’ve considered our TFSAs as retirement accounts from Day 1. If you haven’t considered using your TFSA as a retirement account, this and other great things you can do with your TFSA are listed in the articles below:
If your RRSP(s) and TFSA(s) were maxed out, and if you had money left over, I would strongly consider paying down debt (e.g., mortgage, car loans) and/or funding your kids’ Registered Education Savings Plan(s) (RESP(s)).
In general, I believe it makes sense to maximize contributions to all registered accounts (RRSPs, TFSAs, and RESPs as main examples) before investing in a taxable account.
Mark, in what order are you going to draw down your portfolio? Why that order?
Geez, complex question to answer! Here is my thinking although it’s subject to change!
No portfolio withdrawals planned. Save, invest and hopefully, eventually – prosper!
Stop working full-time in this decade; hopefully enjoy part-time work in early 50s up to age 60.
To help fund semi-retirement, we’ll start withdrawing from our RRSPs in our 50s. This will reduce the tax liability that is our RRSP investments before we take on any CPP or OAS. During RRSP withdrawals, we don’t intend to touch our TFSAs because that’s tax-free money we can defer into the future. We have a number of Canadian dividend paying stocks in a taxable account. We will spend dividends earned from that taxable account. We will take my wife’s workplace pension at age 55; move into Locked-In Retirement Account (LIRA) and draw it down throughout our 50s.
More RRSP withdrawals planned during this decade. With strategic RRSP withdrawals underway, we intend to spend the dividends from our taxable account – start drawing capital down as well.
In our mid-60s we will consider taking CPP and OAS at age 65 or maybe later. Take my workplace pension* at age 65. (*As of today, that pension will provide a guaranteed $28,000 per year at age 65, inflation-protected for life.)
In our 60s, there are no withdrawals planned from our TFSAs; rather we’ll use TFSA income in old age – good health, body and mind willing.
70s (and beyond)
By our early 70s, our plan is to live off income from my defined benefit workplace pension, use fixed-income from our government benefits (CPP and OAS) and use TFSA (dividend) income to cover living expenses. If we continue to maximize contributions to our TFSAs like we have been doing, every year since inception, it’s not unrealistic that in 30 years our TFSAs will be earning tens of thousands of dollars per year; money that can be withdrawn tax-free.
How much is enough for retirement summary
How much is enough for your retirement? I can’t possibly know.
I can tell you via this blog where my wife and I are trending to and how we intend to save and invest to get there eventually. Maybe sooner than most if we’re lucky.
We’re far from being retired yet nor perfect investors but we feel the importance of planning for retirement. This makes the process of planning and re-planning very important for all of us.
I hope this post provided more insight into our “how much is enough” question; it answered some of your reader questions and it provided some considerations for you. As I get more reader questions, I will continue to post some new perspectives.
Readers, what do you make of these answers? What further questions do you have for me? Retirees, what do you make of our plan knowing what you know now? What advice would you have for your younger self or others? Thanks for reading.