Do you really need $1 million to retire well? Of course you do.

Hey Mark, appreciate the info on this page. I am 37, I have a DB pension and have been working for 15 years. I was able to pay off the house (620K) and accumulate 1.2 million in cash and liquid securities. I get stressed when thinking about the amount my wife and I need for retirement. I always read that you will need 75% of what you make now, in order to retire comfortably. Is it still true if say you make 50K and save 25K every year? Or is it more accurate to say that you will need 75% of what your current expenses are? If I have maxed out the TFSA, should I be contributing to an RRSP….even if my pension is based on best 5 years of service? Any advice would be appreciated.

My retirement is three years from now, my wife is taking her retirement in June this year.

I made the following calculation:

Total Revenue – Saving – Debt payment – RRSP payment = Total money spent.

From this, I calculate the Monthly Money spent (MMS).

I then apply a simple rule: expenses will increase at 2.5%, interest rate on investment will be 2.5% (my real ROI since 2011 is 11.1% but cannot take risk).

Then I take our pension revenue (luckily, we both have a pension plan) and made an Excel file with our estimated revenue from pension after taxes (non indexed) on one side, our MMS (indexed to inflation) on the other one. In our case, we don’t have to worry, considering that we are using the MMS is around 60% of our pension plan revenues (at the age of 79, we will start using money that was put on side and by the age of 110, we will run out of money…)

The cash flow exercise is maybe painful but worth doing it.

Like Mark,

I’m interested to here some general details as well. with 300K i can only assume you will withdraw a maximum of $12K a year. Lets be generous and say you will get $12 K from CPP, giving you $24K gross. My property tax alone in the far North of GTA is $5K / year. When you add up cell phone, heat +++, there is not much left. I want to live comfortably and in a neighborhood where I will feel safe coming home late at night. I can’t see that happening even in Roberts scenario which I can relate too. I’m already past your magic number and I still feel vulnerable.

Super summary on this topic Mark:
According to Stats Can the Medium Family Income in 2015 is around $80,000, so at 70% one would need close to $60,000 before taxes. There are lots of people living on much less than $80,000 but even if the figure is $50,000 they would still need about $38,000 during retirement.

Assuming CPP\OAS provides $26,000 (per family) than the shortfall is between $12,000 & $34,000 depending on lifestyles.

Given those figures the next question would be how much capital would be needed and what type of investments would generate that much income. As you stated there is no one answer because there are too many variables. Regardless of the answer one comes up with there must be allowance for Inflation, or else the capital and income would slowly diminish in value.

Fixed Income choices would not be a solution unless the capital was very large. Relying on Growth stocks may work in a Bull Market, but could be devastating should a prolonged and savage Bear Market occur at the wrong time.

For me, I found that Passive Income was the best option. As so many have said, starting early to save & invest will make the difference, but even if one starts late or doesn’t make enough money to save enough, the Passive Income route can ease the burden. By getting a Growing Income from your saving, regardless the amount will help reduce the effects of Inflation or at least keep it in check.

Everyone would like to have $1Mil, $2Mil or more, but it’s really the Income that will resolve the problem of having enough to live on or at least make ends meet. Knowing that the Income will be there and will grow is what will make one sleep at night, not that you have a large pile.

If you use a real rate of return or inflate the income needed by inflation the increased cost should be accounted for-outside of insurance costs related to age. I think people are afraid of seeing what they spend-ignorance is bliss. Finding your number is easy if you know what you spend (after taxes) and take out retirement savings, mortgage, kid expenses etc. Been using Quicken for 10 years to track all our spending. You also need to consider that your tax rate will be lower if you need less income. Our number is about 50% or our current income to maintain our lifestyle. Much lower than the ‘marketed’ number. Works out to $2m’ish if freedom 55 is the goal.

Unfortunately the only way most people will get to even half a million is through inflation (and not very fast at current inflation rates) based on what is typical now. Even some lower number would be a great improvement. Whether or not people aim for 1, 2, or 3 million they will be better off if they work on some improvement to their standard of living. And who knows, it might turn out better than they expected.

Great post, and what many don’t realize is that by the time they retire (ie. 20 years) $1M will buy you much less than today due to inflation. I can remember when a ‘millionaire’ was quite rare. It still is an awesome financial accomplishment but it is becoming more and more common

This number scares a lot of people off and it’s a number that many in the personal finance world say isn’t enough. The reality is most people aren’t saving enough if anything at all. Retiring well is going to be a dream for many people unfortunately.

I realize that one million is not a “one-size-fits-all-retirement number” but $1M in RRSP savings is way different than $1M in a non-registered account. Plus are we considering people’s principal residence in this #? Again, skews the #s dramatically with or without the house.

$1,000,000 would yield over $78,000 annually for a 25 year retirement time frame. While this doesn’t account for tax or inflation, it should comfortably meet all your basic needs and more.