Retirement Income for Life
As a Do-It-Yourself (DIY) investor who works off his own financial plan to achieve financial freedom, I’m always drawn to a various (read in: free!) calculators that can help investors like you and me tailor our own plans.
Given we spend multiple decades striving to accumulate assets so we can enjoy a few decades of good health in retirement or semi-retirement, it is increasingly surprising (although not shocking to me) that there are very few, great retirement calculators out there. One would think, if you design a great tool and offer a service that accompanies such tools to help investors – DIY or otherwise – that might become a proverbial cash cow for you as an entrepreneur given the demand for would-be retirees to figure out their “enough number”.
I have an idea of what our “enough number” might be, and we’ve been working towards that goal for many years now.
Your mileage might vary but do read on!
How to determine your retirement income for life
1. Help for your “enough number
“Drawing down one’s savings in retirement is something very few retirees do well, even with the help of professional advisors.” – Fred Vettese, Retirement Income for Life.
I’ve been a long-time fan of Fred Vettese, retirement expert, author, chief actuary at Morneau Shepell, and more.
I provided some book reviews of Fred’s books as part of these giveaways in the past on my site here:
The Essential Retirement Guide
Here are some of my favourite takeaways from each book in no random order:
“Spending in retirement falls into three categories or “buckets”: regular spending, rainy day spending and bequests.”
“The inescapable conclusion is that you have to invest in stocks if you want a decent return over the long run. There is no guarantee you will get it, but your odds are better than with any other asset class.”
Vettese on a “safe” withdrawal rule of 4% or 5%: “The real problem with a flat percentage withdrawal is that the income it produces does not reflect your actual needs.”
On Vettese’s top 3 ways to optimize asset decumulation for your retirement:
- Invest in passively managed funds to lower your investment costs and fees over time – keeping more of money working for you (versus in the hands of advisors of financial companies).
- Start your Canada Pension Plan (CPP) later in life – something I wrote about here.
- Use some (not all), maybe between 25-50% or so of your RRIF assets to purchase a non-indexed annuity.
Vettese on our prolonged, low-interest rate environment for investing: lower your portfolio’s projected investment returns in the coming decades AND also increase your equity to bond asset mix.
2. Help for your cash flow income targets
With thousands of people including many Boomers hitting retirement age every day, entering this decumulation phase of their lives, they will need to have sound strategies to draw down their savings to create retirement income for their lives (and maybe a bit more) depending upon any estate plans.
Embedded in the Retirement Income for Life book, is a handy link to a retirement income calculator (no affiliation).
Check out this FREE calculator on my Helpful Sites page here.
The premise of this calculator helps determine, for anyone over age 50 who might be heavily relying upon their retirement savings for income security, to determine their projected income target range.
I thought it would be interesting to input some fictional data to see where we might be at age 50 – assuming everything goes according to plan:
We’re not quite age 50 (a handful of more years yet!) but it’s assuring to see we’re a good path. This is primarily because of our plan to max out our TFSAs this year and every year (you can read about the tremendous wealth-building value of the TFSA here),
striving to maximize contributions to our RRSPs every year as well.
Is this calculator perfect? No. There are some major assumptions involved in this tool. For one, I would like to see more details about inflation myself and a sliding scale to see the impact inflation has on income purchasing power over time.
Furthermore, this calculator might also not take into consideration many other factors that could help you determine a higher income “enough number” including Old Age Security (OAS) benefits among other income streams.
This tool however is very FREE (I just tried it again the other day…) and it does provide you with a decent projection for your retirement income estimates to hone further planning details although it’s far from perfect.
Have you seen this tool? What other tools might you use for retirement planning? Are they free? If so, tell me about them and I might write about them in order to share those resources with others!
You can see some of my favourites tools from my Helpful Sites page.
Retirement Income for Life – Hire Me!
Knowing how to save and invest wisely is great but how to get the most out of your portfolio, including what accounts to draw down first in early retirement, semi-retirement or traditional retirement ages is something far more complex but something we can help out with at Cashflows & Portfolios.
My site Cashflows & Portfolios can help you out!
We’ve already helped dozens of clients in the last few months alone!
If you are interested in obtaining private projections for your financial scenario, read more about our retirement projections service. We’ve updated our low-cost starting price on that page for you to check out.
More income and retirement content
From the retirement files:
How to invest for retirement when time is no longer your friend?
How I invest in dividend paying stocks is always found here.
Why I invest in low-cost ETFs – along with dozens of articles about ETFs can be found here.
Just a minor point re. age at retirement. Many years ago (about 50!) Treasury Board issued a memo to all federal employees stating that, according to their statistics, the average longevity of a retiree declined with each year of full employment after the age of 55. Put it another way, you lose two years of retirement for every year you work after age 55. I have no idea whether these figures apply today, but the memo shook me, and affected my entire career plan. I am now almost 80, and have enjoyed almost 24 years in retirement (I retired at 56.) I have seen more than a few colleagues pass, and most worked longer than me.
My best investments are good food, as organic as I can buy, grow, or catch, and plenty of exercise. The rest is gravy, although a loving family and good friends are immensely important too. My TFSA and RRSP are still growing, thanks largely to DGI. I should add that my wife follows the same mantra.
I love reading these stories Doug…. re: “I am now almost 80, and have enjoyed almost 24 years in retirement (I retired at 56.)…”
As I age Doug, in my mid-40s now and drinking some great red wine as I write back, I’m much more cognizant that good mental and modest physical wellness (with ideally good genes) is the key to longevity. My parents are in the their late-60s/early-70s now and I’m encouraging them as much as possible to “live their life”. Spend their money. Enjoy what comes. Life is short. They are seeing this more and more with their friends pass too…
I’m a huge fan of DGI and income investing and have really gravitated to this approach for the last 10 years. My TFSA and RRSP are also full and I hope to keep them full for the next 5-10 years as I aspire to hit semi-retirement.
All the best!!
Hi, Barbara and James, according to this post:
Delaying CPP/OAS and you can actually spend more.
“and how your early death or your spouse’s will affect future income.”
Well said (wished I’d a mentioned it)! So often overlooked or ignored. I can’t emphasize enough we owe our spouses the consideration to account for the “what ifs”.
I, too, like Vettese’s book and approach, and the GoC calculator. I had to make my own spreadsheet, though – Vettese’s calculations are too hidden for me.
The main problem is that, like most of us, I will have different income streams at different parts of my retirement. Assuming equal draw-downs from each stream is okay for the rough calculations, but once you are in retirement, you need to think about taxes, OAS clawbacks, and how your early death or your spouse’s will affect future income.
Different income streams definitely complicate the financial draw down plans. The withdrawal combination of non-reg + registered accounts + pensions + government benefits, etc. is a challenging puzzle to put together in a tax efficient manner – even for seasoned professionals.
I’m 64, retired at 51. My wife and I have no company pensions. We’ve taken CPP at 60 and will get OAS at 65. Our life savings are in RRSPs, no money outside registered funds. We take at least 2 long vacations every year, buy new vehicles when needed, paid all expenses for our daughter’s wedding this year, live a good life. And NO, we don’t live on 50% of our pretirement income…we live on 100%…same level. We have drawn out 15% of our net investments each year for the past 14 years. Learn about investing long before you retire. You can do much better than ETF, Mutual Funds and Bonds. And yes, I was retired when the markets temporarily dropped in 2007/2008. Live within your means, eliminate all debt, and learn to invest early (make your mistakes when you are young). Wishing everyone a happy retirement.
Very interesting take Bruce – thanks for sharing. Goes to show that all pre-retirement incomes are not created equal!
It absolutely sounds like you live within your means, which was likely the key to pulling the plug at age 51 🙂
I wish you well yourself!
Your (fictional) answer to question 10 doesn’t look correct to me. You are saying that your DB pension will only increase by 2% of the CPI percentage increase. So if the CPI goes up 3.5% in any given year your pension increases only 2% of that figure? I personally have a partially indexed pension (up to a max of 3% annually) so I inputted 75% as my answer ( i.e 75% of CPI) as I assume that inflation will at some point be over 3% and I won’t receive an increase enough to cover inflation.
In looking at my answer (re: 2%) I should have put 75% – you are right. Thanks for that correction on me!
Like you, if 3% inflation then my DB pension rises by no more than 75% of that or around/just over 2%.
I too assume inflation might be over 3%. Hopefully not for an extended period eh Rog? Thoughts?
I haven’t found a calculator that I find useful. Rather I worked through all of Blunt Bean Counter’s series and figured it out from that.
People like me will have some savings that are all taxable (ie. RRSPs, pensions plans), some that are partially taxable (capital gains) and some completely non-taxable (TFSA and your book cost on investments).
Earlier I had thought delayed CPP was a good thing. But now actually looking at it, I dunno. If you will get $1000 a month, delaying 5 years is giving up $60,000. That is a lot of money to delay.
Mark’s site (Blunt Bean Counter) is very good.
Like you, I will have some taxable savings (non-reg. now, RRSPs, pensions, etc.). As part of our current plan Barbara, I’m thinking I might delay CPP and OAS (well OAS is 65 for me anyhow) until age 65. That’s the current thinking. That’s 20 years away. Lots can change! I like the idea of transferring the investment risk away from me in my older years.
Fair comment about giving up $60k, but each year you delay CPP you gain 8.4% more, up to age 70 when you are at 42% more. That’s a nice, healthy fixed income payment to have. If your family has a longer life expectancy (as most readers of this blog likely do) then the payback for delaying is likely positive. You would need to draw down RRSPs in between, which also avoids the end-of-life tax hit that your heirs will face.
I won’t argue with the 42% “increase” of revenue at age 70. Yet, that’s not the way I see it. Getting CPP at 60 and OAS at 65, gives you more room to “play with” while you’re still relatively younger and in relatively good shape. For instance, I will have money at 60 to travet once a year, and twice a year at 65. Who knows how my health will be at 70-75 yrs old! Sure, I can (will) live for another 15-20 years, but in what physical condition.
The problem today with people below 50, is they think they will keep their health, energy, and mind as if they are still 30, and some think they will get “easily” beyond 100! That’s the message the financial market is trying to pass on to you. “Give us your money, we will manage it for you because you have a very good chance to reach 100!” Yet as soon as you hit the 60 mark, some of that health and energy start to go down quite a bit… whatever your fitness level at 45-50. Nature will catch up with you… and after 70, it will fall on you with a vengeance. ?
Sure, there are a few tiny pockets of people who can still climb Mount Everest after 70, but you can count them with half of your left hand fingers ? Look at your immediate family, father-mother, sibblings, aunts and uncles, and grand parents…. Did one of them were able to climb the Anapurna after 65-70? If more than 50% of them could, then you can delay CPP to 65!
I prefer to travel and enjoy life while I am in good condition, and that’s before 70, hence I will enjoy CPP at 60 and OAS at 65.
That’s “my” idea, and everyone is different… I’m not judging those who do or don’t.
“Life is short, eat dessert first!”
@Jackie K: Many excellent points. All to often, in my opinion, the advice is to delay CPP and OAS based on the numbers alone.
I’m sure that if you got 50% more by delaying until age 85, some would still recommend that you wait – you never know, you could live to 120!
Many studies have shown that significant lifestyle decays occur around age 70 or 75, so to your point Jackie, you got one life to live and you better get after it 🙂
I’m trying to increase my health and fitness in my 40s now, so I don’t end up in a very poor position in my 60s or 70s. I walk or bike to work every day and will continue to do so now that we’ve moved closer to work. That’s a great start for me!
All the best and thanks for your detailed comments. Great points about enjoying the health and wealth you have right now.
Good decision with increasing health and fitness Mark. There are so many great reasons mentally, physically and financially to do it.
All the best with it.
You bet. Going for a 20 km ride later this morning 🙂
I’ll play devils advocate here.
I’m 60. I plan to delay CPP until at least 65 quite possibly later.
While I agree fitness levels will go down at age 60 (mine has) vs at age 45-50, some context is necessary. In my late 40’s I was running 100-130 kms per week year round. I now am running 50+ kms per week- just finished a 20km+ run this morning. May be able to get up over 60km/wk. I also strength train about 4 hours per week, hike, bike etc and look after a 3 acre property, and some other quite physically demanding tasks. My energy level is likely much higher than most people 20+ years younger. I hope to be active for many more years. My wife is also very active. Family longevity for me is a little longer than average and slightly so for my wife. Life is usually long, exercise to stay healthy so you can eat more dessert over the long term.
I’m looking at numbers, considering our health/longevity, our assets and income sources, and how to safely transfer more longevity risk to these govt plans over the longer term when I consider delaying. The majority of people I talk to seem to do the opposite. Little consideration to overall picture- more of a take the money now because its available and think that will give them the best financial outcome, although those on this site seem more likely to give due consideration to whatever may work best for their situation.
I’m also not judging and and these are my ideas only. YMMV
I’m pretty close to your way of thinking RB. I’m 59 (retired at 55) and I’ve wembled on the CPP issue. I do not need the money now or in the near future. I got the estimates from Doug and delaying to 65 didn’t make a large a difference as I thought it would in regards to penalty for going beyond the drop out provisions. We are not touching the RRSPs yet other than withdrawing an amount to take advantage of the lower tax bracket. Those funds are just being held in taxable GICs for now as I don’t know what I want to do ( I am a bad procrastinator). I’m selling the rental house in the city as the guy from work that is renting is has bought a house so I’ll have to figure out what to do with that as well (likely park most of it, might buy a car). At 65 we will lose some disability income, the bridging on both DB pensions and the disability CPP will be cut back and I doubt I’ll still be doing the farm stuff too, maybe then? Will re-evaluate when we get closer.
I guess the point is, everyone has different situations, priorities and options. I doubt there is one serious and reliable cookie cutter plan that is “best” for everyone.
You’re in a good place. I agree on there being different situation, priorities, options and no one fits all solution.
I’m utilizing RRSPs/LIF as a major part of my income (no pension), outside of unregistered divvys. This has always been my plan and is working great the past 5 yrs. This year I cut it back and used some HISA cash that was building up.
Similar here with my wife losing her DB pension bridge at 65. We’ll likely take at least one of the options OAS/CPP, to do some offsetting of that. We’ll re-evaluate closer to that date for both of us to confirm our decisions.
I think that makes sense for one CPP/OAS at age 65. Then you can deferring yours or “worse case” take both of yours (CPP and OAS) at 65 as well and just put every penny into TFSAs (x2) ~ $12,000 per year and once that is maxed out – use for tax-advantaged CDN stocks in non-reg. Easy-peasy.
Good. That’s pretty much my thinking too. Not sure what will happen re unregistered acct- add to it? start depleting?
Too many variables, unknowns and time ahead to in any way think of a solid plan now.
In my zeal to counter the idea health will suddenly change at 60 and fall off a cliff at 70 (embellishment) in my reply above re Jackie K’s post it might have been useful to make a few more points.
As you know we’ve been traveling extensively since retiring age 55. Have enough funds/income (cash flow) to easily continue this lifestyle if our interest and health continues. Taking CPP benefits early or for that matter even taking OAS@65 isn’t going to have us travel more or spend more money earlier, based on any scenario I’ve researched or modeled. Another factor is I prefer to have larger “sure” indexed income (pensions) and less of my own money to manage in my older years when my mind and my investing interest is likely not as sharp as it is now or even 10 years from now. We have no heirs to consider or to rely on for help in our golden years. Time will tell what we decide. YMMV
Hi Barbara, If you take CPP at 60 you will not get $1,000 / month, more likely around $726 if you are eligible for the max and this is taxable income. As many posts have already stated the decision to start early should be decided upon you & your spouse’s situations, both health wise & financially. There is a situation that is rarely if ever mentioned that few couples fall into. If one of you is 65 and is collecting OAS & GIS, and the other is 60, then you may be eligible to collect a monthly tax free allowance of up to $1,141. Another thing to keep in mind is that should both of you be eligible for the maximum CPP and one of you dies, your only entitled to the max amount for 1 person. Of course if you are single then the considerations are different.
I was not talking about taking CPP at 60, rather I am looking at taking it at 65 versus age 70. The age 65 number is slightly more than $1000 a month. When I saw that number and calculated what would be foregone, well $60,000 just seemed like such a large amount. Maybe I should split the difference and go for 67 and a half years….I am always indecisive!
That is my husband’s CPP, I receive a very low amount myself as I left work to take care of our kids who all had serious medical problems. I manage all the money and do worry that my husband wouldn’t know what to do if I passed on, so maybe it would be better for him to delay the start. I keep trying to educate him about my strategy and where the money is, etc. but he isn’t interested.
I do want to give a lot to each of our 3 kids, but can’t do that too early. Currently I am supporting one of our kids at university $1900 month, as the rents in Toronto are so ridiculous.
Hi Barbara, Sorry about that, I misunderstood. Decisions are always more challenging when we are working with uncertain details like how long any of will live. It is unfortunate that your husband doesn’t get involved with your financial planning. I guess the best thing you can do to help him is document all of the details on a spreadsheet, I like excel but there are others, account numbers, dollar amounts, contact name & phone number, etc. I use one sheet to track all investments & a second tab for all monthly bills / expenses. Regarding giving to your children an idea to consider is gifting them a little extra money if you have it & put it into their TFSA’s. This is a way to help educate them financially & start saving / investing plus there are no taxes to pay. Pass on your financial savvy! Good luck & have a wonderful day!
Based on what I know Barbara, you have a very good amount of financial savvy so you’re well suited to be your home’s CFO but sounds like some estate planning is needed as well. I know for my wife, who reads this blog, she has very little interest in investing and wants to really simplify things should anything happen to me. So, I intend to write her a “when I die” kit so she knows what to do. Morbid but true.
“Currently I am supporting one of our kids at university $1900 month, as the rents in Toronto are so ridiculous.” Yikes. I used to live in Toronto 20 years ago. I recall the craziness.
I think it is better if only one spouse does the financial planning, because otherwise there may be arguments! I have made some bad choices, that looked like good choices at the time, but if my husband interfered we would be sure to have blame cast around. Like when we get on the wrong road while travelling…..lol. We had some hard times finding airbnbs in Mexico this year, complicated by language issues.
But yes, simplifying things is good. I started on that by closing our accounts at one bank owned brokerage and consolidating banking and investing all accounts into just one place. As Questrade was the only place you could have a small RRSP without incurring fees, hubby also has an account there, but that will be the first one drawn upon when the time comes, and then closed. I have handled everything: finances, household repairs, landscaping, medical, etc. so that he could focus on his career, but I drew the line at car stuff.
My son in Toronto has been waffling between staying for his PhD or just leaving with a Masters next year. He is finding it a big lonely city, although the university is fantastic. He is my one child who is not so good with money. He actually said to me last week, that money that you didn’t spend was “wasted” . My other two are frugal and good savers and investors.
Well, we have the odd “discussion” over money in this house for sure! I don’t mind being the CFO but my decisions always go before the CEO 🙂
Toronto can be a big, lonely city at times. Lots of things to do but everyone is very busy running around with their things to do so that could make it tough. Not unlike NYC on a smaller Canadian scale.
“I know for my wife, who reads this blog, she has very little interest in investing and wants to really simplify things should anything happen to me. So, I intend to write her a “when I die” kit so she knows what to do.”
A very good idea. I have this prepared for my wife. When I owned my business I had a separate plan for her with that. Good thing it wasn’t ever used!
Ya, I never want to use my plan either!!
“Odd” discussion over money…..lol.
Ha, same here on the CEO being involved in financial decisions. Paradoxically, there has yet to be a time when the CEO actually reviewed anything or offered substantive input. It seem the preferred decision is “whatever you think we should do”.
CFO here. My wife is the CEO. I know my role – all good 🙂
As my post indicated…the same thing here!
My “enough number” is quite simple to calculate. You start with the “needed” income per yer, and multiply that amount by 25 or 30 if you want to travel every year, change your car every three years and indulge yourself in restaurants every week.
E.g. Income needed: $50K net per year – times- 25 = $1,250,000 needed in my portfolio when starting retirement (or $1.5M if you multiply by 30). That amount should not include CPP and OAS… that’s the icing on the cake! ?
Fair, a good rule of thumb!
So, we want to spend the same so that puts our needs at the same ($1.25 M). That challenge is, that $1.25 M will be combination of non-reg. + x2 TFSAs + x2 RRSPs + pensions (x1 DB + x1 DC) + LIRA and other part-time income. It’s a crazy mix but likely a good problem to have.
I would agree with you. I consider CPP and OAS icing on the cake 🙂
As everyone is different by age, savings levels, pension options, investment styles and retirement needs, projections are either useless or very complicated. What I did like are all suggestions to living within ones means, ways to reduce expenses and savings suggestions. What I don’t agree with is the investment advice, I prefer to concentrate on investing for income, so one can see their income grow over time and have a clear idea of what their income from investments when getting closer to retirement. Growth projections like 7% are a total waste of time.
I can see that cannew – re: focusing on income. I like it too and it’s why I’ve gravitated so much towards dividend income investing. It’s tangible cash I can see and use if I want to vs. selling any shares when I don’t want to.
I also read Freds book RIFL and learned quite a bit that was new to me. I loved that retirement income calculator. I sent it to my sisters too. It helped me feel more confident on my situation and gave me some more things to think about. I will also be delaying CPP until 70 as recommended.
I think it was one of your columns that introduced the book to me. Thank you again for your help with my investment strategy and the retirement journey.
Thanks Jan. Nice to read those kind words. I think delaying CPP can make great sense for folks that a) don’t really need the money now and b) wish to transfer their investment/longevity risk away from them to simply their pension-like income.
Jan, did you check out this article on my site?
Thanks for posting this – I checked it out on the weekend and found it very compelling. It’s not designed to project portfolio growth during your accumulation years – it is meant to be a projection of your income at the time of retirement. I ran some simulations at age 55, 60 and 65 (I’m 51) and you can really see the impact of delaying retirement by only a few years. Each of them advised me to delay CPP to 70, something I had already learned and was planning around.
While I would have liked more of an explanation on the assumptions on how the safe income projection is calculated, as I get closer to having to make critical decisions, these calculators are very helpful and have helped me evolve from thinking about accumulating a specific portfolio size to what income level will it realistically generate. I’m a very big fan of Fred Vettese’s work in his books and articles – he helped me realize that it isn’t necessary to replace 70-80%+ of my pre-retirement income, which was another big relief. You might invite him to be an interview guest on this site – I’d love to hear what he thinks more-engaged audiences like the readers of this blog should be doing next.
BTW: thanks for linking to your calculators page – I want to check them out. I am a big fan of the Government of Canada’s Retirement Calculator – it was surprisingly well done.
Ya, it’s really designed to identify an income range vs. anything else. Meaning, you can likely spend between X and Y based on your assets.
If you have a pension and/or a sizable portfolio (e.g., >$1 M) and no debt, it could make sense to delay CPP or OAS or both until your mid-60s or age 70. This way you transfer the investment risk away from you to those programs.
I think Fred is bang-on about income replacement. Nobody I know needs 80% of their working salary in retirement. When the debts are gone, kids are out, there is no reason to save thousands per year for retirement (because you’re in retirement!); I’ve talked to folks that have decreased their replacement income to 50%.
I know for us – largely one salary is dedicated to the following:
-saving for TFSA investing ($12,000 per year)
-saving for RRSP investing (>$15,000 per year)
That’s a bundle of after-tax money we won’t need to work for eventually.
That Government of Canada calculator is good – surprisingly!
You’re right about the impact of debts being gone and kids out. My kids are still in university but we paid into RESPs all the way along so their education is largely paid for (their net worth is more than mine when I was in my mid-20s!!!). Each year I calculate how much of my income (net) I’ve saved and it now runs about 40%-50%, so clearly I don’t need any more than 50% income replacement, probably less when they’re gone and not needing to be fed, clothed, etc.
Yup, kids are expensive! 🙂
Without our mortgage ($1,600 per month) + without extra mortgage payments ($$$) + without saving for TFSAs ($12,000 per year) + without saving for RRSPs (>$15k per year) – that’s a HUGE chunk of change with after-tax money we won’t need in the coming years.
On one hand, rather depressing! On another hand, very hopeful!