Every now and then I get a few emails from readers wondering how much is enough and how to fund retirement? Today’s article will revisit some older perspectives I have on this and share my latest assumptions to these questions.
How much is enough?
Only you can answer that question for yourself and your family. We figure “enough” money covers our basic necessities with some extras – like travel and entertainment. Here is a quick rundown of what we need to cover in our future based on today’s expenses with some buffer designed-in:
*Home needs per month ($1400)
- Home maintenance ($400 per month)
- Property taxes ($350 per month)
- Home utilities ($325 per month)
- Home insurance ($125 per month)
- Contingency/buffer ($200 per month)
*We are not anticipating having any mortgage in 5-6 years.
**Personal needs per month ($1600)
- Food/groceries ($700 per month)
- Healthcare ($200 per month)
- Household supplies ($400 per month)
- Clothing ($200 per month)
- Contingency/buffer ($100 per month)
**These are estimates only. We don’t track our personal expenses very closely after we pay ourselves first every month. We pay ourselves first (via RRSP, TFSA and other contributions to investments) and basically spend and enjoy what is leftover. This approach may or may not appeal to others.
Auto needs per month ($950)
- Car insurance x 2 vehicles ($150 per month)
- Car payment x 1 vehicle ($400 per month)
- Car maintenance x 2 vehicles ($100 per month)
- Gas x 2 vehicles ($200 per month)
- Contingency/buffer ($100 per month)
In addition to these expenses (about $4,000 per month), we travel, we entertain and we go out to be entertained. These expenses are highly variable today. We budget for the fun but for the purposes of this post I’ll say those expenses average between $500 and $1,000 per month. I anticipate these expenses will be higher in the future when we’re not working with more free time.
Could we be saving more? Yes. Do we really want to? No, otherwise we’d be doing this already. We need to live our lives today after all but your mileage may vary.
This brings me to this. Personal finance is very personal. Funding your retirement will be different than mine.
How to fund retirement?
To fund our needs and desires in our financial future I’ve done some math on this and we’ll rely on the following:
- A paid off home. We wish to avoid entering retirement or semi-retirement with any debt. Servicing debt reduces your financial flexibility because you are forced to pay other people first. Does that make sense long-term? I don’t believe so. Personally we prefer to keep our money and spend it as we please. We hope to have a paid off home in another 5 years.
- A $1 million dollar investment portfolio. This includes all registered and non-registered investments. We figure registered assets (investments inside the RRSP and TFSA) need to be north of $500,000 to draw down eventually. Non-registered assets would make up the remainder of the personal portfolio, basically Canadian dividend paying stocks. This portfolio target should provide at least $30,000 per year in after-tax income. We hope to achieve this milestone within the next 10 years – doing so with a modest savings rate, keeping our investment costs as low as possible, and using a combination of dividend paying stocks for passive income and indexed Exchange Traded Funds (ETFs) for long-term growth within the portfolio.
- Modest workplace pensions. This means we keep jobs with our current employer. Nothing is a given though. We’re optimistic if we continue working with our current employer, for at least another 7 years each, we’ll both have some small pensions to draw from for the rest of our lives.
- Government programs. Based on Service Canada information the average Canada Pension Plan (CPP) payment is just over $600 per month for new beneficiaries at age 65. We’ll also have Old Age Security (OAS) income as well. We are however not relying on CPP or OAS for an early retirement. These payments will be considered icing on the cake as we get older.
- Part-time income. I can’t sit still for long so I expect to have some form of work for the rest of my life. What that is I don’t know. It could be this blog long-term. It could be running my own financial planning business (after I obtain some professional designations). It could be some other small business venture. It could be part-time, seasonal work. It could be all of these things or different things. Time will tell. I’ll figure it out.
These are our high-level assumptions for the financial future. We have work to do to meet our goals and desires but we’ve made great progress in the last 5-6 years – something we’re rather proud of. No doubt our plans and needs will continue to evolve over time but this is our updated perspective. I’ll keep you posted.
What reality check have you done on your financial plan? Are you in retirement? How did your plan match reality?