How much do you need to save to retire comfortably?

by | May 17, 2021 | 0 comments

Do you think you need millions of dollars to retire? Exactly how much do you need for a comfortable retirement?

It might be less than you think.

If you are trying to figure out your personal retirement figure, there are several questions you will need to answer for yourself to accurately assess what you will need to save. Questions such as: when you want to retire, therefore, how long do you need your savings to last. How much income will you need or want in retirement each year? This depends on what kind of lifestyle you want to live. Will you travel? Explore hobbies? Will you be completely debt and mortgage free?

As you can see, each of us will have a different answer to these questions. But there is a common place to get started for just about everyone. So, let’s talk broadly to get you started.

First, let’s define retirement. To me, retirement is not the final few years of your life where you are too tired or sick or broke to do anything. Retirement is a dollar figure, and it can be achieved at any age. It’s when you have enough income coming in from your assets to cover all your expenses. It makes working optional.

Most financially free people tend to work. For them, it is all about contribution. Their work becomes their passion. They choose their work. They choose how much time they spend doing that work.

How much money do you need to retire or become financially independent?

If you live in US or Canada, $750,000 as a retirement goal is an excellent start. Of course, more is better when it comes to retirement savings. But if you think this is too small a number, let’s look at the current reality:

  • According to a CIBC poll, 30% of adults in Canada have nothing saved for retirement.
  • 19% have less than $50,000 saved.
  • Essentially, 50% of Canadians have less than $50,000 saved.
  • According to the Economic Policy Institute, 50% of U.S. families have no savings at all.

Most people get overwhelmed by the thought of having to save millions. The result is they quit before they even start.

Why $750,000? The Math:

Using the 4% withdrawal rule, $750,000 will give you an income of $30,000 a year. In Canada, you can expect roughly $15,000 – $20,000 a year from CPP and OAS payments upon retirement. This combined with your savings will bring your total income to $45,000 to $50,000 a year. Considering the average income in Canada is $51,000 a year, I would call this a pretty good start.

The 4% rule states you can withdraw 4% of your savings every year of retirement without ever running out of money. This formula is adjusted for inflation.

This is a conservative plan. It’s also a highly achievable plan. Too often, we can get overwhelmed by the numbers that start with millions. You may think it’s out of your reach and you end up not even starting.

To further enhance your retirement:

Become completely debt free and remain debt free.

Pay off your mortgage. This will greatly reduce your annual expenses during retirement.

Stay healthy and active. Having a healthy body and mind mean you will enjoy your life and reduce medical expenses.