One of the most common questions we hear from people is, “how much do I need to retire comfortably?” And from those who are already retired, “do I have enough to support my spending for the rest of my life?”
It’s our job as wealth advisors to run the sophisticated and detailed analysis that provides the assurance — or occasionally, the cold water dousing that says savings and spending habits need to be changed.
But for those who may be approaching retirement and wondering ‘how much is enough’, here is a very – and I’ll stress very - rudimentary illustration of the amount of capital you’ll need.
You’ll see there are different scenarios based on spending levels at age of retirement, ranging from $100,000 to $200,000 per year, amounts that are typical for our clients. Other assumptions are listed below.
Inflation @ 2%
Investment Return 5%
Investment income split between spouses
No RRSPs or pension (except CPP/OAS)
Investment capital consumed at age 90
Investment Capital: (in millions)
It’s interesting to note the impact of inflation. For every percentage increase in inflation, one has to amass an additional $400,000 of retirement capital.
Another, somewhat obvious, observation is that early retirement is costly. You can only spend about 3%-4% of your capital. Whereas, if you retire at age 65, you can spend about 6%-7%.