Lately my Facebook feed has been filled with ads asking if a million dollars will be enough in retirement. Let’s face it. If a million dollars were needed in retirement, few people would retire. Sure, if you want to dine out twice a week, take expensive vacations twice a year, and live somewhere with high property taxes or condo fees you’ll need a lot of money. But if you have a modest, mortgage-free property, love hanging out with the locals when you travel and don’t need a car, you can retire on less than a million dollars or even half a million.
Start with government benefits. Assuming you retire at 65 and can receive full OAS and close to full CPP, you’ll have almost $1,800 a month. Then add in a company defined benefit pension plan if there is one, which may or may not be significant. If it’s a defined contribution plan, that will generate income in retirement.
Let’s say someone lives in a mortgage free home and decides they need $4,000 a month after tax to live a comfortable life. They would need about $5,000 a month before tax. With government benefits of $1,5000 and a workplace pension of $2,500 a month they only need an additional $1,000 a month to achieve their goal. An investment of $200,000 generating a 6% return would provide this extra $1,000.
If there is no defined pension plan then more needs to be saved. Assume in this case government benefits of $1,500 and savings or a defined contribution plan of $300,000. At a return of 6% that would generate $1,500 a month leaving a shortfall of $2,000 a month. This is where prudent planning comes into play. Is the person willing to work longer, delaying government benefits and building up more savings? Would they downsize to a smaller home or consider renting? Could they work part time? Can they scale back on their needs?
Many people have not saved up significant assets and I have worked with them. Being realistic, flexible and open-minded makes a comfortable retirement possible.
Francine Dick, CFP, RIS, EPC
Mutual Funds provided through Carte Wealth Management Inc. Segregated Funds, GIC’s and insurance provided through Carte Risk Management Inc.