Personal Finance

Best way for someone in mid-30s to plan for retirement

  • Last Updated:
  • Mar 15th, 2020 3:25 pm
[OP]
Sr. Member
Aug 6, 2014
830 posts
293 upvotes
Ottawa, ON

Best way for someone in mid-30s to plan for retirement

I'm in my mid-30s and haven't really thought much about retirement until recently. I have a little house that should be paid off by the time I'm 51, and believe I'm on track to have about $1M in the bank by the time I'm 55. I come from an extremely poor family and really didn't get my financial position into shape & start saving & investing until about 5 years ago.

Because I currently have over $100k in the bank, I have access to a 'financial advisor' who gave me a presentation on how to plan for retirement, and her math came out to me needing $4M by the time I'm 55. I couldn't really work out her math, nor think I will be able to achieve that number.

I'm noticing that several my friends who come from wealthy families seem to have life insurance policies that will convert into retirement payments (?) whenever they stop working. I have a small $150k policy from work, other than that I haven't really prepared for anything.

Any thoughts on where to start with all of this and make sure I don't end up in the position my parents are currently in?
7 replies
Deal Addict
Oct 23, 2017
1529 posts
1108 upvotes
GTA West
fisher44 wrote: I'm in my mid-30s and haven't really thought much about retirement until recently. I have a little house that should be paid off by the time I'm 51, and believe I'm on track to have about $1M in the bank by the time I'm 55. I come from an extremely poor family and really didn't get my financial position into shape & start saving & investing until about 5 years ago.

Because I currently have over $100k in the bank, I have access to a 'financial advisor' who gave me a presentation on how to plan for retirement, and her math came out to me needing $4M by the time I'm 55. I couldn't really work out her math, nor think I will be able to achieve that number.

I'm noticing that several my friends who come from wealthy families seem to have life insurance policies that will convert into retirement payments (?) whenever they stop working. I have a small $150k policy from work, other than that I haven't really prepared for anything.

Any thoughts on where to start with all of this and make sure I don't end up in the position my parents are currently in?
There was another thread on the topic of using a whole or universal life insurance policy to save for retirement. One poster worked out some interesting examples.

greatway-financial-scammed-my-wife-into ... e-2352656/

As I understand it, this type of insurance policy only makes sense for certain high net worth individuals in special cases. They would not be suitable for people like you, for a number of reasons, including:
- high fees and commissions
- investment policies that favour low yield assets
- you may pay for insurance that you don't need

You have to start with determining your income requirements in old age, the age you want to retire, and make assumptions about inflation. Your income will start with OAS and CPP and then you build on that with a TFSA and then RRSP's. That is the conventional approach.

When you look at savings, there is typically an assumption that you can withdraw 4% of your assets annually in order to avoid depleting your funds in the long run. You can work backwards from the 4% figure to arrive at a savings target. For example, a nest egg of $4 million would give you an income of $160,000, and that seems like a lot.

There are some good threads on this topic on RFD that you should look up. And by all means, talk to different advisors and get lots of other opinions.
Deal Addict
Jan 8, 2006
1378 posts
598 upvotes
fisher44 wrote: Because I currently have over $100k in the bank, I have access to a 'financial advisor' who gave me a presentation on how to plan for retirement, and her math came out to me needing $4M by the time I'm 55. I couldn't really work out her math, nor think I will be able to achieve that number.
Wow
if you are in mid 30s and have 100k saved with mortgage paid by 51. You are doing exceptionally well. There aren't many in mid 30s with your kind of saving. When it comes to money don't trust anyone. I would strongly suggest you to do your own reading and learn about two tools TFSA and RRSP. Have you taken advantage of it yet? Don't go bank investor routes for retirement there plans are mainly expensive will cost high MER. I would suggest you to look into ETFs/e-series and gradually use your saving into RRSP and TFSA investments. I would suggest you to check our PFCanada Reading list - https://www.reddit.com/r/PersonalFinanc ... wiki_books. Just read Andrew Hallam book and you will understand why ETF and E-seris are way to go.
fisher44 wrote: I'm noticing that several my friends who come from wealthy families seem to have life insurance policies that will convert into retirement payments (?) whenever they stop working. I have a small $150k policy from work, other than that I haven't really prepared for anything.
One thing I learn from Wealthy Barber is that if you have dependents than "Term" insurance is a way to go. Normally, those fancy policies return not great return and high fees.

If you have 100k saved in mid 30s I don't think you will have any issue in re-retirements. You already know how to save. All you have to do is now figure out how to take advantage of compounding interest so in next 20 years your have average market growth on them ~7%.
Banned
Mar 11, 2016
2081 posts
843 upvotes
this is so simple...you are on track.
1) DO NOT use any type of universal life policy to fund your retirement. These are amongst the highest commission paying products in the financial world and they are as relevant as dog feces

2) DO NOT have any debt going into retirement. Your net income needs will be much less if you have no monthly debt or rental payments.

3) The biggest decision and factor is your desired lifestyle in retirement. If you want a new car every 4 years and to travel extensively then you will need monthly income of 5-8k/month to support this. If you have no debt and keep your lifestyle needs to a level that is practical while still enjoying some travel and qualty of life I have had many clients retire on a family net income of 3-4k/month . If this is the case $1mm today would suffice so perhaps $2mm when you retire. Max CPP and OAS will give you about 1400-1500/mth net...many with no debt could like comfortably on another 2k from their investments.

One Cdn trend that I don't get is the number of Canadians in GTA, Vancouver sitting on 1-2 million in home equity while being miserable and stressed working at jobs they hate in their 40's and 50's . GET OUT..sell that expensive home, invest wisely, move to a smaller rural community where housing costs are a fraction of what you are currently in. Work part time, volunteer, travel, spend time with family...life is short. These lucky folks are sitting on winning lottery tickets and just need to cash in their ticket.
Deal Addict
Jan 15, 2017
3360 posts
2707 upvotes
I suggest that you start by reading different books and articles on retirement planning - especially from Canadian sources. If you do so, you will find that there are differing opinions on how much you will need to have to comfortable retirement and how to achieve it. I read "The Real Retirement" by Fred Vettese several years ago before I took an early retirement and found the advice in the book to be true for me.

Just know that there is no one size fits all approach for retirement planning so understanding what approaches are out there and whether or not they meet your needs is important for building creditability with your plans.
[OP]
Sr. Member
Aug 6, 2014
830 posts
293 upvotes
Ottawa, ON
thanks for the replies so far. am definitely planning to research the RFD archives and see what's in there.
Newbie
Apr 13, 2019
17 posts
21 upvotes
Fisher, based on your projections you are doing fabulous. A paid-off house perhaps $1M in savings by 55 will mean you will never be suffering.

The $4M figure suggested by the "advisor" makes no sense. As Dealmaker said, that equates to a rough income of $160K a year, not counting CPP, any other pensions and any contribution from a partner/spouse. Yes, be very leery about any insurance other than term insurance -- which you only need if you have dependents.

You don't say how the $100,000 in savings is invested. At your age, investment costs will make a huge difference compounded over two to three decades.

Try a compound interest calculator, like this one here.
I inputted a $100,000 start figure, $10K a year in additional savings and a rate of return of 6.25%. In 25 years, you hit $1,060,000.
Next, I adjusted that return to 4.75%, as though you were paying 1.5% to a financial advisor, or for mutual funds with an expense ratio in that range. In 25 years, you wind up with $800,000. That's $260,000 less!!!

So, ideally you would consider DIY investing in very low-cost ETFs (stocks/bonds). This brings annual fees down to, say, 20 basis points, or 0.20%.

An excellent Canadian site to introduce yourself to retirement savings issues, and other DIY topics, is Finiki. Th Finiki's associated forum has many experienced and thoughtful investors who can help with questions.

Good luck!
Deal Expert
Aug 2, 2001
16554 posts
6687 upvotes
fisher44 wrote: I'm in my mid-30s and haven't really thought much about retirement until recently. I have a little house that should be paid off by the time I'm 51, and believe I'm on track to have about $1M in the bank by the time I'm 55. I come from an extremely poor family and really didn't get my financial position into shape & start saving & investing until about 5 years ago.

Because I currently have over $100k in the bank, I have access to a 'financial advisor' who gave me a presentation on how to plan for retirement, and her math came out to me needing $4M by the time I'm 55. I couldn't really work out her math, nor think I will be able to achieve that number.

I'm noticing that several my friends who come from wealthy families seem to have life insurance policies that will convert into retirement payments (?) whenever they stop working. I have a small $150k policy from work, other than that I haven't really prepared for anything.

Any thoughts on where to start with all of this and make sure I don't end up in the position my parents are currently in?
One "rule" people often talk about is having "25 times your expenses saved". That means if you project to spend $40,000 / year, then you need $1,000,000 saved. Having $4,000,000 saved means that, with inflation, you are spending $160,000 / year. Projecting inflation at 2.5% / year, that means $160,000 in 20 years is about $100,000 in today's dollars.

There are different, and similar in theory, concepts to this like the "4% rule".

I think that needing $4,000,000 in 20 years (I'm guessing you're about 35 by "mid-30s") is a bit out of line for the average person. Remember that you have CPP to factor in (you seem like you have been and plan to be working) that will add a significant amount as well, and it's been demonstrated to be financially sound for 70+ years ahead.

If you want some help and are not shy, discuss here what you are saving. Discuss what sort of risk tolerance you have. Discuss what your goals are (marriage? retirement at 55? taking 4 weeks off per year to travel the world?). Discuss what your expenses are. Then people will happily do all the math for you and provide you a plethora of opinions on what to do. Even if you still seek out professional help that's fine - you will be better equipped to have a conversation with them after everything you have learned.

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