Personal Finance

Retirement Income Target

  • Last Updated:
  • Nov 19th, 2019 1:28 pm
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Dec 24, 2007
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oasis2002 wrote: I know this is a broad question, but wondering what most people think they need in retirement. Most websites/planners will say that you need to budget for 70% of your gross income. Does that seem a bit high?
Yes, definitely take that 70% number with some skepticism as who is pushing that number. (Investment advisors, banks, mutual funds, etc make more money the more investment assets you hold as they get a cut through management fees off 1 - 3% of the asset value regardless whether they make money for you or not). I've seen it being quoted up to 80% (RBC for example) so people are discourage from actually retiring and keep on saving and working, which is ridiculous.

Often time people parrot what is suggested in the US as if circumstances are the same in Canada. That 70% number might be applicable in the US, as their Social Security system is so underfunded and about to run out of money by 2035 plus their health care system is so pitiful that many are uninsured or under-insured because it is too expensive, so in the US people have to save a lot to cover their retirement years. In Canada, the CPP is well funded and in good shape for the foreseeable future plus we have universal health care so we don't have those two big worries.

So what percentage of your present income do you need on retirement? That wholly depends upon what your retirement plans look like and what standard of living you want. The average Canadian with $80,000 (family income) spends approximately this:

Annual Family Income 80,000
RRSP (6.5%) 5,200
CPP 3,500
Child raising costs 10,000
Mortgage payments 14,000
Employment expenses 3,700
Taxes and MSP 9,600

Income left over for consumption (42%) $34,000

All or most of those cash expenditures (except taxes which would be reduced) would be eliminated when you retire. Everyone's circumstances will be different as some may have already paid off their mortgage and other may not. So, it is actually closer to 50% of your pre-retirement income than 70%. That is the cash expenditures if you want to maintain your current standard of living (i.e. the same discretionary spending).

There is a real nice article from MoneySense magazine Retirement: A number you’ll love about this misconception about how much you really need to retire.
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Aug 2, 2001
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Conquistador wrote: This post reminded me of pre-retirement sessions that we attended. The information received was that for as much as everybody poised to retire says they're going to travel in retirement, the reality is that if you didn't travel much during your working life, the chances of ramping up travel significantly in retirement was virtually zero. IOW, aspirational travel expectations are not realistic. IOW, don't ramp up your retirement income to cover all the travel you're going to do because you're not going to do it.
We have traveled quite a bit during our working lives, so we are quite confident we want to travel in retirement. Our concern is that even though we are retired, we might not have time to actually travel for long periods (which we have done during our working lives). Whether it's our kids or parents, things change a lot during life and during those years there is a chance we will need to be more hands on with care. Especially since in the worst case scenario our children are likely in post-secondary or best case still in grade school.
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Feb 1, 2006
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Conquistador wrote: This post reminded me of pre-retirement sessions that we attended. The information received was that for as much as everybody poised to retire says they're going to travel in retirement, the reality is that if you didn't travel much during your working life, the chances of ramping up travel significantly in retirement was virtually zero. IOW, aspirational travel expectations are not realistic. IOW, don't ramp up your retirement income to cover all the travel you're going to do because you're not going to do it.
The other possibility is that if you travel a lot before retirement, you may get all travelled out and lose interest in it. This is our case. We did a huge 8 month trip with our kids, and since then we feel we have seen what we want to see, mostly.
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Aug 8, 2019
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Bullseye wrote: The other possibility is that if you travel a lot before retirement, you may get all travelled out and lose interest in it. This is our case. We did a huge 8 month trip with our kids, and since then we feel we have seen what we want to see, mostly.
Nice, I hope to do the same in the future when I have kids. Any tips for planning such a big trip?
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Feb 19, 2010
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Bullseye wrote: The other possibility is that if you travel a lot before retirement, you may get all travelled out and lose interest in it. This is our case. We did a huge 8 month trip with our kids, and since then we feel we have seen what we want to see, mostly.
While that's true, the point of the story was more about the top things that people say they will do in retirement with travel being close to the top. In that light, one shouldn't expect to suddenly take up travel in retirement if they haven't been into it before.

Your anecdote indicates a desire for travel but having apparently exhausted all options for things to see and do before retirement.
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Feb 1, 2006
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roleless wrote: Nice, I hope to do the same in the future when I have kids. Any tips for planning such a big trip?
Save a lot! Family travel is not cheap. Even through we camped part of it, and made as many meals as we could. Long stays in places are cheaper, and better for kids, trying to rush them through sights would be meltdown city after a week or two.
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Jan 2, 2015
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Toronto, ON
oasis2002 wrote: I know this is a broad question, but wondering what most people think they need in retirement. Most websites/planners will say that you need to budget for 70% of your gross income. Does that seem a bit high? Why does no one talk about it in dollar terms. I mean, at retirement its reasonable to assume your mortgage is done, kids are done with university and your liabilities are in general low. So why does one need 70%?
It's not correct to assume the mortgage is paid. Many seniors have not paid off the mortgage. I think people are extending their mortgages by borrowing against them.

Furthermore, healthcare costs. For that matter, expenses will very considerably between early and late retirement. In early retirement you might be spending a lot of money on vacations. In late retirement... nursing homes.
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Oct 1, 2004
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At least 100K if we retired now, assuming kids don’t stay in the house pass university, and DB/rentals hold up. No way we get OAS ever, close to max CPP. Otherwise, keep on working.
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May 31, 2018
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Saskatchewan
We retired in our early 50’s, and are now budgeting around $12,500/month after tax. That breaks down to ~$3500/mo for “fixed” expenses (utilities, insurance, property taxes, subscriptions etc.), $4000/mo for “variable” expenses (food, clothing, personal care, hobbies, entertainment, inflation) and $5000/mo for “luxury” items (new vehicle every 3 years, future house renos, new electronics/computers, travel etc.). Our original budget was around $8k/mo, but a few years in we revisited it using the previous decade’s spending as a guide.

Doing a budget with actual real world numbers is educational, enlightening and very very scary. I recommend everyone do it every 3 years just to see if/how things have changed and better prepare for the foreseeable future.
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FarmerHarv wrote: $5000/mo for “luxury” items (new vehicle every 3 years, future house renos, new electronics/computers, travel etc.) ?
$60,000/ year of after-tax money just on "luxuries"?? Farming must be really lucrative these days...
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May 31, 2018
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WetCoastGuy wrote: $60,000/ year of after-tax money just on "luxuries"?? Farming must be really lucrative these days...
LOL! What if I told you quite a bit of our income is from an early tax free inheritance/gift that went into a fantastic stock based TFSA and has never had a nickel of tax paid on it, most was from a significant land sale that had a 100% capital gains tax exemption applied to it, and the rest we accumulated from using every gov't program during the "poor" years and loophole in the tax laws we could find for 3 decades to effectively net another 25% per year. Farming was simply the best way we could think of to not have to pay tax, as well as have something to do as the the days went by. It really isn't that lucrative on its own.

Would that make you feel better?

Oh, forgot to mention that we also incorporated. Twice.
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Feb 1, 2012
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Recently retired, I could easily live on 50% of what I was earning in my last few years. I was saving a lot, had a recreational property, a mortgage that is paid off, and I am no longer saving for retirement, or paying CPP and EI premiums. And since I am earning less my tax rate is lower. 70% is perhaps a good starting point for rough estimates, but everyone should really look at their expected retirement income and expenses.

In the book The Real Retirement by Fred Vettese and Bill Morneau (yeah, that guy) the authors wrote extensively on the subject and gave several examples. A couple that retires shortly after they pay off the mortgage and get the kids thru university could easily live well on under 70% of their final earnings. On the other hand, a childless couple renting a home, whose expenses did not drop after retirement and that wanted to travel extensively or buy a recreational property could well spend more in retirement than what they were spending while working.
Last edited by Deepwater on Nov 14th, 2019 8:48 pm, edited 1 time in total.
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Sep 16, 2009
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greg123 wrote: At least 100K if we retired now, assuming kids don’t stay in the house pass university, and DB/rentals hold up. No way we get OAS ever, close to max CPP. Otherwise, keep on working.
Why no OAS? The clawback only starts at individual taxable income of 75 K. You would be less than that....unless you mean 100K per person
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Oct 1, 2004
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oasis2002 wrote: Why no OAS? The clawback only starts at individual taxable income of 75 K. You would be less than that....unless you mean 100K per person
DB would be more than that assuming we stay long enough to get max 70%, plus eligible dividends grossed up credit.

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