What’s your Retirement Number?

by

When you hear the word“retirement” or phrase “retirement number” – do you get excited?

Do you cringe?

Do feel something in between?

For today’s post, based on a few of our own members lessons learned – to pay it forward to others – we’re going to share a few key steps as best practices – what they do and why to determine their own retirement number. We hope this helps you determine your retirement number.

Read on!

What is a Retirement Number?

Based on what we’ve learned from our own members, more goes into it than just one figure even though the mainstream media or some courses being promoted might say otherwise.

We’ve read and heard the following since launching this site:

“I need $1 million invested to retire.”

or

“Canadians expect they need $1.7 million to retire.” – Source.

or

“I couldn’t retire on anything less than $2 million!”

Maybe worst of all…

Kevin O’Leary wants you to have a whopping $5 million to “survive the rest of your life” no matter what.

WTF?

We’re sorry. Could any of these numbers, at the top-end, be true?

Not for 99.999% of Canadians. Only the wealthy need that much to retire on, Kevin…

The truth lies for the rest of us anywhere in between these claims which makes the entire premise behind financial planning, in our opinion, a process without end.

“Good, smart, financial planning requires you to move your goalposts on a consistent basis and challenge your assumptions, at least formally once per year. This is because your expectations and goals will never stay the same.” – Us, Cashflows & Portfolios.

Everyone’s circumstances are different.

To complicate matters, everyone’s circumstances change with time too.

We know about this too – our own expectations continue to evolve…

Expectations and Goals

Answers to your own retirement questions, while seemingly clear at any point in time, could become either fuzzy or irrelevant as life rolls on.

Here are some examples – questions that our most successful members have asked themselves over the years, to define and refine their expectations and goals over time:

  • How much debt do I have, and do I anticipate having any debt in the future?
  • What is my starting and potential lifestyle inflation, 2.5%, 3%, or more?
  • What assumptions am I using for my overall portfolio returns? How do I know they might be realistic?
  • What are my collective sources of retirement income? When might those sources come online or go offline/cease to exist?
  • What do I want to do with my money? Are there major capital expenditures that I haven’t yet accounted for?

Just like their asset accumulation years, we found our most successful DIY retirement income planners put tremendous thought into marrying up their expectations and goals to their potential income needs and wants.

While everyone’s circumstances are different, the most successful retirees we encounter have a few things in common:

  1. They step back;
  2. They look at their current and near-term spending needs; 
  3. They map out what is realistic; and 
  4. They monitor how realistic their assumptions really are.

Their projections work is always an ongoing process. And for starters, they know it’s useless to try to figure out what your retirement number is without any good understanding of how much it costs for them to live.

Retirement Number Rules of Thumb

The 4% rule is a common benchmark for financial independence planning in retirement.

Without going into the details that most members and readers of this site already know, this rule states that any balanced portfolio of stocks of bonds should support annual withdrawals of 4% and certainly less, over time, for literally decades to come.

You can read about some fuel to the FIRE (Financial Independence, Retire Early) crowd on the 4% rule from Vanguard here.

A key point:

“Although investors may wish to avoid highly variable standards of living from year to year, some flexibility in spending can increase the probability of success of the portfolio in retirement. When evaluating different spending rules, understanding the trade-offs is important. By being more flexible about spending, investors will forgo some income stability to increase the probability of not depleting their portfolio.”

Love it.

Because your retirement number is a function of your spending, which is usually variable, it makes no sense to use any sustained, rigid rules. Avoid them for your detailed planning…

There is no member on this site that anticipates using a linear spending plan and I suspect we’ll never meet one.

Remember what Dwight Eisenhower (allegedly) said: “Plans are nothing; planning is everything.

This is why the most successful retirees we’ve talked “get” the process of planning and do it very well.

You can use these four simple steps as part of your process.

1. Start By Tracking Your Current Spending

Shocking, we know. :)

You can’t possibly know if any retirement number is sufficient without knowing what your spending might be, including some buffer on that just to be safe – accounting for that variable spending we talked about above.

Please never listen to any “expert” that pretends to know what you can or should spend.

It’s personal.

We know DIY investors that want to spend $4,000 per month, $5,000 per month, $8,000 per month and even over $10,000 per month on average (after taxes of course).

After literally 100s of member interactions on this site over the last couple of years, supporting their projections including learning about their own retirement income planning work via the low-cost DIY solution we offer (links near the end of the post), we can say with confidence that every retirement projection is different – it’s 100% tailored to spending needs which can differ drastically from someone else.

2. Put Some Time Around Your Retirement Goals

Once you have a solid grasp of your current spending habits, and any projected variable spending habits within it, the other key work you need to consider is anticipating when spending could shift.

Variable spending in any given year is one thing – but you’re going to need to consider more systemic shifts in spending.

One example is to consider your spending in phases or time buckets of years.

We highlighted this concept in our recent review of Die With Zero. 

In the book, the author explains:

“Time buckets are a simple tool for discovering what you want your life to look like in broad strokes. Here’s what I suggest you do. Draw a timeline of your life from now to the grave, then divide it into intervals of five or ten years. Each of those intervals—say, from age 30 to 40, or from 70 to 75—is a time bucket, which is just a random grouping of years. Then think about what key experiences—activities or events—you definitely want to have during your lifetime.”

Author Bill Perkins goes on to say:

“This list is the opposite of the so-called bucket list, which is typically a single accounting of all the things you hope to do before you ‘kick the bucket,’ so to speak.”

And to drive the point home:

“By dividing goals into time buckets, you are taking a much more proactive approach to your life.”

Aspiring and successful retirees already know this and practice this – they could have wrote Bill’s book.

For others new to these concepts, consider:

  • What spending or life value do I want to maximize in my “go-go” years?
  • What shifts in spending might occur in my “slow-go” years?
  • What further adjustments might I need to make or account for in my “no-go” years?

Your financial projections work should account for these phases and changes should be expected to occur in each of these phases too, over time. Nothing in life is constant.

3. Adjust for Other Income Sources

Fortunately, saving up a ton of money for retirement is not all on you.

There are three big pillars to think of when it comes to our retirement system.

The sum of OAS (Old Age Security and related guaranteed income), our Canada Pension Plan (CPP), combined with your personal, voluntary retirement savings means you don’t have to save everything on your own.

The most successful retirees we see and know understand that while government income is an enabler to a successful, comfortable retirement – they actually don’t rely on it very much. What we mean by this is they tend to save and invest on their own, being optimistic about their financial future with what they’ve done/saved while they remain a bit skeptical and pessimistic about the future at large.

While many will rely on OAS and CPP as income sources, as they should, they look at these income sources as extra inflation-protection and tend to defer these income benefits where possible, specifically CPP to age 70 as to buy-time to withdraw RRSP/RRIF assets more strategically.

You can read these posts below for more information:

AND

Even though we’re not really at “retirement age” yet as owners of this site, we support, hear and see time and time again from our members that where possible, deferring your CPP income benefit in particular can add lots of financial flexibility including potential tax savings.

4. When in Doubt, Add Financial Cushion

Just like an emergency fund while working, in your asset accumulation years, we hear from our members they sleep much better at night knowing they have extra wiggle room with their retirement number – since they never could have predicted the future in advance.

  • They didn’t know when their elderly parents needed some extra income…including that homecare after a fall…
  • They didn’t know their cruise would be cancelled and they needed to change flights…
  • They bought the “25-year roof” before retirement that lasted only 15 years…
  • And so on.

There will always be variables that you can’t predict, you don’t see coming, even when you bought and paid for everything you thought might happen in advance.

Our most successful retirees not only factor in some buffer within their annual, variable spending plans, but they also keep a healthy cash cushion just in case they need more money than they thought – after they thought they thought of everything. :)

Not only can they live on less, if they needed to, they could tap 1-year, 2-years or in some cases depending on their income sources and peace of mind, 3-years’ worth of cash or cash-relevant reserves without selling any equity portion of their portfolio.

Subscribers will remember we posted this important article, something we update every year with new data points:

While nobody anticipates another GFC, something like it could happen again – we just don’t know when.

Our research findings have informed us that you should expect the following:

How long do stock market corrections last

Source: https://www.myownadvisor.ca/how-long-do-stock-market-corrections-last/

So, beyond volatility of +/- 5% stock market declines every few months that some corrections could be at least 20% and the stock market could remain “down” for about 1.5 years.

Smart retirees incorporate this thinking into their financial projections and planning, as they should.

What’s your Retirement Number?

Retirement planning is and should likely always be an ongoing process. We hope we have demonstrated that. There are simply way too many variables outside your direct control that would suggest otherwise.

Some DIY investors we know have already built and use their own retirement income spreadsheets and tools for their planning needs – awesome!

Others seek out some support and services from time-to-time – no problem there either.

That’s where we come in, if you wish, anytime.

These posts cost money from other sites.

We do it for free.

We enjoy paying it forward – in fact, much of this post came from our members!

With our free newsletter, we’re committed to sharing new and updated content every month that supports DIY investors at any age with cashflow concepts, determining the best products or investments to consider when it comes to building wealth and growing your cashflow, and sharing ideas about how to manage and navigate that cashflow and your portfolio in retirement.

We also enjoy helping others with their retirement income readiness…but in a low-cost way…

As passionate DIY investors ourselves, we’ve grown a bit tired of the high-fees charged by some professionals for some services and believe there is a much better way for many DIY investors to get answers to their questions, including bouncing ideas, concepts and perspectives off other like-minded savers and investors as part of a membership forum and community. People that have been there and done that.

With our low-cost serviceswe offer a couple of high-value, low-cost financial projections solutions to help meet the needs of any DIY investor. We’ve offer these solutions to Canadians because we believe saving, investing, portfolio building and monitoring should be a process – one that needs a bit of maintaince and ongoing support – but any reporting support shouldn’t cost you thousands of dollars.

As founders, owners and content managers of this site, we simply offer up our time, expertise, services and solutions to other like-minded DIY investors – without any strings attached. We believe, full-stop, the cost for any retirement readiness solutions shouldn’t be for the wealthy so the pricing needs to reflect that. We also offer a money-back guarantee for all our solutions, services and time – try finding that somewhere else. 🙂

We enjoy helping DIY investors in two (2) low-cost service models to support their decisions!

  • Done-For-You – we do the work, analysis, and data entry, and provide your reports OR
  • DIY – whereby you do all the work, you do your own data entries, and you get your own results in some professional financial planning software – we essentially open up this solution for you to use 24/7 to be your own retirement income planner!

Just reach out if you wish to learn more!

We enjoy the emails and engagement with you and we want to thank our members for the inspiration and some content for this post. We look forward to sharing more free content over time.

Mark and Joe.

Spread the love

Disclosure: Cashflows & Portfolios is reader-supported. When you buy through links on our site, we may earn an affiliate commission.

4 thoughts on “What’s your Retirement Number?”

  1. Hey Guys,

    For us, our “number” is an amount of annual dividend (distribution) income of $84,000. (Currently at $53,800). About 2/3 of the $84k will come from my non-registered account. When combined with my wife’s modest DB pension we’ll be able to defer at least my CPP, if not OAS while we melt down our RSPs over ten years. About 19k of that 84k is from RSPs, but since we’re melting them down it’s not as relevant. We are likely to take my wife’s OAS and maybe CPP when she turns 65 to make up for the loss of her bridge payment – but smoothing income and taxation will be the final arbiter of that decision.

    I think we’re on track to meet our goal by Q4 2027 – then we’ll ride it out continuing to work with the DRIPs turned off to build a cash reserve until the end of June 2028 when the school year ends. But I wouldn’t mind if I could pull the trigger sooner – or maybe just go part time H1 2028 ;)

    Can’t wait.

    Reply
    • James, that would be amazing…my goodness = $84k per year in portfolio income?

      You’d be living very, very well on that when combined with future gov’t benefits. :)

      Keep us posted…love the journey.
      CAP

      Reply
  2. I love the DIY tool. I’m a long-time Quicken user, so all of my expenses have been meticulously classified and projected one year out for a few decades now. It was very easy to take my Quicken numbers and input them manually into the DIY tool. I split my plan into three snapshots: 64-70, 71-80, 81-95. The tool is easy to use and very flexible. The help screens are thorough and if you need more help there is a user forum. I completed my base plan in 3 weeks, and now I’m playing with what-if scenarios. I highly recommend it.

    Reply
    • Colin, super kind and we apppreciate all your questions and support and DIY troubleshooting too.

      We might need to hire you for our marketing team. :)
      CAP

      Reply

Leave a Comment