Category Archives: Retirement

How Much Do You Need to Retire? – Part I

Welcome to my post for the first ever Canadian PF Blog Tour. I hope you enjoy it and I encourage you to check out the other participating posts.

Over the years you most likely have heard numerous ‘rules’ about the amount of income you are going to need in retirement (For example, 70% of your pre-retirement income). The problem with many of these ‘rules’ is they don’t account for what your retirement is going to be like personally so in the end they are useless.

So how do you come up with how much your going to need? You do some math and a little soul searching.

First find your last couple of pay stubs and figure out how much money you took home last month after taxes, CPP and EI (if you have a spouse you can do this together).

Then minus anything you were saving for retirement, after all when your retired you don’t need to save for it anymore.

Then minus any directly work related monthly expenses. For example you won’t need too many suits when you retire or that parking space downtown. Also your bill for the gas to commute is likely to drop. Don’t forget about dry cleaning or the fast food for supper that you keep buying since you don’t have time to cook.

Then minus your mortgage payment (don’t forget to leave your property taxes in if they are combined into your mortgage payments). We are going to assume that you were smart enough to ensure your home is paid for when entering into retirement.

Then minus what you spend on the kids every month on average (after all they should be out the door or close to it when you retire) and don’t forget about that RESP contribution you’ve been making.

Then take that monthly amount and times it by 12 to get a yearly amount. This is your base number. Now we have to start adding a few things.

Add $1000/year for each property and/or car you plan to own in retirement. So if you have the house, cottage and a car you add $3000 to your base amount. This is to cover maintenance and depreciate costs for your home and car, respectively.

Then think about what hobbies you want to do in retirement and add in an estimate on the yearly cost for those. Keep yourself from going crazy here as this might make your total look way higher than it needs to be. Also I don’t recommend including travel here. I’ll get to that in a minute.

If you have an ongoing medical condition which you spend money treating regularly you want to also add an estimated yearly cost for that as well.

When the math is all done you now have an estimate figure of yearly costs in retirement.

For example your numbers could look like this:

Take home pay $3850/month
– retirement saving $700/month
-work expenses $130/month
-mortgage $1020/month
-kid $270/month
= $1730 Base Amount

Base Amount $1730/month * 12 months/year = $20,760/year
Add in one house and one car + $2000
Add in hobbies + $2000
Add in medical + $0

Total amount to live in retirement $24,760/year.

Now once you have your number you can divide that by two if your doing this with your spouse. So that would be $12,380/year/person. Now take your new yearly income and do an estimate to determine your tax bill. So let’s use some rough numbers.

If the basic tax exemption is around $8000 that would mean only $4380 a year is taxable. Let’s assume a 25% combined federal and province marginal tax rate. So the tax bill for each person would be $1095/year. So add that back in to your total amount to live. $1095*2 + $24,760 = $26,950.

This amount represents how much you need to live for your desired retirement lifestyle. It will not be a perfect estimate, but it should at least land you in the right ball park. As I mentioned early I do not suggest including travel money in this amount. Why? After your 75 birthday you are likely going to start slowing down a bit and not traveling as much. So if you include a set yearly travel amount your going to end up with an artificially high number because your assuming your traveling until your assumed death age which isn’t all that realistic.

Instead your better off just starting a slush fund for travel. Take your yearly estimated travel spending and times it with the number of years you expect to be traveling. For example, if you want $3000/ year for travel from age 75 to 45 you would need $90,000 ($3000 * 30). When calculating how much you need to retire early you just add this amount to your total.

Come back tomorrow as I start into revisiting my first try of retirement calculations (Part I, Part II, Part III, Assumptions) to see if I can really save enough money to stop working at 45.

Retire Happy – Part III

In Part I we covered making a dream list, while in Part II we looked at how your spending your leisure time. Today we are going to take a lesson from young kids. Yes that’s right, kids. Why? Watch a young kid at a park or anywhere for that matter and you will notice they seem happy most of the time. So how do they do it? Simple the just live in the now.

They don’t worry about what’s happening tomorrow, next week or even the next 10 minutes. They simply just enjoy what they are doing right now. So how can do the same thing? Concentrate on your what your doing during your leisure time and shut out those thoughts about everything else such as: “What should I make for dinner tonight? Did I pay that bill? I should look at the tire on the car. Did I forward that email to my boss about that project I’m working on?”

I know this sounds a bit strange, but it really does work. Think back about the last time you were really enjoying something. Chances are you were thinking about much of anything else at the time. You might also notice that when you are really enjoying an activity how quickly the time passes, which is also a good indicator that you were concentrating.

So how do you improve your concentration? That is a entire book on itself, so I’m not going to get into too many details here. I’ll describe a method that works well for me. When I’m doing something that I want to concentrate and I get a stray thought. I merely note that it happened and then gently push the thought to the side. Keep doing that for every stray thought and after a while you will notice the number of stray thoughts will keep dropping when you doing things. This does take a while, but it is worth it in the end.

PS: You might have noticed the site is a little bit messed up at the moment. I’m trying some modifications to my template which has had a few unexpected changes which I’m trying to resolve this week. Don’t worry I have a back up of the original template so is I can’t get this one working right I will switch back by next week. – CD

Retire Happy – Part II

Alright, you’ve started your dream list from Part I. Good job. Now it’s time to look at your present life and see how you are spending your non-work time. Think back about the last twenty four hours. What did you do when you were not at your job?

In this exercise you are trying to isolate your leisure time, so make broad categories for everything else and try to track everything to the nearest half an hour. With you leisure time, stop and replay that time in your mind. Did you enjoy it? How much: a little, some what or for not being sex that was really good? Next try to define if it was passive or active. Passive leisure time takes no input from you (for example, TV or a movie). Active requires you to do something like reading, writing, talking to someone, or building something. Basically most activities outside of TV or a movie are active.

In the end you will have a list like this:

5:00pm to 5:30 Go for a walk with family (really good, active)
5:30 to 5:45 Prepare dinner
5:45 to 6:00 Eat dinner
6:00 to 6:45 Watch news (some what good, passive)
6:45 to 7:30 Read Blogs (some what good, active)
7:30 to 8:00 Put kid into bed
8:00 to 9:00 Play computer game (a little, active)

Now isolate out how much time you spent on passive activities. How much did you enjoy it? If it only ranked ‘a little’, this is good area to look at. Otherwise, some passive leisure time is good for you, but just make sure your actually enjoying what your watching. If you only like it ‘a little’, you might want to consider cutting back on the passive and dropping in more time on some you did enjoy a lot. Then you do the same analysis of your active leisure time and start to drop out those items you didn’t enjoy that much. Depending how much time you free up you might be able to start working on your dream list.

The above exercise is just to show you where your time goes. We have time management training for our work, but why don’t we use that to improve our happiness with our leisure time?