What does retirement really cost?

[Square Root]

What does Retirement Really Cost? Actually retirement doesn't cost anything, it's all those living expenses that cause trouble. I view life as a balancing act. In retirement the trick is being able to spend as much as you want without running out of money. As MG has often said annuities can help reduce longevity risk. The other approach is just to spend less than your portfolio and other sources generate. This gives rise to the "I can live forever" statements. As someone who has been retired for over 5 years and who over the course of retirement wants to spend as much as possible without running out of money, or shortchanging my heir, life is a little more complicated. Still, we are having a great time and doubt we will ever run out.

[GeniusBoy27]

I gave in, and bought the Guide to Retiring Wealthy that Money Sense put out. It's entirely dependent on how spend thrift you want to be. For a super deluxe retirement, they estimated $1.75 million. For a no-frills retirement, nothing. For middle class, between $250K-$750K. I found that absolutely fascinating. More fascinating for me, was that depending on your income, you need less than the traditional 70% to retire. For high income earners, they only require 34% of their pre-retirement income. Thank goodness, I don't have to build a larger nest egg!

[Daniel A.]

I'll go have a read on that book, between my wife and I we will have worked through a total of 1.9 million to reach 86 in pension money.

I don't see where anyone could look at half a million as being enough even at a rate of 30,000.00 a year in withdrawals one would run out of money early.

[Square Root]

it still surprises me to hear the question " how much do I need" Most people who ask this question don't know what they spend their money on currently. Once you know this you can decide how much you need or want to spend in retirement. Once you have decided on this you can look at your sources of retirement income such as pension or CPP to assess how much of a nestegg is required at say a 4% withdrawal rate. Easy peasy- start with a spending budget.

[kcowan]

Easy peasy- start with a spening budget.

Yes that is the key first component of a financial plan. I keep harping that without a plan, you are trying to drive using the rear view mirror.

[steve41]

I'll go have a read on that book, between my wife and I we will have worked through a total of 1.9 million to reach 86 in pension money.

I don't see where anyone could look at half a million as being enough even at a rate of 30,000.00 a year in withdrawals one would run out of money early.

A single 60 year-old retiree with full CPP&OAS can acheive a $30K lifestyle assuming a 4.15% rate of return to age 95. Not entirely out of reach, surely. A sixty five year-old with his $500K split evenly (RSP/nonreg earning 4%) can make it to age 90 on a $40K after tax income.

[Financial Cents]

Steve41,

That's $40 K in today's dollars, correct?

$500,000 to generate $40 K after tax seems low, but maybe you're including CPP + OAS; I trust your math.

[jet powder]

If one retires in Beaverly Hills retirement will be expensive compared to retireing in Mexico. If you hang around people that spend, spend, spend it often puts your cost of living up.

[steve41]

Steve41,

That's $40 K in today's dollars, correct?

$500,000 to generate $40 K after tax seems low, but maybe you're including CPP + OAS; I trust your math.

Yes, in today's dollars, assuming 2% inflation, CPP+OAS and BC taxrates.

[kcowan]

Article today claiming that retirement can cost much less than 70% of your working budget. That has been our experience since wintering in Mexico.
Are you saving too much for retirement?
Here is their summary graph:

I would add travel and international health insurance to the right side. Also the costs of snowbirding. But it is still way less than the left side.