# Something has been bothering me.



## PrairieGal (Apr 2, 2011)

I see posts from people with 1 million dollars or more, and they don't think they have enough to retire on. I got started saving later in life. If I keep on the track I'm on I estimate I will have a nest egg of $300,000 at age 65. using a retirement calculator set to 3.5% interest and 25 years (to age 90) I get a result of about $1400/month. I am hoping that with that amount, plus CPP and OAS I can afford to retire. I realize it won't be a luxurious retirement filled with travel, etc. But surely approximately $2400/month would be enough for a single person to live on if my house is paid off?

What do people retire on if they have even less than a $300,000 nest egg in retirement? I'm sure it must happen. 

What do you think? Will I be OK?


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## DanFo (Apr 9, 2011)

The higher numbers other people are quoted as needing are to maintain the same quality of living they had in their working years I believe. 

If you are happy and can live on less then you won't need too save as much. But some costs are unexpected in old age as I know my parents pay a fortune in medical bills treating different ailments (blood pressure/cholestorol etc) and it never hurts to have a little extra in the end.


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## MoneyGal (Apr 24, 2009)

Static numbers are never that useful for these discussions - what you need is a ratio: of your wealth to your needs. 

If your retirement income needs relative to your investable wealth are low, then you are adequately prepared for retirement. 

Talking about it as maintaining your standard of living in retirement is another useful way to go. But simply discussing the size of nest eggs and then extrapolating a rule from that ("I need $1M to retire") is not that useful, in my opinion.


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## the-royal-mail (Dec 11, 2009)

I think the key is retiring with a paid mortgage and a new car. The car will need to be replaced every 5-10 years but the paid mortgage gives you options. You can sell the house at that point and use the money to pay for rent in a senior's complex (so that $ wouldn't be coming from your nest egg) etc. $300K is a pretty decent nest egg, I think that's more than many have. WalMart greeters are often seniors. You could always do something like that, though minimum wage won't do much more than pay for some restaurant meals or a few coffees.


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## Four Pillars (Apr 5, 2009)

100% agree with Dan & MG.

I wrote a short post on this - there is no one right "number".

http://www.moneysmartsblog.com/the-perfect-retirement-myth/


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## MoneyGal (Apr 24, 2009)

I read a useful discussion on this "Wealth to Needs" concept....wait a minute, I didn't _read_ it, I wrote it.  Here's a good basic discussion of this issue: 

http://www.advisor.ca/news/industry-news/reliable-retirement-income-streams-2-13213/2


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## Guest (Apr 27, 2011)

PrairieGal said:


> But surely approximately $2400/month would be enough for a single person to live on if my house is paid off? ... What do you think? Will I be OK?


Hi ... $2400/month to carry a house plus living expenses would in time become a challenge for a single person I would think. I would, if going it alone, determine how long I'd be willing to carry the house, then sell, then rent. Well, it's a plan.


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## steve41 (Apr 18, 2009)

You have to remember that all this "you need 1-2-3 Million dollars to retire on" garbage, is, for the most part, fostered by people in, or related to, the biz. It is in their interest to have you madly squirreling away every last dollar while you are in your 20s. This (fee revenue) is the mainstay of the financial services industry. No big mystery here.


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## bill.k (Jan 31, 2011)

*Enough?*

I'm in the same boat. I also have 300,000 in RRSP. I was restructured (forced to retire) last year with 31yrs at the same company. The 300k is pension money from that job. I had planned on working til 63 at the same company..but not to be ! I was able to get another job but there is no pension ,the money is o.k. but only pays the bills. I'm 53 yrs old and I plan on leaving the 300k in the rrsp's and "hopefully" that 300k will grow a bit. I will be recieving an inhertiance of approx 55k later this year or early next year. I plan on paying of my house (43k) and perhaps using the remainder to upgrade my house ie ditch the oil furnace for a gas furnace, new fence around the yard and maybe some other small things. I can get a great deal on the furnace as I now work for a HVAC company. So hopefully 300k or more plus CPP/OAS and maybe GIS will be enough. Who know's, maybe my two boys will still be living at home and paying rent (as they now do) LOL.


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## Square Root (Jan 30, 2010)

The key is to know how much you need to spend in retirement. Once you know this the rest follows directly.


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## steve41 (Apr 18, 2009)

> "the rest follows directly"


.... or maybe not quite. In addition to your nest egg, there will be pension/cpp/oas income, a 5 bedroom home you could downsize, that summer cottage you could unload, or that future inheritance (untaxed, generally).... 

It needs a modest amount of number-crunching to determine the actual numbers.


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## slacker (Mar 8, 2010)

Generally speaking, if I max out my RRSP, I should be in decent shape for retirement?


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## kcowan (Jul 1, 2010)

I would be careful with how much you spend on shelter. Generally 30% to 35% of your income is the guideline. So can you rent a place that you will like for $750/mo and make provision for rental increases?


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## MoneyGal (Apr 24, 2009)

slacker said:


> Generally speaking, if I max out my RRSP, I should be in decent shape for retirement?


It all depends. What fraction of your income are you able to shelter in RRSPs? And how are you going to protect yourself against inflation, longevity risk and market volatility?


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## sags (May 15, 2010)

When the government proposed changes to the GIS, I was surprised by the number of people who are depending on the low income subsidy for their retirement income.

In order to qualify, hundreds of thousands of retirees must be living on incomes of 15,000 or less per year.

If the statistics are correct, there is going to be millions of Canadians retiring with very little savings or income. They will be dependant on the CPP, OAS, and possibly the GIS for their income.

If this is true, I would believe that rental rates, among other expenses, are going to decline in the future to match the ability to pay. Otherwise there will be a whole lot of people living in their car, while a whole lot of rental property remains vacant.

Supply and demand is often left out of discussions regarding future retirement income issues, but is an important factor in inflation.


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## HaroldCrump (Jun 10, 2009)

MoneyGal said:


> And how are you going to protect yourself against inflation, longevity risk and market volatility?


Isn't the answer to all three a lifetime indexed annuity (in the absence of an indexed DBP)?
Folks with RRSP can plan to covert their retirement assets into an annuity to protect against all three factors.

It is, of course, another matter whether most folks with RRSPs these days can afford to buy even a modest lifetime indexed annuity.
I think not. Not even close.

The other question is : is it possible, or advisable, to buy such an annuity while you are in your 40s (or even 30s) but have it start paying out only once you are past retirement age (say 65 or even later like 71).
Doesn't a deferred annuity get cheaper as you defer the starting age further and further out?


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## MoneyGal (Apr 24, 2009)

sags said:


> If the statistics are correct, there is going to be millions of Canadians retiring with very little savings or income. They will be dependant on the CPP, OAS, and possibly the GIS for their income.


If the statistics _persist_, there are going to (continue to be) millions of people receiving GIS as they are retiring with very little savings or income. 

The big question is whether those same conditions will persist. I wish I had deeper information about the GIS than just the number of recipients. Are most of them (for example) like my grandmother-in-law, age 94 with no pension income and very modest earnings throughout her lifetime?


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## archanfel (Apr 7, 2009)

Even the $1 million figure assumes that the dollar would still worth something 30 years down the road. That's hardly a given based on the recent lose of confidence in all paper currencies. Inflation has been low for the last 10 years because of globalization, but that's unlikely to last. 

Whether the OAS and GIS can last is another question mark. I would count those out of any calculation. CPP should be safe. 

Paid off houses would not help if major repairs are needed. 1-2% a year should be reserved. Ever increasing property taxes is another concern.


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## Square Root (Jan 30, 2010)

steve41 said:


> .... or maybe not quite. In addition to your nest egg, there will be pension/cpp/oas income, a 5 bedroom home you could downsize, that summer cottage you could unload, or that future inheritance (untaxed, generally)....
> 
> It needs a modest amount of number-crunching to determine the actual numbers.


Agree. But I believe the key is knowing how much you want to spend. The other way to go is simply maximize your nestegg and other sources of income in retirement and then set your spending level to that. I think a lot of people do it this way, but this is more reactive and may not result in the kind of retirement you would like.


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## Brian Weatherdon CFP (Jan 18, 2011)

HaroldCrump said:


> Isn't the answer to all three a lifetime indexed annuity .....


Harold, this may not help Prairie Gal's concern. (a) Life Annuity payments look rather meagre before age 70; the later one buys a life annuity, the higher will be the "mortality credit" which can generate a much higher income stream. (b) Indexed life payout annuities pay even less up front because their payments will be higher in future. 

Lifetime Income Benefit (GMWB) could be worth a look for some guarantees -- although forum participants raise the concern of underlying fees in these products.

More fundamental is the guidance already widely expressed...to know the lifestyle one is wanting to enjoy, and evaluate your assets & income sources to achieve that lifestyle as much as you're able. It can work out!


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## Brian Weatherdon CFP (Jan 18, 2011)

Would someone in PG's position consider discussing with a suitable advisor.... a combination of dividend, income, & other funds in a safe manner, until diversifying part of that value into a suitable life payout annuity eg. age 70 or later. Just as a thought. 

Worth discussing with someone who can legally discuss the matter, in one's own province.


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