Yes, $1 million dollars sounds even today like a lot of money!
Once a sign of extravagant wealth, $1 million is now the retirement savings goal for many people. Having generated $1 million in retirement savings, the funds, with inflation adjusted, is estimated to result in an income of $40,000 for you in the first year of a three-decade retirement using the 4% spending rule. A 4% withdrawal rate is often referred to as a “safe” withdrawal rate. (1)
So, a first popular rule of thumb is a withdrawal rate of 4% upon retirement for seniors. The 4% withdrawal rule infers that you have built up a retirement portfolio that provides a certain amount of income per annum at a 4% or so withdrawal rate.
For example, say you have figured out that you need $40,000 per year in retirement. Using a withdrawal rate of 4% every year, you need to have a minimum of $1 million in retirement savings before you retire. But, will that $40,000 fund the lifestyle you are expecting in older age?
A small addition to your retirement income which can expect to receive is Old Age Security (OAS) and Canada Pension Plan (CPP) benefits, if you have lived and worked in Canada before retirement. The amount you receive will generally depend on how long you have lived in Canada (for OAS), how much you have contributed to the plan and for how long (for CPP).
It’s also important to remember that calculating your income needs in retirement is not an exact science. Life happens and it may leave your retirement plans in disarray. Some possibilities include the following:
- Health issues that cause you to retire earlier than planned or which result in higher-than-expected medical bills early in retirement
- Financially dependent children in retirement
- Significant mortgage payments
- Run-away inflation or a market crash, and much more.
Submitted to HealthLocal by Brian Porter. For advice about seniors and care at home, please kindly contact Brian Porter, Director and Owner of Living Assistance Services (LAS), at 416.483.0070 (ofﬁce), 905.758.2486 (cell) or [email protected] and visit: