“Nancy, how much do I need to retire?”

Since I hear the question so often, I decided to come up with the answer. Are you ready?

In order to retire, you will need: One million, two hundred thirty-two thousand dollars, and twenty-six cents. Give or take.

Okay, clearly, there IS no one right number for everyone’s retirement goals. But, in this “No Dumb Questions” segment, I’ll cover some of the right steps you can take if you’d like to retire in style … in your style, that is. And, by the way, you’re never too young to ask about it. My colleague Susan Daley has a video on the subject!

What is retirement?

Before we talk about financial planning for retirement, let’s talk about the word itself. What is retirement? Many people equate it with a sharp cut-off between one lifestyle and another. Like an approaching waterfall, you’re rushing along in your busy career … and then, whoosh! You’re not. You’re retired.

In reality, today’s retirement may be like that. Or, it may be more of a balance between “vocation and vacation,” as described by “The New Retirementality” author Mitch Anthony.

Regardless of how you define your ideal retirement, the goal is to prepare enough financial reserves to fund it. How much is your “enough”? The answer can vary widely, but it helps to have a rule of thumb, for example the ‘”3% rule”. Let’s look at retiring at age 65 and expecting to live to age 95. You need 30 years of income and want protection from inflation wearing down your buying power.

The 3% rule says that for an 80,000 income you need about $2.5 million. Fortunately, as Canadians many of us will receive CPP and OAS that could provide upwards of $19,000 of this income, so you can think about 2 million in capital at age 65.

Another way to look at your savings goals is as a percentage of your income. Here, Fidelity suggests saving at least 15% of your pre-tax income each year from age 25–67.

“Simple Money” author Tim Maurer recommends that younger investors save even more before they start a family – up to 20% of their household income – so they may be able to cut themselves some slack once those kids come along. If you think about it, there is a reason why RSP limits are set to encourage you to save 18% of your earnings.

I can’t emphasize enough that these numbers are only starting points for your planning. Next, you’ll want to combine the notions and the numbers to arrive at the right numbers for you.

What do you want out of retirement?

First, there’s the notions: Who are you, and what do you want out of life – during your fast-paced years as well as when you’d prefer more leisure time? Here are three questions to help you consider that:

Career-wise, do you enjoy your day job, or are you counting the days until your going-away party?
Goal-wise, are you more into spending today or saving for tomorrow? Will you need a huge nest egg to be happy, or are you content enough living on modest means?
Personality-wise, are you comfortable taking investment risk in pursuit of higher returns? In bear markets, are you the type who buys even more stock? Or might you panic and sell?

These three questions reflect three choices you’ll have if you’re nearing retirement and you don’t yet have enough to call it quits. If that happens, you can:

  • Continue working part- or full-time.
  • Save more aggressively. And/or …
  • Invest in riskier holdings that may (or may not) deliver higher returns.

Next, there’s the numbers involved in building and maintaining a methodical financial plan. This is where an objective adviser comes in especially handy. But I get ahead of myself. In my next “No Dumb Questions,”  post, I’ll talk more about that the methodology we employ to help families plan for their ideal retirement. In the meantime, as always, let me know if you have any financial questions I can cover in future segments.