In your 20’s and 30’s, retirement is so far away that you can barely see it on the horizon. The best way to get there is to save what you can afford – say 10 percent of your income – and then readjust your financial compass as you get closer and have more information.

You might start the journey with the idea that you need a million dollars or more once you reach your destination. To get to one million by age 65, a 30-year-old would need to save $8,500 per year for 35 years, assuming a 6 percent annual return.

How much do you need to save for retirement?

Saving for Retirement

It’s not easy to save $700+ per month in your thirties. Competing priorities like a mortgage, car payments, and raising children often means that retirement savings are put on hold.  Put off saving until you reach 40 and you’re now faced with the daunting task of saving more than $1,400 per month for the next 25 years to reach that million dollar mark.

Some might feel it’s prudent to pay off the mortgage and max out children’s RESPs before ramping up their own retirement savings. By age 50, most of those obligations should be taken care of which should now free up significant cash flow to save for retirement. It’ll need to be significant to reach a million. With only 15 years to go now, compound interest is not on your side, and so you’ll need to save nearly $3,400 per month – or $40,000 per year – to get to your retirement goal.

A tempting alternative at this point is to adjust your expected rate of return. After all, with an 8 percent return you’d only need to save $2,800 per month, and at 10 percent you’d need to put away less than $2,400 per month.

But the more realistic approach would be to adjust your expected retirement age and then figure out if a million dollars is really the amount you need to enjoy a comfortable retirement. You’d be surprised to learn you can live off much less.

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For example, let’s say you decide to work until 68 and then retire with a $510,000 portfolio. Assuming you’ll live to age 90 and your portfolio continues to earn 6 percent, you can comfortably withdraw $40,000 per year. That doesn’t include CPP or OAS payments to supplement your retirement, so figure to add another $12,000 to your annual income.

It sounds reasonable to live on $4,333 per month in retirement when you consider that you should be mortgage free and your children financially independent by now. You’ll no longer be saving for retirement, either, so you’ll be free of another big monthly expense.

Finally, a paid-for home can be tapped for income through a line of credit, reverse mortgage, or, more likely, sold as you downsize or decide to rent. Although downsizing might not leave you with as big a nest egg as you think, even $100,000 can add a comfortable buffer to existing retirement plans.

Final thoughts

How much do you need to save for retirement? It’s impossible to know for sure, but by developing good saving habits early on you’ll be in a better position to make those course corrections along the way.

We started years ago with a modest 6-8 percent of our income and now save close to 25 percent of our income for retirement. Full-stop retirement is still a couple of decades away, however, and so as our goals become closer to reality we’ll be able to adjust how much we save for retirement (higher or lower), our expected rate of return, as well as our retirement date.

Related: What’s all this retirement planning for, anyway?

Don’t despair if that million dollar goal seems unattainable. It’s possible to retire comfortably on much less.

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4 Comments

  1. Maria on July 17, 2017 at 4:27 am

    Is the $4333 per month before or after taxes? And is this for a single person ( which it seems to be)?

    A number of us have done some calculations and came up with similar figures independently for a minimum net annual income at retirement to live comfortably but not luxuriously: $39000 -$42000; this figure is predicated on the home being paid off and not being a renter. The higher figure is for a couple. The lower is for a single person.

  2. DW @TheMoneyTemplate on July 17, 2017 at 6:37 am

    This blog is another good reason why I definitely need to be starting in my 20s and not wait too late. If I keep making up reasons as to why I can’t save now, something will always fill the void. Thanks for the read.

  3. Savvy New Canadian on July 17, 2017 at 2:04 pm

    Good reminder and great article as always!

  4. mark myrehaug on July 19, 2017 at 11:07 pm

    We did savings from 25 years of age until now and we are in our 50’s. We did max out our RRSP’s all the way and we did it by living below our means. We even drove a K car station wagon! I calculated we have spent 50 k over 26 years driving two vehicles. I learned how to find cheaper ways of keeping them running and my advice is to NEVER drive more car than you can afford…at one point in our lives we had 800 K on two vehicles. Start young by saving and even borrow to buy an RRSP and use the refund to pay down the loan to have it paid off within a year. I also tell people to buy second hand clothes, buy generic brands and even buy used furniture. Live below your means!

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