Retirement Income

I recently came across a retirement calculator that determines how much you need to save to provide an income after retirement. I was quite horrified to discover that I need to put away approximately $3600 per month in order to have a lump sum large enough to provide me with an annual retirement income of $40,000.

You see, I was a late starter. Like most young people of my generation who listened to song lyrics that stated, “hope I die before I get old” (courtesy of the Who), I didn’t give much thought to saving for retirement. We were too busy dealing with the present.

Retirement Income: How Much Do You Need?

So now, the experts tell me, I’m in danger of outliving my money if I don’t get on board with “super-sizing” my contributions.  First of all, I don’t even earn that much at my part-time job and, secondly, I can think of a lot of things I’d rather spend that kind of money on right now if I did have it.

Having a “financial plan” and building a retirement nest egg became popular as mutual funds became more readily available when they started being sold through the banks.  The stock market was booming, returns were projected at 8-12% (or even higher) annually and easy regular contributions made that lump sum seem easily achievable for early retirement.

It was a big blow when the market dropped and many people had to decide whether to work longer or reduce their income, or both, when their savings total dropped by almost a third.

In contrast, my parents’ generation purchased GIC’s and Canada Savings Bonds and used the earned interest to supplement their retirement income.  The principal was left intact for the most part unless an unexpected expense arose.  What is wrong with this model?  I say nothing at all.  I plan to do the same thing.

My investments are dividend-paying stocks instead of GIC’s, but the principle is still the same.  I will supplement my retirement income with dividends and, hopefully, the capital will remain as long as possible.

My parents are well into their 80’s so I hope to enjoy at least another 35 – 40 years without having to worry about running out of money.  And if all goes well, my children might even receive somewhat of an inheritance.  🙂

How much retirement income do you plan on needing?

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  1. The Passive Income Earner on October 19, 2010 at 9:58 am

    You are taking all the right steps! Don’t despair with what you feel you should save today because your ability to save should increase as your income increase. This is where many get on The Rat Race train and start spending more as their income increase and they should save more instead …

    Keep that long term retirement goal in mind but set yourself some short term goals that are achievable and measurable. You’ll get there by sticking to a plan.

  2. Financial Cents on October 19, 2010 at 2:09 pm

    Nice plan!
    I too, am on the same passive income journey through dividend-paying stocks. The key is, you HAVE a plan, whether it be stocks, bonds, GICs, whatever. Knowing where you’re going is always important and sounds like, you know 🙂

    • Boomer on October 19, 2010 at 4:57 pm

      Whatever your plan, as long as you have enough funds to keep up with the bills and do the things you want – whether its during retirement, a sabbatical, or even an extended vacation – it will be successful.

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