Weekend Reading: How Much Will You Spend In Retirement Edition

Weekend Reading: How Much Will You Spend In Retirement Edition

Investors often look to rules of thumb or mental shortcuts to help guide their decision making. Unfortunately, there aren’t many good rules of thumb that can help determine how much you will spend in retirement.

The 4% safe withdrawal rule, while a decent starting point, is not particularly useful. For one, investors don’t just have one pot of money labeled ‘retirement income’ that they draw from. We have RRSPs and RRIFs, LIRAs and LIFs, TFSAs, and non-registered savings and investments, each with different withdrawal rules and taxation. We may also have pension income, along with CPP and OAS benefits, to consider.

On top of that, life doesn’t just move in a straight line. We often have lumpy one-time expenses such as buying a new vehicle, renovating our home, gifting money to children, and spending on bucket list experiences throughout retirement.

It’s also the sequence of withdrawals that matters – how all of those puzzle pieces fit together over the years to create a tax efficient retirement income for your lifetime. That means a strategy of targeting a specific number, say $1M, in savings and investments and expecting that will pay you exactly $40,000 per year (rising with inflation annually) might fail to meet your spending needs in retirement.

Then there’s the percentage of income rule for retirement income – commonly cited as 70% of your final average pay. This rule assumes you’re no longer saving for retirement, kids have moved out of the house, and the mortgage is paid off. But what about single Canadians? Couples with no children? Lifelong renters?

Retirees who had a high savings rate throughout their careers may only spend 40-50% of their final average pay in retirement to maintain their standard of living. That’s because they may have saved 20% or more of their income, paid a high average tax rate, and don’t carry any debt. Assume they’re no longer saving, paying off their mortgage, spending on their children, and can benefit from income splitting and overall lower tax rates in retirement.

On the other hand, lower income earners who are lifelong renters may not have been able to save as much throughout their careers, but could easily spend 80% or more of their final average salary simply to maintain their current standard of living. Their tax rate may not change that much, so aside from no longer paying into CPP/EI their expenses would largely be the same. 

Finally, you’ll need to consider your human capital and how long you plan to earn an income from employment (either full-time or part-time as you ease into retirement). 

All of these nuances mean it’s essential to have a retirement plan – one that looks at your unique circumstances and doesn’t blindly follow rules of thumb.

I can say after working with hundreds of retirees it’s clear that the best predictor of your future spending is what you’re currently spending. Indeed, most of my retired clients want to maintain their existing standard of living, if not enhance it slightly for extra spending on travel and hobbies. An added bonus is if they can have a pot of money left untouched for unplanned spending shocks, one-time expenses, and healthcare challenges (often the TFSA, but mostly it’s their untapped home equity).

Another useful tidbit I’ve noticed is that for most retirees who have the ability to significantly increase their lifestyle, many just cannot bring themselves to do it. Call it a scarcity mindset, or just decades of practiced frugality, but it’s almost impossible to turn the spending taps on full blast after a lifetime of saving.

That’s useful because for those in their savings years now, thinking they’ll live on less today in order to live large tomorrow, it’s unlikely they’ll actually be able to bring themselves to do it. Better to allow yourself some lifestyle creep now and throughout your career so you can enjoy the journey.

Promo of the Week:

Today’s high interest rate environment is great news for savers who are looking to maximize the interest earned on savings deposits. My new go-to savings account is Wealthsimple Cash. It’s a hybrid chequing & savings account that pays 4% interest with no minimum balance requirements, plus 1% back on spending.

That’s not all. If you have $100,000 in assets at Wealthsimple (include large savings balances at Wealthsimple Cash) you’ll earn 4.5% interest. For Generation clients with $500,000+ in assets, you’ll earn 5% interest.

Even better, for those who loathe having to use multiple financial institutions to spread out their risk, Wealthsimple Cash offers an incredible $300,000 in CDIC deposit insurance coverage.

There are no account fees, you can send and receive e-Transfers for free, pay bills, and even direct deposit your paycheque into the account. 

For travellers, you won’t pay conversion fees when spending money in a foreign currency.

What are you waiting for? Join Wealthsimple by Sept 13th and earn 4x the rewards when you open and fund any account — that could mean up to $12,000 (not likely, but there’s a chance)! Use my referral code: FWWPDW to qualify: https://www.wealthsimple.com/invite

Weekend Reading:

On the topic of saving for retirement, Fred Vettese shows how hard it is for regular Canadians to save enough to retire at age 60.

A Wealth of Common Sense blogger Ben Carlson explains why you probably need less money than you think for retirement.

PWL Capital’s Ben Felix explains why cash, even at 5%, is extremely risky for long-term investors:

If you’ve been using (or thinking about using) one of the Horizons’ all-in-one ETFs in a taxable account to avoid annual investment income, note these important changes to their funds. They’ll now look more like the Vanguard, BMO, and iShares’ versions and pay taxable income.

What are the world’s best performing stock market indexes right now? Andrew Hallam shares why you don’t want to chase the latest winners.

The always brilliant Morgan Housel compares the difference between intelligent and smart.

Fee-only financial planner Anita Bruinsma has a thoughtful post on managing our weaknesses.

If the media covered elevators like they cover the stock market, they’d re-name the up and down buttons as “soar” and “plunge”. Here’s Preet Banerjee on why we, and the media, have a fascination with market bears and their predictions:

You might be surprised by these reporting requirements – and tax breaks – on your interest-bearing investments like bonds and GICs.

Why do these investors want their portfolios to drop?

“Steve owns a globally diversified portfolio of index funds. For him, market drops are like low ocean tides. They are temporary. But they allow him to scoop additional ownership in thousands of companies with a lot less effort. It’s like plucking salmon or tuna from low tidal pools.”

Why everything and everyone underperforms, eventually.

Looking for travel deals? If you’re flexible on when or where you go, these tools can help.

Why couples should consider co-mingling their finances. Research shows that couples who merge their money are more likely to be happy and successful.

A good summary by Cullen Roche on the future of inflation and interest rates.

Finally, is this the most unaffordable time ever to buy a house? Not according to one metric (subs).

Have a great weekend, everyone!

Print Friendly, PDF & Email


  1. Tricia R on September 2, 2023 at 6:46 pm

    Regarding your comment about the pot of money for misc expenses, mostly being untapped equity in their homes- what are your thoughts on HELOC vs reverse mortgages?

    • Robb Engen on September 2, 2023 at 10:02 pm

      Hi Tricia, it really depends on your spending needs (whether it’s to top-up an annual income stream, or more like a one-time expense). I think a reverse mortgage is a decent last resort for those who plan on staying in their home as long as possible but who fear they might run out of money the longer they live.

      A line of credit is more flexible and better for one-time lump sum expenses. But it’s harder to get one in retirement.

      In many cases it’s better to plan to sell the home at some point to either downsize or rent. The home is often the largest asset by far and you can shortchange your retirement spending by not tapping into that equity.

  2. Jane on September 3, 2023 at 3:58 pm

    All so true Rob, btw I am with Wealthsimple and I used my cash card in the EU recently but paid hugely and I can’t figure out why when they say no foreign transaction fees. $240 Euros was $410 Canadian! I am taking cash next time!

    • Robb Engen on September 3, 2023 at 4:07 pm

      Jane, that is a crazy exchange rate! WS Cash should be using the MasterCard spot rate, so the only thing I can think of is sometimes at the point of sale you are prompted to pay in Canadian dollars instead of Euros and the mark-up on that is insanely high. Always pay in the local currency and have your card do the conversion back to CAD.

      BTW I brought some cash to Amsterdam and none of the merchants accept cash, not even the boats on the canal.

      • Nicole on September 4, 2023 at 3:22 pm

        I also came here to ask about this cash account when travelling. Rob, did you use the prepaid MC at a bank machine to take out local currency? Any fees there? We are planning to become semi nomadic in early retirement next year and I’m looking for a good low/no fee card for withdrawing cash in multiple currencies. Depending on the country we are in, some vendors may still prefer cash…

        • Robb Engen on September 4, 2023 at 3:41 pm

          Hi Nicole, I didn’t have the WS Cash account or card on the trip. I used my Scotia Passport Visa Infinite card (no FX mark-up either) and paid by credit card in local currency (Pounds in Scotland and Euros in Amsterdam). Honestly, merchants prefer cards over cash now.

          I ordered $100 in each currency from TD before we left Canada and thought we’d use the cash for the odd taxi ride and at local markets with small vendors. Sure enough, one taxi in Stirling didn’t take card, but other than that I used my card for everything else (even the small markets).

          I only used Euros to tip the canal boat driver, and actually returned home with $50 Euros.

          The only country where we needed more cash than I thought was in Italy when we visited last spring.

          Wealthsimple doesn’t charge ATM fees, but the local ATM might so double check the fees and currency conversion before withdrawing.

          • Nicole on September 4, 2023 at 4:23 pm

            Perfect, thanks for confirming! I intend to also get a true no FX fee credit card as my main travel card, but wanted a good simple option for the odd cash withdrawal and as a back up. The 4%+ rate and $300k CDIC coverage means I can check off a few of my other ‘transition to retirement’ banking tasks with this single account. Account has been opened and referral code used. Pretty sure Morgan Howsel would consider you a smart writer…

      • Tom on September 6, 2023 at 6:01 am

        Home Trust Visa doesn’t charge transaction fees. Worked flawlessly in the last four years.

  3. Jane on September 3, 2023 at 4:23 pm

    I should call them. I also used my Home Trust card which does not charge a foreign currency transaction fee in Switzerland I definitely used local currency so Swiss francs and $118 turned into $180. I think the terminals are charging fees and they maybe are going back to the merchants. I will contact my Travel agent re: euros as it was a river cruise and I will ask for an explanation.

  4. Alain Guillot on September 4, 2023 at 5:12 am

    Thank you for your article.
    I have optimized my lifestyle to a particular spending level and now in retirement it’s hard for me to spend more. For example. I don’t want to get a bigger apartment. I am not a car owner and I don’t want buy a car. I am happy riding my bicycle. I am vegan and I don’t want to eat filet mignon.

    In addition, I do part time work, and my part time work is more than enough to cover my living expenses, so I feel that I saved for nothing. I can’t give up work because I like my job as an artist (photographer-dance teacher).

    • Robb Engen on September 4, 2023 at 3:47 pm

      Hi Alain, thanks for your comment. Spending more doesn’t necessarily have to be about mindlessly inflating your lifestyle, especially one that you are satisfied with already.

      It could be about being more generous (tipping, charity, relatives), maybe upgrading your equipment (camera, bicycle), taking a vegan cooking class or going on a foodie tour somewhere. Think of it as a fun challenge to use up some of your hard earned savings to make yourself and others happy.

  5. Brenda on September 11, 2023 at 3:31 pm

    I think the Wealthsimple interest rates are only paid on the cash balances in the accounts, not on the total assets.

Leave a Comment

Join More Than 10,000 Subscribers!

Sign up now and get our free e-Book- Financial Management by the Decade - plus new financial tips and money stories delivered to your inbox every week.