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January 11, 2016 | Mission 2016: Discover Your “Retirement Number”

Adrian Mastracci

Adrian Mastracci, Discretionary Portfolio Manager, B.E.E., MBA. My expertise in the investment and financial advisory profession began in 1972. I graduated with the Bachelor of Electrical Engineering from General Motors Institute in 1971. I then attended the University of British Columbia, graduating with the MBA in 1972. I have attained the “Discretionary Portfolio Manager” professional designation. I am committed to offering clients the highest standard of personal service by providing prompt, courteous and professional attention. My advice is objective, unbiased and without conflicts of interest. I’m part of a team that delivers comprehensive services and best value in managing client wealth.

I recommend turning over a new money leaf for 2016, the sooner the better.
If you have but one mission on your plate, make it the discovery of your “retirement number”.

That retirement number is the estimate of how much capital is required to realize your retirement goals.
No doubt, the most important calculation for the vast majority of investors.

However, very few investors have anything that resembles it.
Occasionally, someone brings in a number that is woefully out of date.

Put aside your preoccupations with performance and picking best investments.
Rather, get a handle on what you have to do to achieve your goals.

Major phases of life

Say your life span is near 100 years.
Now loosely divide up your century this way:

Up to age 30 – pursue your education.
Age 30 to 65 – accumulate your retirement nest egg.
Age 65 to 100 – spend it, enjoy it and, perhaps, pass it on.

2016 presents an opportune time to zoom in on your retirement’s big picture.
The critical key is to ballpark the family’s retirement needs.

First estimate your particular retirement number, then regularly freshen it with an update.
It serves you well as a guide throughout the long accumulation and spending journey.

While you’re at it, sketch out some “what if” scenarios.
Then set your investing plan to comfortably turn needs into realities.

Sample retirement number

Let’s delve into approximating a sample retirement number, also known as the retirement projection.
First, some facts for those retiring in 2016:

Maximum 2016 CPP benefit at age 65 is now about $12,950 per spouse.
Similarly, maximum 2016 OAS benefit at age 65 is nearly $6,930 per spouse.

Delaying receipt of CPP/OAS up to age 70 increases both benefits.
OAS clawback for 2016 starts at net income of $73,760 for each spouse.

A couple could receive maximum CPP/OAS benefits near $39,760 at age 65.
You are responsible to provide everything above your family’s CPP/OAS benefits.

Adding regular savings to your investing plan is a must to reach those retirement goals.
Let’s mull over some family retirement assumptions:

Say your objective is $65,000 annual pre-tax income, in today’s dollars, starting at age 65.
Life expectancy is taken to age 90 for both spouses.

Inflation averages 2% per year and investing return is 5% per year.
There is no employer pension and no estate is left to beneficiaries.

The couple receives 75% of the total CPP/OAS government benefits.
The home value is over and above the capital needs and inheritances are ignored.

Investing losses and health costs are not significant during retirement.
No savings are added to the nest egg during retirement.

This family needs capital in the $780,000 range to provide the balance of retirement income.
Every investor is wise to approximate such a retirement number, or projection.

The capital pool typically consists of an assortment of your cash, savings, RRSPs, RRIFs and TFSAs.
Plus taxable accounts, employer pensions, income real estate, cottages and businesses.

Start paying close attention to your family’s retirement number at least 15 to 20 years before retiring.
Use that ballpark to calculate how much you need to save and the investing return to reach your goal.

A periodic update of your retirement number, say every 3 to 5 years, helps freshen your road map.
I approximate every client’s retirement number before commencing to invest.

May your discovery mission 2016 be prosperous.
Questions and comments are invited.

Best for 2016,

Adrian

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January 11th, 2016

Posted In: Adrian Mastracci Blog

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