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September 6, 2016 | Get Ready

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.


When my Millennial clients who retired as millionaires in their early 30s started doing the media thing few weeks ago, the reaction ranged from envy to hate, shock to inspiration. So many people hate their jobs, their careers, their workplace bondage and the fact you only get to goof off after you’re old, wrinkly, hormonally-challenged and need lubrication.

This sucks. So can retirement actually be advanced? Can thirtysomething kids pack it in when they reach a million-dollar portfolio? Or is this a mere media, website-promoting stunt?

Hard to tell, since life is l-o-n-g and a million ain’t what it used to be. But one thing is clear – most people aren’t ready. Many will never retire. And (as a society of house-horny people) we’ve all put way too much faith in a single asset. Not so smart with what lies ahead.

But here’s the question burning in a million minds. How much is enough? Whadda you need to depart this vale of tears, climb on a Harley and never look back?

There’s no one answer, so we’ll bring you several. The simplest way to divine the future is to use one of those fancy online retirement calculators (hundreds exist), but because life is messy and ever-changing, and you might croak way too soon (or way too late) having some simple, changeable metrics is not be a bad idea.

Well, if you want really simple, how about this?


This is a formula that US giant Fidelity Investments came up with for determining how much in savings/investments you should have at various stages of your life. So, if you’re 45, and make a hundred grand, you should have liquid assets of $350,000. A decade later, the total should be $500,000, unless you got a raise, in which case bump it up.

The goal, says the company, is to replace 85% of your working income with retirement income. (Some experts question that as being far too high a replacement amount.) Some good news – you should include government pension benefits in your calcs. This does not factor in two incomes, assumes retirement at age 67 and that you will live 25 years after that. Shorter, if you buy the Harley.

Now key to what you save is what you spend after you stop working. So my Millennial protégées with a million, and a hankering to visit every den of iniquity known to man, will have to live on air for a good portion of the time. But they’re young. Semi-poverty is far harder as you age.

So what’s a safe withdrawal rate? Traditionally most advisors said 4%, so if your portfolio is growing by that amount, the principal is preserved. If you opt for 2% GICs, you enhance the odds of running out of money. To determine what you need to save, divide the annual income you want in retirement by the withdrawal rate. For an income of $50,000 with a safe withdrawal rate of 4%, you need to save $1.25 million. If you can average a 6% long-term rate of return, that drops to $830,000.

Another formula often used: the amount you need to retire comfortably and last your lifespan equals 11 times your final salary. Or you can calculate how much you need to save every year based on your age, income and standard of living according to guidelines published by the Journal of Financial Planning.

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Here is the formula for somebody who’s 40. If you earn $80,000 a year the plan suggests you should be saving 19.8% of your gross pay. Gasp. The last column adjusts this savings rate to reflect money you have already out aside – so for every $10,000 you’ve stashed in a TFSA or an RRSP, you can reduce the savings rate by .42%, at the income level of $80,000.

The more you make, of course, the more you need to save since replacing your income becomes a more costly exercise. Also remember that government pension pogey is clawed back at an income level of not much more than $70,000, so it you’ve earned $150,000 and want to retire on a hundred thousand, your pool of savings must be larger.

Lying behind all of these little calculations is the assumption that money will continue to grow, perform and multiple during your entire life. Investors in high-interest savings accounts, GICs or an all-bond portfolio better have a lot more accumulated than those with balanced portfolios which include exposure to growth assets like equity-based ETFs. While rates will creep higher in the years to come, almost nobody will be able to live off interest alone. The greatest risk for those most afraid of risk, ironically, is outliving their money.

Finally, a house is not a retirement strategy. But nobody believes me. So good luck

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September 6th, 2016

Posted In: The Greater Fool

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