How Much is Enough?

If you have a good sense of how much money you will need to retire at a given age, you are in a happy minority. Advisors often find that either people haven’t given it a great deal of thought or they really don’t know how to go about estimating how much they will need. It doesn’t help that the numbers bandied about are often intimidatingly high, which discourages people from making a plan that is at an achievable scale for their individual situation.

So where do you start? Large scale studies have been done to track spending patterns in retirement, and there are formulas and rules of thumb to give you guidance for how big your nest egg should be and how much you can afford to withdraw annually after retirement. However, your personal plans and expectations of retirement may differ quite widely from those assumed for a generic ‘case’, so it’s important to think this through carefully and get some expert advice.

Although research shows that spending habits do not change in retirement, the average Canadian finds they do not have to replace 100% of their current income. You will not have some of the expenses you have now: for example, you will probably have paid off your mortgage and it is likely that your children will be self-sufficient. You will not have to pay Employment Insurance and CPP, and will receive supplemental income from government benefits and pension plans. You will also have more time to plan your daily expenditures and shop for bargains.

Your personal plans and expectations of retirement may differ quite widely from those assumed for a generic 'case'.

In order to maintain your current standard of living in retirement, the generic formula is that you should assume that you will spend 75 – 80% of income you were making during your peak earning years. However, some experts contend that you can live well on substantially less. Those who want to delve into this topic more deeply might consult a 2015 paper by Malcolm Hamilton1, an actuary and pension expert who is a senior fellow at the C.D. Howe Institute (a not-for-profit research institute). In an interview with the Globe and Mail2, Mr. Hamilton says that replacing 50 – 60% of a couple’s annual income during peak earning years should be sufficient, while singles should target 60 – 70%, because they do not benefit from the shared economies of couples.2 This assumes that you are entering retirement debt-free. Depending on your particular situation you may be able to live well on an even smaller percentage: if you are accustomed to living frugally and avoiding status spending, as expounded in the book The Millionaire Next Door, it is likely that you will need to replace a much lower percentage of your preretirement income in order to live well and have a sense of well-being.

An excellent article in Money Sense by Contributing Editor David Aston3 gives three case studies of spending by couples in retirement, with the ‘Average Mr. & Mrs. Statscan’ spending $57,415 (including tax) in retirement, and the ‘Moderately Wealthy’ couple spending $101,270 (also including tax). The moderately wealthy couple spend $44,810 on the essentials, leaving $36,460 to spend on extras like travel, restaurants, upkeep on a second home, and charitable and personal gifts.

To arrive at an estimate of your own ‘number’, start with your current monthly income net of income taxes. From this number, remove any expenditures that you will not have after you retire: in addition to mortgage payments and saving for retirement, take into account out-of-pocket expenditures related to your working life (clothing, transportation, meals away from home, etc.) and current family life (education, child support). The remainder is lifestyle cash flow. Of this amount, how much do you save each month and how much is left over? This should give you a fair idea of what you are currently living on. Subtract from this amount expected government transfer payments in retirement.

When you have determined how much annual income you need to live well in retirement, your financial advisor can help you calculate the size of the portfolio you need to build to generate an income to provide for withdrawals at that level.


  1. The paper Do Canadians Save Too Little? is available on the C.D. Howe website (cdhowe.org).
  2. Globe and Mail, March 15, 2015; Retirement is Cheaper than You Think by David Aston.
  3. Money Sense, December 15, 2014. The Cost of Retirement Happiness, by David Aston.

Jason Sirman is a Senior Financial Advisor with Assante Capital Management Ltd. providing wealth management services to principals of family-owned and privately held companies. The information mentioned in this article is for general information only. Please contact him to discuss your particular circumstances prior to acting on the information above.  Assante Capital Management Ltd. is a member of the Canadian Investor Protection Fund and is registered with the Investment Industry Regulatory Organization of Canada.