Saving The Right Amount
While a comfortable retirement should be well within reach of most middle-class Canadians, you still need to save diligently to get there. But how much to save? It depends on whether you plan to save steadily throughout your working life or whether you instead focus on paying off the mortgage before you start seriously saving for retirement.
The steady-eddy approach was made famous by David Chilton in The Wealthy Barber. Chilton advocates salting away a steady 10% throughout a long working career. While results will vary with salary and investment returns, we think that approach works well for Canadians with fairly average incomes or better if you can manage it over a lengthy career of 35 or 40 years. Of courseas Chilton points outif you dont start early and save consistently, youll need to save more than 10%.
While that approach is effective, few people these days can afford to buy their first home, cover humongous mortgage payments, and also save 10% for retirement. I think most people in that situation want to do the level 10% savings but cant for the life of them figure out where the money is supposed to come from, says Malcolm Hamilton, retirement expert and senior fellow at the C.D. Howe Institute.
How To Create A Retirement Income Plan
Now that you know what funds you have available, you will need to create an income plan for your retirement.
Quite simply, income + capital = your retirement plan
You can create a basic retirement plan using excel, however this is likely to be limited. To create a comprehensive retirement plan, you want to use cash flow modelling. This looks at your current finances, and projects how they will change over time taking into account any withdrawals you make. Ultimately, it will show you where to have enough to retire at 60.
How Long Will $300000 Last In Retirement
The amount of time it will take for $300,000 to dwindle down to zero is based on the amount a retiree withdraws and the average growth rate. For example, if a retiree withdrew $30,000 a year with no growth to their account, the $300k would be totally spent in 9 to 10 years if including fees spent in the account. However, an annuity will continue to provide the same paycheck to the retiree for the rest of their lives, even after the account has been run out of money.
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A Little Work Might Be Good For You
Though the idea of going back to work, even for just a little bit, might not sound appealing, there is a psychological factor that you may be underestimating. One of the biggest complaints retirees have is that quite frankly: They get bored.
They suddenly have all of this new found time on their hands and they have no idea how to fill it. In attempt to find some semblance of purpose or even just to be social, they gladly welcome the opportunity to take on a new part-time job perhaps doing something that theyve always had as an interest or hobby.
Suppose we assume you are able to find a part-time gig generating an extra $1,000 per month. This brings our example up to $55,592 per year or $4,633 per month.
How Long Will My Retirement Savings Last
Once youve retired youll be living off any savings you have, Social Security benefits, and, if need be, further assistance from friends, family, civic groups, and maybe further government assistance. Youll need all this support because youre likely to keep living for a long time after youve stopped working.
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Will I Run Out Of Money In Retirement
This all depends on your pension pot and the lifestyle you want to lead in retirement.
If your wondering Do I need a financial advisor for my pension you can check out this link,
Working with a financial adviser to address any unknowns and create a retirement plan will give you peace of mind.
Your adviser will assess your situation and help you understand how long your money will last, removing any fear of running out of money in retirement.
The concept of time is something you need to consider. The last thing you want to happen is to run out of money and then need to pay for a care home or make significant additions to your home if you have mobility issues or any other specific needs.
Time is as much a resource as money, yet we rarely give it the same focus.
Thats why at Joslin Rhodes Pension & Retirement Planningwe puttime front and centre, as a reminderto use it as wisely as your money.
Our PlanHappy Lifestyle Financial Planning process maps out exactly how much youll have and how long itll last for. In these forecasting sessions, our advisers are as realistic as possible to make sure youre resting easy in retirement.
If we forecast youll run out of money early, then well advise you on what to do regarding this and whether retiring at 55 is the right decision.
How Long Do You Need The Money
First of all, remember that we said the 4 Percent figure is tied to a period of 30 years. According to another famous paper on safe withdrawal rates known as the Trinity Study, if you only need your nest egg to last for a shorter time period , then you should be able to use a higher rate. For example, a portfolio with a 5% withdrawal rate for 20 years would have almost the same probability for success as one with a 4% withdrawal rate for 30 years .
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Can I Retire At 60 With $300000
The short answer to this question is, “Yes, provided you are prepared to accept a modest standard of living.” To get an an idea of what a 60-year-old individual with a $300,000 nest egg faces, our list of factors to check includes estimates of their income, before and after starting to receive Social Security, as well as expenses after retirement. Your own prospects in this kind of situation will vary, but by doing the sorts of calculations and estimates below, you’ll have a reasonable idea of what it will take for you to retire at 60 with $300,000.
Consider working with a financial advisor as you explore your prospects for retiring early.
Income After Retirement: Social Security
A good place to start your assessment of whether you can retire at 60 with $300,000 is by looking at sources of income, including Social Security. The program is reverse-means tested, meaning that the less money you made during your working years the less generous your benefits in retirement. Earnings scale up to the maximum Social Security income, after which additional earnings no longer add to your lifetime benefits.
The maximum taxable income changes each year based on inflation. In 2022, it is set at $147,000, meaning that during 2022 you accrue the most Social Security credits if you earn up to that amount. If you earn less, you will collect fewer benefits when you retire. If you earn more, it will not add to your benefits.
Income After Retirement: Investments and Savings
Potential Pitfalls
Whether Youre Ready To Retire
YouGov research found 17% of Britons would like to withdraw money from their pension potsbefore theyre 65 to be able to retire early or have extra income. Which begs the question:Are you ready for the biggest lifestyle shift youll probably ever face? Are you ready to stop going into work every day? Are you ready to retire at 55?
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Your Super Balance Continues To Grow In Retirement
Another reason you may be able to retire on a modest super balance is continued investment returns. In other words, your super balance can continue to benefit from investment returns in retirement.
If you had $300,000 in super and were invested in our Balanced pension option, you would have seen average returns of 8.6% per annum over the last 10 years^. Thats $25,800 per year . Those returns can potentially be drawn down and used to help top-up the Age Pension while maintaining your balance.
The above scenario is subject to a number of caveats, including the Centrelink income test, positive investment returns, life expectancy, and inflation, but it shows how your money may continue to benefit from investment returns, even in retirement.
Keeping Up With Inflation
Some annuities offer a guaranteed lifetime income with the ability to increase your income regularly to keep up with inflation. Once the income increases, the payment amount is locked in and can never go backward from that point forward.
Example
A 40-year-old purchases a $1,000,000 annuity with a lifetime income rider to retire at age 60. At age 60, the lifetime income amount may be guaranteed $105,380 initially but hypothetically increases to $288,439 by age 67. Once the income has increased to $288,439 annually, this payment is locked in and can never go below $288,439 in the future.
On the other hand, a performance-based annuity may hypothetically generate an income of $381,349 a year for life starting at age 60, increasing to $636,610 a year by age 70. Once the income has increased to $636,610 annually, this payment is locked in and can never go below $636,610 in the future.
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How Can We Help You Retire At 55 Free Retirement Review
To get started on your journey to retirement, you can take our free no-obligation first meeting.
Youll be able to speak with our financial advisers who can explain our PlanHappy Lifestyle Financial Planning process, how it can help you, but most importantly, you can work through what it really is you want to do in retirement.
You tell us what you want to do, you tell us your goals and aspirations, and then we start your journey to retirement.
Retirement Savings how much you need to save for retirement Retirement Date when you can afford to stop working Retirement Income how much you can spend in retirement
So, if youre looking to make sense of pension and retirement planning options with straightforward financial planning advice, were here to help.
Contact our friendly team on, 033 0133 3035 or use the form below to arrange a call back from one of our experts.
Joslin Rhodes Pension & Retirement Planning Real Advice, For Real People
What Level Of Income Could We Expect
With $300,000 in savings, if we assume a withdrawal rate of 4% per year, we get just $12,000 of annual spending. Fortunately, personal savings is not the sole source of income for most retirees.
As of 2012, the average monthly Social Security benefit for a retired worker is $1,230. In the case of a married couple, we can add $615 to account for a spousal benefit.
When we multiply the sum of those two monthly benefits by 12, we get a total of $22,140 in annual Social Security benefits.
$22,140 of Social Security, plus $12,000 in spending from savings gives us $34,140 of annual income.
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Will Future Rises In State Pension Age Affect How Early I Can Retire And Access My Pension Pot
Whilst 55 is currently the earliest you can access your pension pot. This will be rising to 57 by 2028 to match the rise in State Pension age.
Although this is disappointing news for some, looking on the bright side, it does give you two extra years to plan and save for your perfect retirement.
The sooner you speak to an independent regulated financial adviser, the sooner youll know what steps you need to take to secure your ideal retirement lifestyle. For example, putting money away for an extra few years or consolidating your pensions.
So, even if your retirement age has been put back, dont put off seeking professional retirement planning advice. Having that extra time might be a blessing in disguise, especially if youve only just started to consider early retirement.
Can I Retire At 55
After spending most of our lives working, its normal to start to ask ourselves questions like, when can I retire? Do I have enough in my pension? Can I retire at 55?
In the UK, you dont need to wait until the state pension age to retire. Providing you have enough savings and pension pot to fund your retirement lifestyle. You can retire at age 55. This is a viable option at age 55 because we are allowed access to our pension pot.
If you want to retire early, its important you have enough in your pension pot for a comfortable lifestyle. To find out if you can retire at 55, receive retirement planning advice as soon as you can. You might be able to retire much sooner than you think.
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Bonus: Alternative Strategy Dividend Income
If our suggestion in Tips 4 and 5 of playing the odds with different withdrawal rates seems too risky, or if youd like to seek a potentially higher rate of return, then I will introduce you to an alternative strategy: Generating income using dividend paying stocks.
Dividends are the payments you receive as the owner of stocks from certain companies usually from their profits. Thousands of companies offer them. Generally, as a shareholder, you will be paid on a quarterly basis. These payments can be any domination and are always subject to change.
One very popular retirement income strategy is to build up an entire portfolio of dividend paying stocks and then live off of the payments they generate. You literally dont have to do anything except be a shareholder of the stocks.
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Can You Retire At 55 With 250k
It depends. The short answer is, Yes. It is possible to retire at 55 with 250K in the UK. But will you want to? Thats a different matter.
Simon Garber, a Pensions and Retirement Specialist says,
It can be done. We have clients who do it . But they are not really living off just that. They have other assets. And moderate means.
If you are considering retirement at 55 with 250K in your pension pot there are 4 important questions worth asking yourself.
Pension Fund Value: 1050000 1500000
- 1,050,000 = 250,000 lump sum + 4,625/month .
- 1,100,000 = 260,000 lump sum + 4,750/month .
- 1,150,000 = 270,000 lump sum + 4,875/month .
- 1,200,000 = 280,000 lump sum + 5,000/month .
- 1,250,000 = 290,000 lump sum + 5,125/month .
- 1,300,000 = 300,000 lump sum + 5,250/month .
- 1,350,000 = 310,000 lump sum + 5,375/month .
- 1,400,000 = 320,000 lump sum + 5,500/month .
- 1,450,000 = 330,000 lump sum + 5,625/month .
- 1,500,000 = 340,000 lump sum + 5,750/month .
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How Much Could Your 401 Grow If You Stop Contributing
Now lets examine what happens to your 401 when you stop contributing and your employer does not make any matching contributions either. Using most of the same parameters as before, lets use our 401 Growth Calculator to see how much your 401 will be worth if you stop contributing at age 30, after you have already accumulated $10,000 in your account:
- You are 30 years old right now.
- You have 37 years until you retire.
- You make $50,000/year and expect a 3% annual salary increase.
- Your current 401 balance is $10,000.
- You get paid biweekly.
- You expect your annual before-tax rate of return on your 401 to be 5%.
- Your employer match is 100% up to a maximum of 4%.
- Your current before-tax 401 plan contribution is now 0% per year.
What happens to your previous 401 balance of $795,517? It plummets to $63,485 $732,032 less than before. When you stop contributing to your 401 and have no employer matching contributions, your total 401 balance in year 37 is 92% less. Procrastinating with your retirement savings and your 401 contributions means you have to work much harder and save even more to catch up to where you need to be in order to reach your retirement goals. Learn more about the cost of waiting to save for your retirement.
