Recently, while surfing through save.spend.splurge’s posts I came across How much is Enough? from GreaterFool.ca about retirement and how much is enough. As I’ve previously posted, I’ve been putting a lot of thought into the shortfalls of my RRSP savings and feel I am way off track to what I should have saved. Luckily, I’m in good company, a recent Bank of Montreal survey found that the estimated average RRSP holding in Canada was $93,952. Twenty percent of Canadians have less than $50K saved.
Many Canadians are aware that after the Baby Boomers retire and suck CPP dry, there very well may be nothing left for the rest of us. My father likes to remind me of that regularly – “Michelle, don’t count on CPP, you can’t be guaranteed there will be anything left after the boomers are done with it.”
Sadly, he’s not too far from the truth.
Realistically, the measly amount provided by CPP/OAS is little more than enough to survive on cat food. I’d probably get $10K a year if I were lucky – it’s meant to supplement your retirement and nothing more. The only thing in life you can depend on is yourself.
The average monthly CPP benefit as of October 2012 was $528.49.
The average monthly amount of OAS as of October 2012 was $514.56.
What To Do?
I have approximately $50K in retirement savings and I’m 37. Scary, eh? Now you know why I’m so paranoid. Yet another reason to get my career amped up and on the right path, whatever that may be.
After my two-day sales course last week and having S.M.A.R.T. goals pummelled into my brain for the umpteenth time, I realized I needed to make a SMART goal in relation to my retirement. If I don’t do it, who the hell else will?
I made the decision that I need to have $500K saved by 45.
This is a big decision. A freakin’ big one. It’s a Galactic size goal…like Death Star big.
It means I have only 8 years to magically accumulate $450K more retirement dollars. Then, if all goes well, if I stay on pace, I should have at least $1.5 million saved if I’d like to retire by 60-65.
On the surface, it seems like a pipe dream, it’s a big number. Like most, I’m looking at the forest and forgetting about each tree, that there’s a smaller more realizable goal. $450K in eight years! That’s $56,520 that I would have to save each year, either with or without interest factored in.
Like they say, go big or go home. Seriously though, it’s a number I should already be halfway to by now and I figure I’ll need at least $500K for retirement. It’s not likely I’ll need $1.5 million, I believe $500K to $1 million would be sufficient.
If you look at all the numbers out there – from media, PF bloggers, financial institutions; they all throw out differing percentages. Some say 60-70% of your current income; others say you can live lavishly on 45%. Read a few of the articles I have at the bottom of this post for interest’s sake, and you’ll be more boggled than a dog chasing its own tail.
What’s my Current State?
I have $49,477 in retirement savings with a rate of return of 4%
Last year I saved $2012.66 times two $4025.32 (employer matching)
Year to date I have contributed $1821.79 plus employer matching on top of that. In other words, double that number.
My Future Desired State of Retirement Finances:
In 8 years, I will have an additional $450,000 saved for retirement. Broken down, that’s $56,520 per year, $154.85 per day.
Short of selling myself on the street, (I would never do this) in addition to working full time, at my current income, it’s not doable.
My net income would have to be somewhere in the ballpark of $80K to save $56K each year, provided I don’t change my lifestyle with the higher income. I would have to stay living the way I am now. This would equate to no house, no new car in seven years and a very strict lifestyle.
In order to net $80K at a 42% marginal tax rate, I would require a gross income of $113,800 per year. This number does not factor in an employee RRSP program. I’m going solely off my earning requirement/potential.
It may sound bizarre, but I have never, ever, ever sat down and calculated these numbers. So sad, I know but better late than never!
Playing Devil’s Advocate
Two things are clear to me: I need a higher paying job to achieve this goal AND I need a higher rate of return on my portfolio and investments.
Of course, all of these plans are based on remaining single and not being part of a couple. It’s unfortunate, but it is tougher for singles. Everything does cost more because you only have one income that is usually smaller than the combined income of a couple. I can only plan based on my current state in life. It would be a complete NO NO to assume that I may meet someone and have help with retirement, I cannot think like that for the present.
Let`s Throw a Wrench into it All
Right now, my life is topsy-turvy, I haven’t followed the societal norm of getting married, having kids young and seeing them off to university. It’s entirely possible I could have kids in the next couple of years and it will throw all of this into flux.
All I can do is plan for now. The moment I am in now.
Is $500K by 45 possible?
Yes, if I significantly increase my income and rate of return on investments. My only downfall will be not taking immediate action to increase my earning potential. It is possible.
What’s my new SMART Retirement Goal?
Year 1 – I will save $10K into my RRSP by December 31st 2014.
Year 2 – I will save $20K into my RRSP by December 31st 2015.
Year 3 – I will save $40K into my RRSP by December 31st 2016.
If my situation in life changes, I will adjust upwards accordingly.
Determine current portfolio YOY average yield and increase portfolio return to 8%.
Continue on current action plan to improve my career prospects.
*These are total numbers and include what I already invest.
Where do you see your retirement savings by 45? Do you think I’m delusional?
What’s a SMART goal? http://topachievement.com/smart.html
Photo credit: forbes.com