3 overlooked tips for deciding how much you need for retirement

Retirement is a big deal. Most of us plan for retirement, hoping that we are setting enough aside in our RRSPs and TFSAs, as well as other accounts. What you set aside, though, depends a great deal on how much you think that you will need during retirement.

As you think about what you will need in terms of how much you need for retirement, here are some tips you don’t want to overlook:

1. Don’t fixate on a number

It’s easy to fixate on a number. “I need $1 million to retire.” However, this might not be the case. Inflation might mean that your $1 million nest egg doesn’t go far enough. On the other hand, your simple lifestyle and small expenses might mean that you don’t actually need $1 million.
Instead of fixating on a single number for your retirement needs, really think about what you will need during retirement. Consider your monthly expenses, as well as whether you will have bigger expenses, such as travel, or the need for private health care. Get down to brass tacks and realistically approach your retirement needs.
Instead of fixating on a specific number, really consider your monthly cash flow needs, and work toward building a portfolio that will provide you with that monthly cash flow.

2. Remember to include debt and taxes

It’s easy to forget about some of our expenses, like debt and taxes. Look at your financial situation. Are you still going to have debt at retirement? If so, you need to figure your debt management plan into your retirement plans. You’ll have to keep paying that debt into retirement if you don’t have it paid off before.
Also, don’t forget about taxes. Are taxes likely to go up before you retire? What can you expect in terms of your income, and what you and your partner will owe? Consider consulting with a tax professional about likely scenarios. If your partner retires at a different time than you, that will make a difference in how much you need for retirement in terms of paying your taxes and meeting other expenses.

3. Don’t get caught up with the 4% rule

Everything is changing with the recent volatility in the markets, and the shifting macroeconomic outlook. As a result, the 4% rule is no longer completely valid. Instead of expecting your portfolio to return 7% annually, so that you can withdraw 4% each year and still beat an assumed 3% inflation rate, you should re-think your strategy. The 4% is likely outdated, and relying on it as you figure out how much you need to build up in your portfolio to outlast your money will likely result in disappointment.
Instead, think about cash flow. How much money will you have coming in each month from various sources? Consider your own portfolio and savings, as well as any passive income you can build up, and any pensions you might be entitled to. Rather than trying to build up a nest egg that can help you follow the 4% rule, think about building up different revenue streams that you can turn to in retirement.
Deciding how much you need for retirement is always a bit tricky. However, if you shed old ideas and look for new ways to provide cash flow, you will be more likely to create a successful financial situation for retirement.


  1. Money Beagle

    Also, don’t forget that you don’t have to contribute to retirement so your 401(k) and IRA contributions can be removed from your ‘total expense’ calculations, which will give you a much more true number of what you’ll need.

  2. Marie at FamilyMoneyValues

    Going along with number 1, simplifying your life in retirement can cut the need for a huge retirement fund.

  3. Jamie

    Getting stuck on the 4% rule is a killer. Just think about how many people have not been able to make 4% per year on their money. Long term government bonds do not pay 4% any more…anyone who bought that advice is really losing out.

  4. High5Financial

    I couldn’t agree more with rethinking the 4% rule. Finance literature still assumes high returns to be the bridge to retirement, The markets are clearly unstable and its hard to tell if it will ever go back to what it once was. Instead I would suggest that if you are locked in with a mortgage over 3.5%, consider putting your money in that. The 3.5% is after tax. The only caveat is that once you put the money in, it becomes illiquid.

Leave a reply

Your email address will not be published. Required fields are marked*