In Discussions, Money, Retirement

How should you calculate how much you need to save for retirement?

What I struggled with before was trying to figure out how much as a dollar amount I needed to save.

It’s really hard to think about how much you might need in the future:

Did I save too little and will now have to eat fancy cat food?

(And exactly how fancy of cat food could I afford?)

Or did I save too much at the expense of my own happiness?

Very possible for some frugal-ites out there.

RESEARCH INTO HOW MUCH YOU THINK YOU MIGHT NEED

I had tried a whole whack of retirement calculators to figure this out, entering the following variables which are a little conservative to be on the safe side:

  • Age: 29
  • Desired retirement age: 55 (just a conservative guess)
  • Years of retirement: 35-40* (90 years – 95 years)
  • Current income: $60,000**
  • Required (gross) income in today’s dollars at retirement: $40,000 or 75% of $60,000***
  • Estimated growth of investments: 6%
  • Estimated inflation: 3%
  • Estimated extra retirement income from any sources: $0****
  • General goal is to reach at least $1M in retirement, but that’s just my savings alone

NOTES

*I put the maximum because one side of my family has a very good history of living to at least 90, and I like being conservative.

**Average estimate based on the fact that I’ve worked 2 out of 5 years, but make good money when I do work.

I should also mention that as a freelancer, I will keep most of my money IN my company, and withdraw the minimum I need to live each year, so that it can grow in the company, without being taxed twice (once when I do the company taxes, and twice when I do my own personal taxes).

…This is what people refer to as unrealized income, in financial-speak. I only take the money out as dividends as the sole shareholder, and I keep the rest in the company as my retirement nest egg.


***I could easily live on this if I set my mind to it. It’s quite generous.

****Any government retirement income such as social security, or my Canadian Pension Plan is considered $0 to me, as I am a freelancer and I don’t really pay into those plans because I take the money out as dividends and it is not counted as ‘earned income’

HERE ARE THE FOLLOWING RESULTS

TD CANADA TRUST RETIREMENT CALCULATOR = $254.75/month

Notes:

  • Had to play around with the numbers and put in to save $3057/year to get the amount below

TD-Canada-Trust-Retirement-Calculator-3000-yearly

 

FINRA RETIREMENT CALCULATOR = $833.18/month

KIPLINGER RETIREMENT CALCULATOR = $1488/month

Notes:

  1. 35 years in retirement
  2. 6% conservative estimate
  3. 75% of $60,000 = $45,000 net in today’s dollars

BLOOMBERG RETIREMENT CALCULATOR = $1523.48/month

Bloomberg-Retirement-Calculators-1500-a-month

MSN MONEY RETIREMENT CALCULATOR = $1830/month

Notes:

  1. For the sake of knowing how much to save now, I put $0 as annual savings

 

CHARLES SCHWAB RETIREMENT CALCULATOR = $2208.33

Charles-Schwab-Retirement-Calculator-26500-yearly

THEY ALL HAVE A VERY BROAD RANGE

Going from $275 to $2209 of savings a month, it can be really hard to figure out which one is “real” so to speak.

It can be easy to say: Oh hey, that $275 a month? That works for me! Done and DONE.

…but do you really want to bet that you should save less now, and you will change your lifestyle in the future when you’re old to become more frugal?

You could actually go the other way and end up spending more than you expected.

FIGURE OUT THE AVERAGE FOR A BENCHMARK

At this point, what you can do is figure out the average, which in this case was $1356.29.

If you rounded it up to a nice number like $1500, that could be considered my “minimum” for saving, if I wanted to feel like I’ve done enough to hit a bare minimum.

To have a slightly more comfortable peace of mind, you could go up to $2000, and I’m sure that would be more than enough for you.

However if you are anything like me, (paranoid I will be eating Meowmix when I’m 95), I doubled that $1500 to $3000 to be on the safe side, plus accounting for the fact that I will probably have expenses I have not foreseen in the future:

  • medical expenses
  • grandchildren to spoil
  • traveling to European countrysides where I eat cheese all day long

Thus, I will always try to meet this goal of saving at least $36,000 net a year, and while it isn’t easy, it’s a nice number that will set my mind at ease if I hit it each year.

OH AND DON’T FORGET TO NOT COUNT YOUR SIGNIFICANT OTHERS

I am planning on saving all of this money on my own, and my overall goal is to reach about $1,000,000 in retirement. Should be enough.

I am not counting any kind of government pension, windfalls, inheritances (haha!), or my significant others’ income. I’d rather all of that be a happy bonus, and not something to actually factor in and count on.

It spurs me on to save more.

Maybe it sounds like it’s overkill to you, but the way I see it — as I make an extraordinary income, I should also save an extraordinary amount as well.

After all, if I spent more money each year on my current wants, I’d just get used to them (lifestyle inflation) and start upping the ante for future years, which will end badly, I’m sure of it.

HOW DO YOU FIGURE OUT HOW MUCH TO SAVE FOR RETIREMENT?

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Sherry of Save. Spend. Splurge.

Am my own Sugar Daddy. Am a millionaire at 36 after getting out of $60K of student debt in 18 months, a little over a decade earlier, using TheBudgetingTool.com. I have worked 50% of my career (taking 1-2 year breaks), and quadrupled my income within 2 years of graduating, going from $65K to $260K with an average lifetime savings rate of 50%. I have 11 side incomes that are on track in 2020 to make me $50K - $75K. I could retire today if I wanted, but love my work-life balance as a freelancing consultant in STEM (Science, Technology, Engineering, Math). I am all about balance - between time and money, and also enjoying my money. I also post daily on Instagram @saverspender.

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11 Comments

  1. PK

    ” as I am a freelancer and I don’t really pay into those plans because I take the money out as dividends and it is not counted as ‘earned income’” – What? One percenter tax evader!

    Kidding – good for you understanding the law. I think for the planning I’ve done, it’s mostly just “what do you think you’ll spend, times 25”. Crude, sure, but as a minimum I’m pretty happy.

    Reply
    1. saverspender @ save. spend. splurge.

      Yes I skirt the tax law legally!!!

      Reply
  2. Tammy R

    In answer to your question: we read your blog and others like it.

    I think you bring up some great points about being frugal and eating cat food. We got really serious about finances and tied up some very loose ends. It felt great. Then we realized we were probably going a bit overboard and scaled back. It’s no fun to sit at home and stare at the wall. There is such a thing as too much frugality. Each person has to decide what that is for them, and I do not condone reckless spending (it irks me), but in order to maintain my good nature, I have to feed it with fun.

    Reply
    1. saverspender @ save. spend. splurge.

      Mine weakness is with clothes!

      Reply
  3. cj

    I really love the “whole whack” phrase and I am officially adopting it for my own horseplay. You’ll get credit of course.

    This is an excellent exercise in facing reality. Numbers, especially combined with age and money, have this effect.

    We have not done this homework on our retirement, but we are ridding ourselves of debt, we both have IRAs and we are reading sites like yours to get an idea.

    Have a fun day, Mochimac!!!

    Reply
    1. saverspender @ save. spend. splurge.

      Makes you think of whack a mole right?

      Reply
  4. maz

    Interesting post, as usual. Got me thinking actually. The way I save for my retirement is relatively simply, maybe naïve actually but I figured: a) by the time I retire, both houses will be paid ( we’re almost done actually ) b) all the electricity / gas & water bills will still applied c) I did a compilation of the last 3 years in terms of expenses ( everything included from petrol, insurance, entertainment to weekly shopping ) … and figure we’ll still be spending the same average amount each month. Based on the above, I worked out how much we would need each month & added a 15% contingency. I now know how much I need/aim to save to have a ” happy ” retirement ( well moneywise at least ). Trust that makes sense.

    Reply
    1. saverspender @ save. spend. splurge.

      It all made perfect sense to me. You have a home already set up which is the main concern of those on lower budgets near retirement.

      Reply
  5. Jane Savers @ Solving The Money Puzzle

    Something is a little off with your website these last few days. I would use the word wonky to describe what I am seeing.

    I am planning on a bare bones retirement of $150,000 in my private accounts, $45,000 in my employer pension and some money from the 3 different Canadian government pensions.

    I will not be eating cheese in France. I will be reading about you eating cheese in France.

    Reply
    1. saverspender @ save. spend. splurge.

      It went nuts just before I left for Paris. I have no idea how to fix it but I will figure it out when I come back.

      Reply

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