Save. Spend. Splurge.

The retirement savings rule: How much do you need to save?

One very simple way to figure out how much you need to save for retirement is to multiply how much you need in retirement, by how many years you expect to live.


Let’s say you want $40,000 in retirement, which will net you about $33,897 after tax in Ontario, or about $2824.75 a month, net.

So if you retire at 65, and plan on living until 80, you have to pay for 15 years of retirement.

15 years x $40,000 = $600,000

That’s it.


If you want to retire early at 50, you’ll need even more money if you want $40,000 a year.

30 years x $40,000 = $1.2 million


If we look at StatsCan to provide us with a life expectancy rate, we get this:

I suggest rounding up to age 80 for men, and age 85 for women just to be sure.

Higher, if your family has a tendency to live longer (like mine).


$40,000 (in today’s dollars) is quite a lot especially if you have a house paid off, or have very low expenses in general.

The problem is inflation, and 30 years from now, it will cost more money to buy an apple then, than it will be today.

If you want to be sure, I’d suggest rounding up to about $50,000 or $60,000 for a conservative requirement for your future purchasing dollars.

This also doesn’t include any Social Security (U.S.) or CPP (Canada) pension plans from the government, or from your employer, so just keep that in mind.



15 years x $60,000 = $900,000


20 years x $60,000 = $1.2 million

If you’re the only person saving (read: single income earner) for 2 in the household, you need to save a total of about $2 million for you and your significant other.


The above doesn’t even take into account that you’ll be saving anything for your kids in terms of education and paying for their college funds.

This is the reason why just simply saving for your own retirement should come before saving for your kids’ education.

You need to make sure you aren’t a financial burden on them in your old age, for two major reasons:

  1. Kind of not fair, unless it was something really out of your control
  2. They may not have the means to take care of you


Can you imagine if you need to go into a nursing home for 24 hour care? That’s going to cost a lot of money, a lot more than what you might imagine, around $1500 a month, which means you need a gross income of about $21,000 in Ontario (before taxes), to pay for your own nursing home.

Not to mention that we’re very lucky to be living in Canada where universal healthcare is provided for, and we don’t need to worry about being slapped with a $10,000 bill just to take an ambulance to the hospital.


If most of your retirement savings is actually locked up in your house, you need to basically consider liquidating your house if it gets to the point where you can’t keep it any longer.

This is the case with my parents, who have most of their personal retirement savings locked up in a house. To retire and use that money in their net worth, they need to sell it.

I think we sometimes forget about that point when we look simply at net worth.


Yep. It doesn’t even include traveling. We’re talking about just covering your basic living expenses.


Photograph I took of Sweden, Stockholm


You have to understand that your retirement is your choice, in that you are presumably saving money now when you’re young, healthy and whole, to be able to not have to wake up and work until you die.

It’s a privilege, not a right.

Lower your current living expenses

If you don’t need as much money, you won’t need to save as much. Theoretically speaking.

How do you lower your current living expenses? Glad you asked.

You first have to know what your living expenses are, and that comes by way of tracking your expenses, against a preliminary budget that you create for what you think you spend each month.

99% guaranteed, you will be just as surprised as I was when I first started budgeting, at how much money was just falling through the cracks and I didn’t even notice it.

Save more money

Don’t like that option? Perhaps you did the numbers and you STILL need that money in retirement.

In that case, I suggest you save more money for retirement.

How do you save more money for retirement without lowering your current living expenses? Make more money.

Retire somewhere cheap

There are plenty of countries around the world today that only need $10,000 a year to live like a king.

In Britain, most pensioners tend to flee to the south, and with their very strong pound, they can buy a small house somewhere in the countryside of France, Spain or Portugal, and live quite happily.

North Americans can do the same thing — go south to South America, go to Asia, or how about Europe?

These are all possible options, but it only means you won’t be staying in Canada or the U.S.


Don’t retire at all

The final option is to work well into your retirement age. Don’t retire at all.

Work until the day you die. That’s kind of the only option left if you aren’t able to meet your retirement savings goal and you don’t want to move.

If this is depressing in the slightest, you should re-read the above paragraphs on lowering your current lifestyle expenses, retiring somewhere cheaper, and saving more money again.


I’ve always held fast to at least having $1 million by the time I retire, knowing that I am willing to move and live somewhere cheap, and that I don’t have to worry about saving for BF (he has to come up with his own million).

I am absolutely able to live on less if I put my mind to it, and if there’s no other option but to do so.

With that in mind, if I were to retire at 55 (conservative, I may work longer), requiring about $40,000 gross a year, and living until 90, this is what I need:

35 years x $40,000 = $1.4 million

This might seem like I’m $400,000 off, but there are 2 things I’m keeping in mind:

1. I can still expect to get something from the Canadian government

I don’t know what it is, so I put it at $0, but I know it’s at least $100/month.

2. If I continue to bank an average of $50,000 a year for 35 years I get a lot more at the end than $1.4 million

35 years x $50,000 = $1,750,000

If I imagine that I’ll get about 5% interest (very conservative long-term rate) on my savings over time via investing, and I started with a balance of $200,000, I will have:


…by the time I retire at 55.

Even if I only earn 1% interest on my savings, I will have:


…by the time I retire at 55, which is still well over my $1.4 million estimate. Heck I could probably retire sooner.

Or if I wanted to retire at 50, I just have to save more than $50,000 a year.

Anyway, these are all numbers I play with to motivate myself.

It’s kind of overkill, but better safe than sorry. I still stick to needing about $1 million to $1.5 million when I retire, but I’m comforted by the fact that if I miss my goals in some years of not saving $50,000 I’ll still be all right.

I just need an average of $50,000 saved for about 35 years.



  • Lila

    This weekend I read “Stop Worrying…Start Living” by Dianne Nahirny, she’s a Canadian who retired at age 36. She worked at jobs that made $20,000 and she had $300,000 (this includes her paid off house) by the time that she retired. She didn’t win the lottery, nor win an inheritance.

    She believes that financial advisers overstate how much money you need to actually retire. She lives a middle-class lifestyle according to her, keep in mind this book was published in 2001 and she didn’t have a husband or children at the time of publishing.

    I looked her up on the web but she doesn’t have a website. She didn’t graduate from university or college either yet she was able to do this. Now I don’t want to retire that young but its an example of how you can save your money and invest it regardless of your income.

    I also read Mr. Money Mustache’s blog. He worked as a computer engineer and so did his wife, they retired in their thirties as well. They live in Colorado, have a $400k house they got for $350,000 and the house is also paid off.

    They live a nice middle-class lifestyle for under $30,000 because they have no mortgage, no debt, they have one kid though. I’m not sure how many kids they have but I know they have at least one. Anyway it’s interesting what people can accomplish when they have certain goals for their money.

    I don’t want to retire that young but their stories are inspiring because regardless of how much or how little you make, their stories show it’s possible to save for your future.

    I’ve read other stories about people who inherited millions like MC Hammer or won the lottery and ended up broke. It seems to me it doesn’t matter how much money you have (whether you earned it or inherited it), what matters is how you spend it and how much you spend.

    • save. spend. splurge.

      @Lila: I’d totally agree with this. I myself do not want to live on very little money, which is why I need more than $300,000 to retire.

      My plan is to have a place paid off by the time I retire, with at least $1 million saved in the bank, invested in index funds etc. That should more than cover any condo fees (I plan on a condo), small trips and the kind of lifestyle I want to lead even in retirement.

      If I wanted to, I could retire on a lot less, but I do not want to bike in winter (for instance) to get anywhere, and I do not want to compromise on living the way I want to.

  • Ree Klein

    You’re thinking of this like I used to. Now I flip the problem over like this:

    1. How much income do I need in retirement? $65k/yr USD.
    2. How much do I need in investments to allow me to withdraw 4% and achieve that income amount? $1,625,000.

    This doesn’t factor in how long I expect to live, which I think is a dangerous approach because we don’t really know when we’ll exit this planet.

    Using my current approach (which is pretty much an industry standard), you will most likely not erode your principal (economic swings will average out high and low years). That gives you some back up in the event you need long-term care at the end of your life.

    Thanks for opening a good conversation; I know there are a lot of “right” ways to accomplish a goal.

    Cheers ~

  • Laurie @thefrugalfarmer

    Great and thorough post. Thinking about your parents, do you guys have reverse mortgages there? We have them here, and the mortgage company will give you a set amount of money each month to live on, creating a mortgage debt balance, which is then paid off when the home is sold. It can be a little bit risky, but can also be a good option for retired people who have a good chunk of their retirement savings tied up in their home and don’t want to move.

  • maria@moneyprinciple

    Yep, we’ve run our numbers; this is how we came up with our current financial goal. We are also lucky that we already have quite good occupational retirement plans – it is just that I want to make a run for it before I am 67 or something. I want not to have to be employed by the time I am 55 – I’ll still work and in all likelyhood earn quite a bit. Still, want to have choice. (the picture of Stockholm is lovely; I usually go there in the winter and never noticed the bright colours).

  • Tammy R

    Very sobering and so important. Thank you so much for running these numbers, Mochimac. I know we all need to run our own, but I really appreciate you taking the time to do all this work. While we do have retirement accounts, Teacher Retirement moneys (some, we only worked 10 and 7 years) and possibly a teeny weenie bit of Social Security, we have a lot of saving to do. Luckily we have already started simplifying, paying down debt, etc. We’re a cheap date! 😉

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