Retirement – How Much Do You Really Need?

It seems like there is a constant flow of articles and news featuring people who don’t know how much to save for retirement. It is easy to sympathize with this problem but even after reading the articles I don’t feel like there is a clear answer on how much to save. There are many ‘rules’ that all seem to have as many pros as cons. I am going to breakdown a couple rules and how I got to my retirement savings goal.

A Million Dollars

This is as simple as it sounds – you should save $1,000,000 to retire. While saving a million dollars is a great goal and has status symbol of being able to call yourself a millionaire there isn’t much grounding in fact. Looking at the math (using the rule of 4%) you would be able to take out $40,000 a year.


  • It is easy
  • It is widely accepted in popular culture so you wouldn’t have to answer many questions


  • Generic –it does not take your lifestyle into consideration
  • Doesn’t take market conditions into account
  • There are a real lack of facts

Eight times your final salary

This seems like a reasonable and achievable goal. It is tied to how much income you are accustomed to as well as your saving potential. However, it doesn’t give you as much money as you may need in retirement. If you make $75,000 a year when you retire you would need $600,000 in retirement savings. This would budget for $24,000 year. That might be the right number from you but for most people, dropping your income to a third of it was before retirement would take some time to get used to.


  • Takes life style inflation into account – few people live at age 60 like they did after their first job
  • Good check point when you are close to retiring


  • Hard to plan for in your early career when you don’t know the target number
  • Doesn’t take spending habits into consideration

The four percent rule

You should be able to live on 4% of your total savings during retirement. The logic is that even in poor financial times withdrawing 4% or less of your savings each year will last you for 33 years. So if you save $1.5 million for retirement you should be able to withdraw $60,000 a year ($1.5m*.04).


  • It is grounded in facts and inflation
  • Can customize it to any savings goals you want
  • Great starting point for your estimates


  • Does not take into account times of low inflation (like now)
  • Not easy to adjust if you want to retire early

Multiply by 25 Rule

This rule tells you to take the amount you will need every year of retirement and multiply it by 25. This is how much you have to save up before retiring. In this case 25 years is not how long you will be retired for but rather takes into account inflation. This rule is based on the four percent rule, but reversed. If you want to be able to withdraw $60,000 per year of retirement you need to save $1.5 million ($60k*25).


  • It is grounded in facts
  • Can customize it to any spending level you want
  • Great starting point for your estimates


  • Does not take into account times of low inflation (like now)
  • Early retirement can be roughly estimated for by increasing 25 to 30

Some questions to ask yourself when retirement planning:

What kind of retirement lifestyle do you plan on having?
If you own your home will you live in it or are you counting on selling it?
Does your company have any retirement benefits?
Are you eligible for government retirement benefits?
What are the tax implications? If you saved in an RRSP you will need to pay tax when you withdraw.

What is my retirement plan?

I didn’t find any of these ‘rules’ really gave me any more information than save… a lot. I want to be able to retire at 60 even if I don’t. I don’t want to chance outliving my money so will plan to live until mid-90s. Based on this I am expecting to:

  • Work until I am 60
  • Retire for 35 years
  • Travel
  • Stay in my home
  • Use company benefits, government benefits, and my RRSP

I used the Government of Canada calculator. It is step by step and very detailed (which I love) and based on this if I save $10,000 a year and assume 5% inflation per year I will have more than I need to retirement.

Start saving for your retirement now with these three steps:

  1. Decide on an estimate for your retirement needs
    • Don’t let not being sure of the exact number stop you from setting a starting point
    • If and doubt save more not less than you think you will need and take advantage of compound interest
  2. Maximize any benefits you have
    • Find out if your company has retirement benefits and how you can opt into them
    • Open an RRSP and a TFSA and start contributing to them regularly
  3. Set up regular contributions
  4. Setting automatic investments takes the effort and discipline out of saving

More resources to consider

The government of Canada has a great calculator that takes into accounts many types of savings and government benefits.

Investopedia gives you some details on the math behind the four percent rule and the multiply by 25 rule.

If you are a woman the NGO Wiser Woman is dedicated to ‘Improving the long-term financial security of all women through education and advocacy.’ They have lots of information for men and women although read with caution as the specifics are American.

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