Vishesh is the founder of Sharpe Ascension - a financial content marketing agency based in Toronto. His investments and research are focused on FinTech, Bitcoin, AI, EVs, SaaS, green energy and telehealth stocks. Website: www.SharpeAscension.com | Twitter: @Visheshrr
Most financial experts claim that people need at least $1.5 million in savings to retire comfortably. With today’s high cost of living and low rate of interest, they’re not wrong. However, very few Canadian households ever accumulate that sum of money.
In fact, only 3.5% of the country’s population has a net worth exceeding $1 million, and most of their assets are locked in their primary residence. The median household wealth is estimated to be around $300,000, while the average wealth is estimated at $400,000.
So, if you have financial assets in line with the national average — roughly $350,000 — can you retire comfortably? The short answer is maybe, but only if you take some extraordinary steps for this extraordinary outcome. Here’s how you can achieve this.
High dividend yields + systematic withdrawals
Traditionally, retirees depend on the interest or dividends from their stocks and savings accounts to meet living expenses. In other words, investors can rely on passive income from high-yield assets.
Others are advised to sell a portion of their investments every year to meet their spending needs. According to the common rule of thumb, savers can safely withdraw 4% of their assets without running out of money. This is also known as a systematic withdrawal plan.
While those two techniques could work for retirees with larger nest eggs, savers with a modest amount may have to combine them both.
Targeting high dividend stocks could be a part of the solution. Robust and reliable stocks like BCE and RioCan Real Estate Investment Trust already offer dividend yields exceeding 5%.
Investors with an appetite for risk and more experience analyzing stocks could venture further than the blue-chip companies in their search for higher yields. Lesser known and seemingly riskier stocks like Vermilion Energy or Chemtrade Logistics offer dividend yields as high as 14.3%.
Investors can supplement this yield with a systematic withdrawal plan that offloads 4-5% of assets every year. A well-diversified portfolio of stocks that broadly tracks the TSX Index should deliver roughly 6% in annual capital appreciation over the long term, so this withdrawal plan doesn’t grievously erode the nest egg.
In effect, by combining the two strategies, investors can derive a 10% cash flow on their assets. On an account worth $350,000, that implies $35,000 in annual cash flow, which is roughly in line with Canada’s median individual income.
While that amount of money won’t be enough for families living in pricey parts of the country, like Toronto or Vancouver, or meet the needs of families with young kids, it should suffice the average empty-nester living in any other part of the country.
Bottom line
Retiring on $350,000 is difficult but not impossible. Most investors can deploy a strategy of investing in robust high-yield dividend stocks along with a systematic withdrawal plan to retire on their investments.
However, the amount generated by doing so on a smaller asset base won’t be enough for families with young children or retirees in major cities. For the average, retirement-age, prudent Canadian investor, $350,000 may be just enough to live on. However, much more would be needed for a comfortable retirement.
$300k is sufficient for many people to retire, in part because you can avoid some of the biggest tax hurdles that may arise for more wealthy retirees. That said, whether or not it's enough depends on your circ*mstances (spending levels, location, health, and more).
As mentioned, if you have $300,000 in savings, you are likely in a comfortable position for retirement if you plan appropriately. Adding Social Security benefits here can only help bolster your retirement income and make retiring on $300k even more accessible.
If you retire with no money, you'll have to consider ways to create income to pay for your living expenses. That might include applying for Social Security retirement benefits, getting a reverse mortgage if you own a home, or starting a side hustle or part-time job to generate a steady paycheck.
The $1,000 per month rule is designed to help you estimate the amount of savings required to generate a steady monthly income during retirement. According to this rule, for every $240,000 you save, you can withdraw $1,000 per month if you stick to a 5% annual withdrawal rate.
The ideal monthly retirement income for a couple differs for everyone. It depends on your personal preferences, past accomplishments, and retirement plans. Some valuable perspective can be found in the 2022 US Census Bureau's median income for couples 65 and over: $76,490 annually or about $6,374 monthly.
350k is 3% for the entire USA [1]. For somewhere like California if your _household_ isn't making $1M you're not 1% [2]. Even in the poorest state (West Virginia) if you lived alone then you're not even a 1%-er. People really do think of themselves as at the top when they're not.
Assuming an inflation rate of 4% and a conservative after-tax rate of return of 5%, you should aim for a savings target of $1.3 million to fund a 30-year retirement that begins at age 67. This would give you an investment portfolio that produces about $50,000 a year in income.
If you have $300,000 and withdraw 4% per year, that number could last you roughly 25 years. Thats $12,000, which is not enough to live on its own unless you have additional income like Social Security and own your own place. Luckily, that $300,000 can go up if you invest it.
Has your income declined or have you experienced a loss of financial resources? You may be able to get additional income through the Supplemental Security Income program, which helps seniors and the disabled who have limited income and financial resources.
For most retirees, Social Security and (to a lesser degree) pensions are the two primary sources of regular income in retirement. You usually can collect these payments early—at age 62 for Social Security and sometimes as early as age 55 with a pension.
20% of adults ages 50+ have no retirement savings, 61% worry they won't have enough at retirement, as per new AARP survey. Plus six tips to start saving now.
One rule of thumb is that you'll need 70% of your pre-retirement yearly salary to live comfortably. That might be enough if you've paid off your mortgage and are in excellent health when you kiss the office good-bye.
Summary. Retiring with $200,000 in savings will roughly equate to $15,000 annual income across 20 years. If you choose to retire early, you will need additional savings in order to have a comfortable retirement.
According to a study conducted by GoBankingRates, 25% of respondents say they plan to live on just $1500 per month. While this may sound challenging as this amount is close to the poverty level for a family of two, it does not include housing costs.
You can retire comfortably on $3,000 a month in retirement income by choosing to retire in a place with a cost of living that matches your financial resources. Housing cost is the key factor since it's both the largest component of retiree budgets and the household cost that varies most according to geography.
How long will $300,000 last in retirement? If you have $300,000 and withdraw 4% per year, that number could last you roughly 25 years. Thats $12,000, which is not enough to live on its own unless you have additional income like Social Security and own your own place. Luckily, that $300,000 can go up if you invest it.
By age 35, aim to save one to one-and-a-half times your current salary for retirement. By age 50, that goal is three-and-a-half to six times your salary. By age 60, your retirement savings goal may be six to 11-times your salary. Ranges increase with age to account for a wide variety of incomes and situations.
Is Earning $350,000 A Year Considered Rich? At $350,000 a year, you're living a upper middle class lifestyle in an expensive coastal city. In a heartland or southern city, earning $350,000 a year is considered rich.
£300k in a pension isn't a huge amount to retire on at the fairly young age of 60, but it's possible for certain lifestyles depending on how your pension fund performs while you're retired and how much you need to live on.
Introduction: My name is Eusebia Nader, I am a encouraging, brainy, lively, nice, famous, healthy, clever person who loves writing and wants to share my knowledge and understanding with you.
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