Retirement Forecast

November 19, 2012 Permalink

Cassie wrote a post called “I don’t think I want to be rich” wherein she looked at where she’d be if she didn’t change a thing and continued to do what she is currently doing.

This made my planning heart smile, and I wanted to see what I’d be looking at if I did the same thing.

Retirement Accounts

For the purposes of these calculations, I’m going to assume I retire at 65 and that I will live for 25 years in retirement. While I do hope to retire early, I think that dying at 90 is about right. My maternal great grandmother lived to be 96 (I think) and my paternal grandmother is in her late 80′s.

I’m also going to assume a 4% rate of return on both my pension and my RRSP. This is fairly conservative.

Pension

As it stands, I have a pension of 16% of my wage. I contribute 6%, and my employer contributes 10%.

Assuming I never get a raise, and that I never leave my job and keep working away and contributing to this pension at the same rate, this is around $306/month.

My pension will be about $544,746 if I never do anything differently. 

RRSP

I also have an RRSP. This is a vehicle that I contribute to alone. I contribute about $100/month, which isn’t a ton but will increase eventually I’m sure.

But assuming that I continue to contribute only $100/month for the rest of my working life, at a rate of 4%:

My RRSP will be about $181,717 if I never do anything differently.

 

This is a combined total of $726,463, or $29,058.42/year if there is no return on the remaining balance at all.

Assets

Real Estate

I’m a huge advocate for home ownership, and can’t imagine renting for life. Because of this, the boy & I plan on buying a home in early 2013.

Assuming that we get a house for $450,000, and the market does absolutely nothing in 40 years (for the purposes of this post. I don’t actually think it’s going to be stagnant for 40 years, or even 1 year), and we stay in the same house for the entire time and never move (unlikely, but let’s just pretend), and we don’t do any improvements on our home at all, we would have $450,000 in real estate when we retire.

If we buy a house in 2013, I’ll be 24 when we bought it and, assuming we don’t try at all to pay it off more quickly than the 25 year amortization period, we’ll have the house paid off when I’m 49 and the boy is 52. 

Assuming that we won’t want to upkeep our house when we’re in our 60′s, we’d likely sell and buy a condo or a townhouse, which are substantially cheaper. So I’m sure we’ll come out ahead, but:

By the time we’re 49 and 52, we’ll have $450,000 worth of equity in our future house. 

Vehicles etc

I don’t like including vehicles and the like into net worth calculations because frankly, they’re a depreciating “asset” and to me it’s like including my coffee machine in my net worth calculation. Yes, I could sell it for money should I be desperate enough but would I? Likely not.

So, I’m not going to include them. In retirement, I’m not going to be taking the bus with the hooligans (I don’t even do it now – why would I do it when I’m 65?) and adding my car into this calculation really won’t do much for me.

We would also love to eventually buy a recreational property near a body of water (how’s that for a blank canvas) but because I’ve assumed in this calculation that I’m never getting a raise, I wouldn’t be able to afford it anyway on my salary until after we paid off the house, so I’m not going to include that in this calculation either.

The assets from our real estate purchase will bring us to around $450,000, if there is no increase in property value at all in 40+ years. 

Total: If I only have my savings and the value of the property involved, at retirement, I will be worth $951,463 (retirement accounts + 1/2 property value (other half going to the boy)).

Is this adequate?

I don’t know. Assuming we never sell the house and live in it until death (no downsizing), and my retirement accounts grow not at all when I’m retired, and also assuming that we simply squander all of our would-be mortgage payments irresponsibly instead of saving it once it’s paid off, I would be living on:

$29,058.52/year

This isn’t half bad since there would be NO mortgage payments at all, and this is not taking into account any government pension (in the case that it still exists) or my husband’s retirement account. This is for JUST me.

 

Do you think $29,058.52/year is livable in retirement?

28 Comments
  • Glen @ Monster Piggy Bank
    November 19, 2012

    Nice run down on your finances.

    I’m not sure I could live on $29,000 a year in retirement. I have always thought for my retirement I will need between 50-75% of what I earn now. The way I see it is that I will have heaps more spare time and so I will likely end up spending more money to keep myself amused.

    Thinking about it a different way – you will need to think about inflation, the way central banks are printing money at the moment 29K won’t be able to buy much more than a big screen TV by the time you are retirement age :(

  • John S @ Frugal Rules
    November 19, 2012

    Good run down of the numbers. I don’t know if it would be enough to live on, not knowing the cost of living, etc where you live. I would agree with Glen that inflation will be key in your numbers, as it will be for all of us.

  • Mrs. Pop @ Planting Our Pennies
    November 19, 2012

    Your numbers might be totally realistic if the BF has similar numbers and will be splitting the bills with you. But like others mentioned, inflation is the big key that we don’t know…

    That said, one of the things you should remember is that your numbers implicitly assume that you sell the house and live off the proceeds of the sale. Reverse mortgages are another way to draw money from real estate when you’re old, but they’re pretty skuzzy in the grand scheme of things.

    • Daisy
      November 19, 2012

      No – the $29,000+ number does not assume I sell the house. I mention being WORTH that much, then that $29,000+ total mentioned says that I am assuming that I don’t sell the house and live in it.

  • Liquid
    November 19, 2012

    This is a great exercise in retirement planning. I believe $29K a year will be enough, especially if you don’t have mortgage payments anymore. And the good news is because your numbers are fairly conservative, you’ll likely end up with even more :D I think OAS might be cut back, even though it’s suppose to be indexed to inflation, but CPP looks very well funded and self sufficient even going into the future. If you do end up requiring more money in retirement you could always rent out a basement suite or something :D

  • Michelle
    November 19, 2012

    Not having any debt would definitely help, but with inflation factored in, $29K might be a little low. Of course it will probably be doable though since you will have more time to cook more frugally, among other things.

  • Catherine
    November 19, 2012

    You’re forgetting to factor in what you’ll get from CPP/Old age in Canada! Although not a ton it’s still something!

  • TB at BLueCollarWorkman
    November 19, 2012

    I definitely do. Without a mortgage or other debts, you’ll have tons more money freed up every month. We get more tired as we get older, so you might not be going out as much which will cost less. Yeah, I think its’ doable.

  • Lance@MoneyLife&More
    November 19, 2012

    If the $29,000 is in today’s dollars then yes. If it is in inflated 40 years from now dollars I would have to say no way if you want a comfortable retirement.

  • femmefrugality
    November 19, 2012

    Super interesting! I think that amount would be enough in today’s economy. But probably not by the time we’re ready for retirement. Inflation’s a b*tch.

  • Cassie
    November 19, 2012

    Thanks for the link love Daisy :) I think what you have calculated is completely doable. Like others have commented above, the chances of you earning 4% over a 41 year time span is pretty low, so you’ll probably come out with more than you expect. If you didn’t fritter your mortgage money once it’s paid off, you’ll similarly have more to work with. As it stands though, if The Boy retires with a similar amount, you’re looking at almost $60,000, with no mortgage, even if the government contributes nothing. Even if inflation eats half of that by the time you retire, that’s $2,500 a month gross with minimal housing costs. It wouldn’t be a spendy retirement, but it would be doable.

  • Money Bulldog
    November 19, 2012

    Sounds like you’re well set up Daisy. I think it’s good you havn’t factored in any wage increases as inflation would likely erode them anyway. If you do buy a house you should be sitting on a nice little nest egg aswell. Great Job!!

  • Cat
    November 19, 2012

    I think so. You’ll have no commuting costs, won’t need much in the way of clothes, no mortgage, etc.

  • Jason @ WSL
    November 19, 2012

    Very good breakdown! I personally couldn’t live off $29,000 in retirement; that’s the time my wife and I plan to travel the most, so I’m sure we’d blow through that on traveling alone! :)

  • Mo' Money Mo' Houses
    November 19, 2012

    I think that’s a livable money number to live on, especially if you don’t have house payments. Great post!

  • K.K. @ Living Debt Free Rocks!
    November 19, 2012

    Is it doable? Yes I believe so? Would you want to? That is entirely another question lol. As many have said inflation is an important factor however if you live simply and your home is already paid off by the time you retire, along with no other debts it is workable.

  • Pauline
    November 19, 2012

    It sounds doable to live on $30K with no mortgage, and with a second pension you should be perfectly fine. Plus you haven’t accounted for pay raises, that should more than cover inflation.

  • eemusings
    November 19, 2012

    Given that you’ll no longer have housing costs (the largest part of any budget), I definitely think so.

  • The Asian Pear
    November 19, 2012

    $29K which does not factor into inflation is still a bit low. While your house mortgage may be paid off, I think you should take into consideration what you want to do with your life. Some people want to travel in their retirement years and you should take this into account. Also, if you expect to live to a certain age, the cost should be taken into account as well.

  • Bridget
    November 19, 2012

    Probably liveable but I wouldn’t want it (but I’m also not sold on the home ownership thing)

    Interesting calculations though.. wonder what mine would be.. but I don’t intend to stay at my current job/income for more than 3-5 more years ;)

  • Edward Antrobus
    November 19, 2012

    It would be easy to live on that level for me, especially with no mortgage and assuming all other debts were paid off. That’s more than my wife and I lived on when we first got married 3 years ago.

    I haven’t run the numbers for a while, but I’m pretty sure I’m close to being on track. That’s pretty easy for me since I hope to be retired no more than 5 years and ideally less than 1. Longevity genes aren’t in my family!

  • Jefferson @SeeDebtRun
    November 20, 2012

    I understand where you are with these numbers, but I personally don’t think that would be enough for us… I don’t want my retirement to be spent sitting around, scraping by to pay my bills, and watching television… I want to spend that time to travel around the world and have new and exciting experiences. For that, I will certainly need more than 23k/yearly..

    -j-

  • SWR
    November 20, 2012

    You could probably make it in today’s dollars, but I know I wouldn’t want to.

    Also- neighborhoods change. Just in case the area you buy your home in changes drastically when you’re retired, I would hate to not have enough to be able to move somewhere safer.

  • Jordann @ My Alternate Life
    November 20, 2012

    Hmm…depends on what type of retirement you want to have. If it’s travelling the world, 30k probably wouldn’t do it. If it’s stay at home and play with your grand kids, 30k might be enough. The thing I hate about planning for retirement is that there are just so many variables to consider.

  • Brian
    November 20, 2012

    Totally doable. As long as your house is paid off, most of your expenses will be relatively fixed (I’m assuming you can do a “budget billing” with your utility companies and pay the same amount each month). You won’t be jet setting around the world, but people live on less than that now AND pay rent.

  • Canadianbudgetbinder
    November 20, 2012

    Hmm, I don’t know if we could live on $29k a year when we retire although I have it in my head that $29K is going to be worth peanuts and a sack of corn by the time I’m on the retirement boat. I don’t know how much we really need but I do know that when we retire we want to travel as much as we can while our health is good. We have the money to pay our house off now and we are in our 30′s so unless prices don’t go nutty and travelling stays at a decent price we should be ok, I think. Where is that crystal ball again… I keep losing it. Mr.CBB Great post!

  • Jacob @ iheartbudgets
    November 20, 2012

    I think you’re good to go even if you don’t change a thing. You are being super conservative with those numbers, I bet you can easliy get more. I don’t know about inflation, so you might want to look into projections for that and look at your potential budget in the future with the inflation numbers I mind.

    I would personally hope to have a bit more than $30 a year when retired because I want to travel more often, but with only minor expenses, I bet it’s still possible to do some great traveling on $2,500 a month.

  • My Money Design
    November 21, 2012

    I LOVE that you put the effort into trying to figure this out! I really wish more people would actually sit down and give this some thought. They might change course or do things a little more differently if they did.

    Here’s my plan for retirement:
    http://www.mymoneydesign.com/personal-finance-2/retirement/money-design-achieving-financial-freedom-nov-12/

    For myself, I don’t think I could do $29K per year. I’m shooting for +$60K, and I want to do it by age 45! Are there any other retirement or tax-sheltered plans you could invest in? What about non-tax sheltered plans?

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