Author Topic: Can someone help me figure this out?  (Read 4612 times)

queenie

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Can someone help me figure this out?
« on: March 26, 2015, 12:54:15 PM »
If I wanted to be able to access retirement funds in 15 years, and to have minimum $3,000 available per month for 10 years (to bridge to a pension), how do I calculate how much I would need at minimum to achieve this goal?

I know that I will earn interest on investments, but unsure how to safely estimate that rate.  I know that RRSP will be taxed on withdrawal, but I don't know how much.  We will just starting our RRSP (I think a Balanced Growth Tangerine account) now with $10k and I feel like I need a goal to build towards or else I just don't know if I'm making meaningful progress.

zolotiyeruki

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Re: Can someone help me figure this out?
« Reply #1 on: March 26, 2015, 02:32:47 PM »
A bit more information would be helpful:  will your pension provide $3k/mo once you're old enough?  Do you want to preserve the balance in your accounts over those 10 years, or will you be comfortable drawing down the balance?

If you're assuming that you'll be drawing down the balance to something near zero, and then your pension will kick in and provide 100% of your living expenses, I'd make sure you have at least $300k saved up by the time you retire.

I'd create a spreadsheet.  In each row, have entries for starting balance, amount spent, amount of expected gains from investments, and ending balance.  Then you can monkey around with your expected returns and your spending level and see how long the money lasts.

queenie

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Re: Can someone help me figure this out?
« Reply #2 on: March 26, 2015, 02:38:41 PM »
Yes, sorry - projected pension payout would be in the neighbourhood of $4k per month but cannot be paid out until age 55 at the earliest.  I'm thinking a minimum amount, assuming that we would be zeroing the savings out at age 55, though I think that ultimately we will aim for higher than that.  I guess that I'm just looking for a minimum amount so that I know that once we hit that we are into "okay" territory.

We could continue to work beyond the 15 year mark, and not rely solely on those savings, but it'd be nice to have the option.

So, aiming for $300,000 for retirement in 15 years ... $20,000 into RRSPs per year seems reasonable as a minimum amount to aim for over these next 15 years?  I'm intimidated by the spreadsheet idea - I've got no idea what to expect from returns on investments, since we are only starting our journey into savings right now.  I've never invested a dollar before this.

We currently have $10,000 sitting in our savings account that can be moved to an RRSP and should be able to reach around $20,000 by year end if we really prioritize it.
« Last Edit: March 26, 2015, 02:42:48 PM by queenie »

MDM

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Re: Can someone help me figure this out?
« Reply #3 on: March 26, 2015, 03:47:29 PM »
I'm intimidated by the spreadsheet idea - I've got no idea what to expect from returns on investments, since we are only starting our journey into savings right now.
Join the crowd and don't feel bad - returns over a 10 year period can be (and have been) widely variable, so nobody knows for sure.  A conservative (i.e., likely but not 100% guaranteed) assumption would be, say, 1%.  That 1% (and all other return% mentioned here) is "above inflation."

You can use the Excel PV function to check the sensitivity of the amount to your assumption for returns.  E.g., for a 1%/yr return compounded monthly you would need $342,450 at the start to spend $3,000/mo for 10 years and end with $0.  Alternatively, you would need to have a 3.74% return to start with $300,000 and spend $3,000/mo for 10 years and end with $0.

queenie

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Re: Can someone help me figure this out?
« Reply #4 on: March 26, 2015, 04:48:24 PM »
Thank you MDM, that is helpful!

lostamonkey

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Re: Can someone help me figure this out?
« Reply #5 on: March 26, 2015, 07:41:08 PM »
The answer to "how much you need" depends on your expected rate of return on your investments. By the way you should look into the MER on your Tangerine fund. Canadian bank tend to charge really high expenses on their mutual funds.

The amount of tax you pay will depend on how which province you live in and if you or your spouse have any other income. If you and your spouse both don't have any other income, you will pay very minimal taxes.

queenie

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Re: Can someone help me figure this out?
« Reply #6 on: March 26, 2015, 08:46:58 PM »
Is there any penalty to withdrawing your RRSP at age 45 as opposed to age 55 or 65 (like with a pension)?

I'll look into the MER on the Tangerine fund ... once I figure out what an MER is.  :/

lostamonkey

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Re: Can someone help me figure this out?
« Reply #7 on: March 26, 2015, 10:10:20 PM »
Is there any penalty to withdrawing your RRSP at age 45 as opposed to age 55 or 65 (like with a pension)?

I'll look into the MER on the Tangerine fund ... once I figure out what an MER is.  :/

No, there is no early withdrawl penalty for RRSPs.

lakemom

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Re: Can someone help me figure this out?
« Reply #8 on: March 27, 2015, 05:18:23 AM »
If I wanted to be able to access retirement funds in 15 years, and to have minimum $3,000 available per month for 10 years (to bridge to a pension), how do I calculate how much I would need at minimum to achieve this goal?

I know that I will earn interest on investments, but unsure how to safely estimate that rate.  I know that RRSP will be taxed on withdrawal, but I don't know how much.  We will just starting our RRSP (I think a Balanced Growth Tangerine account) now with $10k and I feel like I need a goal to build towards or else I just don't know if I'm making meaningful progress.

The short answer would be $360,000 (36,000X10).  That would leave you with very little (if any) in savings when the pension kicks in.  If you wanted a 36,000 income stream and to preserve capital then you'd need 25X36k, so about $900,000 and you would be able to draw 4% per year (36,000) for the remainder of your life while preserving capital.  So I'd venture that somewhere between these two numbers would be your personal sweet spot since you would have the pension kicking in at 55 in an amount greater than your 36k spending projections.

queenie

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Re: Can someone help me figure this out?
« Reply #9 on: March 27, 2015, 05:45:00 AM »
Thanks so much you guys!  I sort of feel stupid now for not realizing that I could just multiply the annual expenses by 10 to get an idea of my minimum number.  But this has been super helpful!  Thank you!  :)

arebelspy

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Re: Can someone help me figure this out?
« Reply #10 on: March 27, 2015, 11:58:46 AM »
Thanks so much you guys!  I sort of feel stupid now for not realizing that I could just multiply the annual expenses by 10 to get an idea of my minimum number.  But this has been super helpful!  Thank you!  :)

As long as your investments are in something stable.

TIPs would be ideal in this situation, IMO, if you do have 10x your annual expenses already saved.
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queenie

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Re: Can someone help me figure this out?
« Reply #11 on: March 27, 2015, 12:07:40 PM »
That's sort of a fluke, arebelspy.  We have had atypical income so far this year which will not be our normal, so aiming for $20k saved per year will be more realistic for us generally speaking (and maybe even ambitious).