If you’re nearing retirement, this is likely one of the biggest questions on your mind. And while it’s not a one-size-fits-all answer, there is a process you can follow to find out what’s realistic for you.
Here’s how we help our clients figure it out, and how you can do it yourself.
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Step 1: Define Your Retirement Timeline
Start by asking yourself: When do I want to retire?
- 1 year from now?
- 3 years? 5 years?
Also decide on a life expectancy. We typically use age 90 for planning, but you can adjust based on your own expectations.
Step 2: List All Your Retirement Resources
Next, figure out what sources of income and assets you’ll have when you retire. This includes:
- CPP and Old Age Security
- Employer pensions
- RRSPs, TFSAs, and other savings
- Business or rental income
- Home equity
- Potential inheritance
It’s important to look at everything you’ll have access to, both guaranteed income and invested assets.
Step 3: Estimate Your Expected Investment Growth
This is where you assign a reasonable rate of return to your investments.
Think about:
- What kind of investor you are (conservative, balanced, growth)
- How your real estate or other assets might grow over time
- The impact of inflation and taxes
Once you’ve got these three pieces, your timeline, your income and assets, and your expected rate of return, you can start building a retirement spending plan.
So how do you actually calculate it?
Option 1: The 4% Rule (We Don’t Recommend It)
This is a popular rule of thumb that says you can withdraw 4% of your portfolio in your first year of retirement, and then increase withdrawals each year with inflation.
Example:
- $1 million portfolio = $40,000 withdrawal in year one
- If inflation is 5%, you’d take out $42,000 in year two
The problem?
- It ignores taxes
- It doesn’t tell you where to withdraw from (RRSP, TFSA?)
- It assumes every investor has the same risk tolerance
Rating: 1 out of 10. It’s too generic to be useful.
Option 2: DIY in Excel
Some people build their own retirement plan in a spreadsheet. It’s time-consuming, and you have to be careful with formulas — one small error can throw everything off.
If done well: 7 out of 10
If done poorly: 1 out of 10
Average rating: 4 out of 10
Option 3: Use an Online Retirement Calculator
There are a few advanced calculators available online. They let you plug in your savings, income sources, and timelines, and give you a basic projection.
They’re not as customizable as professional software, but they’re much better than guessing.
Rating: 6 out of 10
Option 4: Work with a Certified Financial Planner
This is usually the best option but only if you find the right planner.
A qualified financial planner will:
- Use advanced software
- Account for taxes, inflation, and sequence of returns risk
- Help with withdrawal order (RRSP vs. TFSA, etc.)
But not all planners are the same.
Think of it like hockey, every player is in the NHL, but there’s a big difference between Connor McDavid and a fourth-line player.
A great planner: 10 out of 10
A generic one: 5 out of 10
Final Thoughts
Retirement planning doesn’t need to be overwhelming, but it does need to be intentional.
Start with your timeline, map out your income sources and investments, and use the best tools available to get a realistic number.
If you want help, we’re here visit our website and book an appointment with us.
