How to retire comfortably

How to retire comfortably

 

One life. One chance. Unfortunately, that also means you only get one chance to make sure you live a happy comfortable retirement.

 

You see, it is your choice whether you want to spend your retirement working as a greeter at Walmart, or if you would rather spend it traveling.

 

I’m going to show you how differences in your savings rate determines the success of your retirement.

 

I’ll look at three examples. The first individual, Joe, will save 5% of their after-tax earnings. The second individual, Barb, will save 10% of their after-tax earnings. Finally, the third individual Sam, will save 20% of their after-tax earnings. Let’s assume that all three of them earn $60,000 per year after tax, start saving at 30 years old, retire at 65, and live until age 90. We will also assume they all earn 6% on their investments while working and 4% on their investments in retirement.

 

Joe only saves 5% of his after-tax earnings, or $250 per month. By saving $250 per month for 35 years Joe manages to save up $345,073. He expects CPP of $1,175.83 every month and OAS of $613.53. Joe can also expect to be able to withdraw $1,800 per month from his investments until he passes at age 90. This sets Joe up for a gross retirement income of $43,072 every year.

 

Barb manages to save 10% of her after-tax savings, or $500 per month. By saving $500 per month for 35 years, Barb manages to save up $690,145. She expects CPP of $1,175.83 every month and OAS of $613.53. Barb can also expect to be able to withdraw $3,600 per month from her investments until she passes at age 90. This sets Barb up for a gross retirement income of $64,672 every year.

 

 

Sam manages to save a whopping 20% of their after-tax savings, or $1,000 per month. By saving $1,000 per month for 25 years, Sam managers to save up $1,380,292. They expect CPP of $1,175.83 every month and OAS of $613.53. Sam can also expect to be able to withdraw $7200 per month from their investments until they pass at age 90. This sets Sam up for a gross retirement income of $106,672 every year.

 

 

Remember, its your life, its your choice. These people all earned the same amount of money, saved for the same amount of time, made the same on their investments and retired at the same time. The only difference was how much they prioritized savings.

 

Joe is likely living in a one bedroom apartment complaining that the economy is unfair and people like him never got a chance to get ahead. Maybe he even works a few shifts as the greeter at Walmart to have some spending money.

Barb is living a modest life. She likely owns a home and is comfortable with 1 or 2 vacations a year. Nothing exceptional, but Barb has lived a modest life most of her life anyways.

Sam is living large. They made the sacrifices when they were younger and are free to live life as they please. They own a nice home, don’t need to worry about downsizing, and can afford to travel and live wherever they please. All from a $50,000 a year income.

 

 

Then what is the secret to retiring comfortably? Start saving now, and start saving more. Everything else can be addressed later and is unimportant compared to those two actions.