My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned.

Monday, January 27, 2014

How Much Money do I Need to Retire? Heck if I Know or Anyone Else Does!

I will not be posting a blog this week. I am spending my time editing a six-part series which I will post during the month of February. This is a bit of an experiment – an entire month examining one topic.

The six-part series deals with retirement rules of thumb, studies and papers on the topic by various retirement experts, issues to consider and finally, some calculations to come to a "number". I am not sure if this is going to be one of my best blog series or my worst. I will leave that determination to you. The initial feedback on my drafts has been very positive; if not that the series is overly ambitious.

The premise of this series came about as I started trying to determine how much money I needed to retire and I was having trouble coming up with a number. Fortunately for you… or unfortunately, during the Christmas time ice storm in Toronto, the power was out at the office and I was stranded at home. With my two now very independent children home for the holidays, and my in-laws moving in (they had no power), I retreated to my computer and decided to detail my thought process on the various papers and studies I have reviewed on this subject. 

I determined most experts in retirement planning are very good at telling you about all the flaws and variables not considered by the current retirement withdrawal rule of thumb, but they provide limited assistance in trying to come up with a number that at least forms the basis of your future planning. Even though we know that number will not be definitive, we are programmed to need a number. 

In the end, I created my own crude and admittedly tax centric model that I compare to other models and methods to determine that ever elusive "magic number". You will have to wait until Part 6 of the series for that revelation. Hopefully you are still reading at that point. See you next week for Part 1.

12 comments:

  1. Hello Mark,

    As usual, you hit the nail on the head that the 'experts' in the retirement community tend to stay away from helping with that 'magic number'. When they are pressured to do so I can't help but think they quote a high number so you will invest more of your retirement savings with them so they will earn more money from us!

    I can't tell you how excited I am to view your methodology on how you get to the "magic number" I too have gone over countless calculations to determine how much is enough.

    Maybe your formula will allow me to exit this year in my life, now that really would be "Freedom 55" for me!

    Thanks in advance for your words of wisdom,
    Mark

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  2. Hi Mark

    Unfortunately my formula has no more magic then any of ther others out there and probably less since it is tax centric. But I will provide some numbers in my final blog in the series.

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  3. Hi Mark,

    I'll bet your forumla has plenty of support for and against the figures you use and the rationalle behind the formulation, this is more important than the final figure.

    Can't wait - Have a great day!
    Mark

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  4. Excellent idea for a series. I'm sure your contribution will be very valuable.

    In the end, every model will be flawed because it needs to take into account:

    - At what age will you die?
    - At what age will your spouse die?

    - What will the inflation rate be over the next decades?
    - What will your investment returns be over the next decades? (the 1975-2005 average is not the same as 1955-1985 one)

    - Are you a "live for the moment guy" (have fun now, suffer in old age), or a "smooth out my consumption" guy (try to have equivalent spending power at all times)?

    - What is your ideal outcome? Leave money to the kids, or reach $0 balance on your last day?


    - **And most important:** where should the error fall? It is certain that your number will be "off". Which risk is worst for you: To run out of money early (I had a great life, now I'm in trouble) -or- to have too much money (I missed out on too many opportunities)?

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    1. Anon, you got it exactly, except you just wrote my 6 part series in a few paragraphs :(

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    2. Sorry about that.
      As these are tough questions with no set answers, I know that I will benefit from your point of view, research, and discussion.

      This is truly an excellent blog.

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  5. Looking forward to it too, especially the tax-centric aspect, since the combination of different types of accounts (non-reg, registered retirement, TFSA) plus types of investments (interest-producing, cap gains, dividends) inter-acting with with government programs like CPP, OAS make it very complicated, let alone guessing when you will die and deciding how much to leave to others.

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    1. Hey CI

      You give me too much credit. Very simple tax centric calc, as i dont think any calculation tells you very much in the first place, other than giving you a ballpark figure with all the variables required.

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  6. Very much looking forward to your series :)

    I figure $1 M+ in liquid assets should work for my wife and I. That should spin off dividend income to the tune of about $40,000 per year before taxes. Then, add on our pensions and debt free home, we should be good.

    CPP and OAS are a bonus. Not even thinking about those although from a tax perspective I'll need to.

    Mark

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    1. Mark, your $40k figure will be similar to an example I have and $1mill plus is in the ballpark, albeit a bit light - but as I say in title, who the heck knows, it is just an educated guess.

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  7. Looking forward to seeing your model. Hope it has some Monte Carlo Simulation to it to help deal with the variables people have noted above. I think this is going to be like peeling an onion!

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    1. Hi Anon

      Everyone seems to have missed the words, "crude tax centric model". I cant even multiply without a calculator, i certainly did not come up with a monte carlo simulation. Howver, I will reference several studies that use Monte Carlo simulations. The point is there is no formula, as I say who the heck knows the number, way to many variables. I think I may regret this series, everyone is expecting way too much :(

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