Who Says I Need a Million Bucks to Retire?

Following up on my query to save a million bucks by the time I retire, I ask do I really need that much and is it really enough by the time I retire?

In a recent TD Canada Trust poll, 3/4 of the respondents said it was unlikely that they would be worth $1 million by the time they retire and one third believed the only way they would have a million by the time they retire is by winning the lottery.....

An interesting question was posed on a friend's wall on Facebook a while back..."where will YOU be in 20 years?" Most people responded with answers like mortgage free, debt free, and retired; travelling and enjoying life; children done University and living on a remote island paradise or at least somewhere with a beach front.... So, most of my peers don't believe they will attain a million dollars in 20 years BUT believe by some miracle they will be still retired and travelling abroad... hence, it must be true that those who are retired or will retire in 20 years like myself believe a million must be more than enough; they will be happy and have successful retirements without a million dollars saved.

So then is the benchmark million dollars just " financial pornography" then, as financial advisor and blogger Jim Yih suggests? Yih opines financial porn is images or ideas of what retirement SHOULD BE like created purposely by financial institutions to sell their investments and retirement products. Yih postulates retirement should be personal and different for different people so there is no set number; there are many people living successfully in retirement that don't travel most of the year and you should be doing what you enjoy. Who came up with the notion you must have a million dollars to retire comfortably? Jim Yih says much of this is hype exists because of the financial industry and media.

If not a million then, how much is enough to retire on? If we think of retirement as just not having to go to work or relying on work for income instead of the dream of golfing everyday at Pebble Beach or lying around the beaches of Hawaii, it may be not as bad as we think.

A Moneysense article states a worst case scenario, retirement in 5 major Canadian cities costs only $20,200 to $27,400 to eke a bare bones living. Old Age Pension (OAS) and CPP and the Guaranteed Income Supplement (GIS) will actually cover all those basic need; we wouldn't have to save a nickel!! Hurray! BUT, bare bones living is hardly our idea of a successful retirement life is it? Most of us would want something over and above than just squeaking by....

According to a study by Statistics Canada, median spending by couples over 65 is $40,000 and average spending is $51,000 per year. So assuming most of your basic needs are covered by government programs, you would only need another $10,000 to $30,000 plus inflation for extra spending to enjoy an average to higher-end retirement. Using the rule of 4%, a quick standard for retirement planning (save $25 for every $1 needed in retirement income), that means having a nest egg of $250,000 for the median retirement to $750,000 for a higher end retirement! A lot less than the million dollar benchmark.

Still, many of us currently dealing with debt and 10-15 years left on our mortgages, how are they going to come up with $250K? Most of us are nearing 40 now if not already; by the time my peers' homes are paid off in full, they will be 55; hence they have 10 years to come up with $250K?? A daunting task indeed. Here's the problem with the Moneysense article and many other financial gurus' advice... you're supposed to save and save and save until you hit that magic number, then you draw down your savings by so many percent every year in retirement. What if you want to retire earlier than 65? No OAS or CPP yet... the earlier you retire, you draw down your savings quite a bit and may not have enough when you get to 65.

I think the answer lies in those who have retired early. More and more people are retiring early, in their 40's in fact without winning a lottery or hitting a big financial windfall inheritance. How?

They are able to replace their working income with passive income streams such as rental income and/or interest/dividend yields; which in turn pay all their monthly living expenses. An article on Canadian Dream: Free at 45 blog suggests a magic number of $2000 per month income. The author determined how much it would cost to live frugally each month with no mortgage and no debt and no "lifestyle" items such as vacations, toys, etc.; consulting with many retirees and those about to retire to see what their numbers were like and it came in around the same amount...$2000 per month.

Using this number of $2000 per month, how much money would I need to save and invest to generate this kind of income:

So if one was to buy a high yield dividend paying stock such as a bank or utility, it would give us a pretty good idea what we will need to save. For example, we buy Royal Bank (RY): pays out a 3.3% yield at $2.00 per share annually; I would need 12,000 shares of Royal Bank to get my $24,000 per year I need; at $59.59 per share as of Friday, it would cost me $715,080.00 plus commissions. Perhaps something with more yield like Bank of Montreal; 4.5% yield paying $2.80 per annum; I would only need 9000 shares at its current price of $61.73 costing me $555,570.00 to attain more than $2000 per month income. If you can handle more risk, buying a REIT or oil Trust may be to your liking... Riocan (REI.UN) pays out a $1.38 annual dividend for a 5.8% yield; costing $449,350.00 for 19000 shares. Enerplus Resources pays a dividend of $2.16 giving 6.9% return; costs $363,710.00 for 11500 shares and pays monthly $2070! A good asset mix of high yielding dividend stocks and income trusts should cost an average near $500K to generate a monthly income of $2000.00 then. The FinancialBlogger.com does a good look, updated all the time, at various Canadian dividend stocks here:

TickerNamePriceDividend YieldPayout RatioEx-Dividend
YLOYellow Media Inc5.5711.68148.583/29/2011
ERFEnerplus Corp31.726.81302.23/8/2011
TATransAlta Corp20.555.64146.335/30/2011
BCEBCE Inc36.025.4774.183/11/2011
BMOBank of Montreal61.964.5258.754/27/2011
SLFSun Life Financial Inc32.274.4650.945/24/2011
SJR/BShaw Communications Inc20.694.4569.853/11/2011
TTELUS Corp48.154.3662.093/9/2011
TRPTransCanada Corp39.044.390.383/29/2011
CMCanadian Imperial Bank of Commerce/Canada82.194.2359.133/24/2011
ARXARC Resources Ltd28.44.23120.213/29/2011
RCI/BRogers Communications Inc34.34.1448.253/16/2011
HSEHusky Energy Inc29.97486.963/21/2011
POWPower Corp of Canada/Canada29.363.9580.793/21/2011
PWTPenn West Petroleum Ltd28.093.84303.543/29/2011
NANational Bank of Canada74.863.5341.43/22/2011
RYRoyal Bank of Canada56.793.5257.264/19/2011
FTSFortis Inc/Canada32.993.5285.615/4/2011
ENBEnbridge Inc58.053.3867.295/11/2011
BNSBank of Nova Scotia603.2750.14/1/2011
TRIThomson Reuters Corp38.323.19106.565/18/2011
TDToronto-Dominion Bank/The81.3347.64/1/2011
MFCManulife Financial Corp18.362.8393.225/13/2011
COSCanadian Oil Sands Ltd30.052.66101.135/18/2011
ECAEncana Corp31.582.4839.363/11/2011
SCShoppers Drug Mart Corp41.22.4333.133/29/2011
CVECenovus Energy Inc37.752.1260.523/11/2011
LLoblaw Cos Ltd39.532.1234.363/11/2011
WNGeorge Weston Ltd68.092.11221.433/11/2011
MGMagna International Inc47.852.0410.483/9/2011
CNRCanadian National Railway Co71.061.8323.913/8/2011
CTC/ACanadian Tire Corp Ltd61.761.7816.274/27/2011
MRU/AMetro Inc441.7517.665/16/2011
CPCanadian Pacific Railway Ltd65.941.6427.453/23/2011
BBD/BBombardier Inc6.251.623.195/11/2011
THITim Hortons Inc42.791.5914.53/3/2011
SAPSaputo Inc41.161.5531.093/3/2011
BAM/ABrookfield Asset Management Inc32.961.5421.674/27/2011
SNCSNC-Lavalin Group Inc56.241.2125.223/16/2011
TCK/BTeck Resources Ltd53.751.126.346/10/2011
TLMTalisman Energy Inc24.111.0462.386/1/2011
CCOCameco Corp39.531.0121.43/29/2011
GILGildan Activewear Inc31.10.950
YRIYamana Gold Inc12.350.9514.283/29/2011
ABXBarrick Gold Corp51.280.9213.835/27/2011
AEMAgnico-Eagle Mines Ltd68.30.927.825/31/2011
SUSuncor Energy Inc45.660.8822.733/2/2011
IMOImperial Oil Ltd50.590.8721.533/1/2011
GGoldcorp Inc46.410.8411.123/15/2011
NXYNexen Inc26.510.7518.183/8/2011
KKinross Gold Corp15.40.639.153/22/2011
CNQCanadian Natural Resources Ltd48.930.6114.433/9/2011
ELDEldorado Gold Corp16.550.613.28/10/2011
POTPotash Corp of Saskatchewan Inc59.860.466.524/12/2011
IMGIAMGOLD Corp20.590.3910.6212/20/2011
FMFirst Quantum Minerals Ltd126.50.311.254/11/2011
IMNInmet Mining Corp66.810.33.125/25/2011
AGUAgrium Inc92.120.122.336/15/2011
VRXValeant Pharmaceuticals International Inc38.99057.843/4/2011

Choose wisely and not only can those stocks generate a good monthly income for you but also you benefit from capital gains; much better than just simply drawing down your hard earned savings.

How many income generation stocks should you hold in your portfolio? Intelligent Speculator gives some advice on the topic here. I like to use dividend stocks and income trusts as an example for myself as I'm into those types of investments and believe passive income in retirement is the way to go. Whether or not you choose to buy stocks or invest in rental properties or start some kind of home-based business is entirely up to you and what kind of retirement lifestyle you want.

So do I need a million bucks? Everyone is different like Jim Yih says; "retirement is personal"; and goals are varying. I was told by a friend on Facebook that living "comfortable is a very subjective statement" (thanks Craig!).

So, for myself, the answer is NO.

I gave up my battle with the Jones' in my 20's.... I do have a pension.. currently it will generate $1600 per month if I quit my job tomorrow; by the time I retire at 58, I expect it to produce $3000 to $4000 monthly income; that is, if oil doesn't drop to $12 a barrel again in the next 17 years and leave me unemployed for very long. I would hope to have an above median retirement which includes golf and travelling so an additional $2000 per month income would be ideal; giving me a "subjectively comfortable" retirement spending guideline near $60,000 per annum plus inflation with no debt; no mortgage.

I shall still strive to save like my goal is a million bucks; try to live like I'm on Unemployment Insurance by trying to find savings in my monthly costs wherever I can; and invest enough to accumulate a good asset mix of stocks and other income generating instruments that will hopefully eventually replace the income I need from my job within 17 years. At least I can rest assure I won't need a million bucks to retire; I will just have to get used to the idea that I will be happily retired as a thousandaire...

Sounds like a plan. But now how am I going to pay for the kids' educations...? Sigh...

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