Ten or Four, What’s your retirement number?

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Ten or Four, What’s your retirement number?

In the late 80s David Chilton published The Wealthy Barber: The Common Sense Guide to Successful Financial Planning. The underlying premise was that no matter your profession, if you consistently paid yourself first by putting 10 per cent of your gross earnings into an investment vehicle, you would be able to retire comfortably and maintain your current lifestyle. It was also important to increase the amount as you received raises or changed jobs.

Whether it’s because of inflated housing prices, the cost of food and necessities, or simply trying to keep up with the Joneses, Canadians, on average, are only saving one percent of their gross income.

What to do?

It’s so easy to be overwhelmed by all that we read or hear in the media. With countless viewpoints and opinions, it can be a difficult road to navigate. Even if you’re able to sock away 10 per cent, then there’s the question of where to put it. You could stick to the basics of savings, or you might consider investing in new companies or account types. Make sure to check out associated rules, rates, fees and taxes. You probably receive umpteen pitches and options each day. Take the time to do your research and address your comfort level.

Will I have enough?

The four per cent rule is based on saving and accumulating 25 times your average earning. With this formula, you’d be able to draw down from your portfolio even with the current market and economic volatility to ensure that you’d never run out of money in retirement – no matter how long you live. As an example; if you made on average $50,000 per year, you’d need to save $1.25 million dollars. The four per cent rule states that if you accumulate enough money, then you can draw four per cent of the total amount each year to live off of. Whether you live to 80 or 108, you’d have a perpetual income stream.

Change the rules

It’s no longer the roaring 90s, nor are we riding on the coat tails of previous market growth. There are rumblings of market corrections, and the feeling of instability. Some reports suggest using more conservative numbers – perhaps three and a half per cent. It could make a significant difference.

Do the same rules still apply when trying to achieve financial freedom in today’s world?

The outlook on long-term benefit programs, such as the viability of the CPP and OAS, adds to the uncertainty of it all, as the baby boomers will require a significant portion.

There really isn’t one answer to this query. Talk to an industry professional, whom you trust. Once they understand what’s important to you, they can help to come up with a strategy that will allow you to spend more money now – and later.

Brandon Parkes is a Senior Consultant with IG Wealth Management. He was also mortgage-free at the age of 32. 416.450.8538 or


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