The Number

The National Post has been writing a series on the Boomer effect. In today’s paper they cover needs at retirement.

Basically, there are three ways to get a high-level snapshot of what you might need to fund your retirement:

1. Take your retirement age and add two decimal places. The result is an approximate amount per year for each $100,000 invested. For example, at age 55, you would receive $5,500 per year for each $100,000 invested in retirement savings.

2. The twenty times method. Determine your required annual income at retirement, subtract your pension and multiply by 20. The result is the investment capital required in retirement. For example, if you need $80,000 per year in retirement and your pension will provide $30,000 per year, you have a gap of $50,000. To fund that gap, multiply by 20. A mere $1 million will look after the difference.

3. Quick and dirty method is to take your invested assets and multiply by 0.04. This provides how much investment income you can expect each year. Add in other income sources, such as your pension, and you will gain a picture of your ability to spend in retirement.

Obviously, a defined pension plan can really help. Otherwise, the investment required to fund a reasonable retirement is pretty substantial. I would not want a pool of capital less than $1 million. But it looks like Boomers are poorly prepared.

A recent study by BMO Financial Group found that only 28% of Boomers have investments worth $100,000 or more. One in five have no savings at all. 73% still carry debt.