How Much Do I Need?

One of the most common questions I get when I talk to clients about the current state of their wealth management plan is: "How much money do I need to retire comfortably?"

1. It is an excellent question!!
2. It is dependant on so many things:

• How we build a "Wealth Forecast" is contingent on a number of key factors:

One of the most important is 

how you spend your money.

• You need to understand your spending habits now and how these spending habits will translate into future spending habits.
• There are lots of reasons that spending habits can/will change in the future, so you might say "what's the point?", but if you want to live comfortably in the future, you need to have a grasp what "comfortable" costs now.
• Then you need to build in an assumption about the change of the cost of that comfortable lifestyle in the future.
• We commonly call this the "inflation factor".
• Certainly you will be spending differently on a number of items as you retire.

This comes into play in the goals that you have selected to strive for:

• Where you want to live?
• Shelter: Mortgage free? Downsizing? Renting?
• Warmer climate?
• Vehicle costs?
• Travel?

Of course there may be the unexpected costs:

• Health Care?
• Other Family matters?

Another important reason to get a handle on your current lifestyle costs is to also know how much saving potential you have now:

• Your current after tax income - current spending 
• = your current ability to save.

Your annual savings rate added to your current savings each year will accelerate the compounding effect of the "Rule of 72".

• You can estimate your future lifestyle costs, estimate the growth of your savings and determine what you will need annually to provide for your future lifestyle.
• From that, you can forecast how long your savings will last.

Is it that simple?

Definitely not!

• Once you have a "plan", you need to monitor how your plan is progressing and make changes accordingly.
• However, having a plan to monitor is a major step forward.
• The sooner you start planning, the more likely you will be able to get the answer to that key question.

How much do I need?

The views expressed are those of the author, Scott Tomenson, a Raymond James Financial Advisor, and not necessarily those of Raymond James Ltd. It is provided as a general source of information only and should not be considered to be personal investment advice or a solicitation to buy or sell securities. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor's circumstances and risk tolerance before making any investment decision. The information contained in this blog was obtained from sources believed to be reliable, however, we cannot represent that it is accurate or complete. Raymond James Ltd. is a member of the Canadian Investor Protection Fund.