A question we often get asked is "do I have enough money to retire?". The answer that I always give to that question is "it depends". Several factors determine if a person has enough and no two situations are the same so a cookie cutter approach does not work.
Today we’ll attempt to simplify this quandary and give you a look at portfolio withdrawal rates and the required returns. Let`s start looking at 3 scenarios all with a $1 million beginning portfolio value and annual withdrawal over 30 years. The investment return required will depend on the annual withdrawal amount and also your plans to leave behind an inheritance to your children.
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| Annual withdrawal | # of years | Inheritance goal | Required Rate of Return |
| Scenario 1 | $40,000 | 30 | $1 Million | 4.17% |
| Scenario 2 | $70,000 | 30 | $1 Million | 7.53% |
| Scenario 3 | $70,000 | 30 | $300,000 | 6.68% |
Looking at this another way we could use a fixed rate of return goal like 5% using similar annual withdrawal rates to determine how long your portfolio will last. In all our calculations we use a 2% inflation factor, this means your annual withdrawal increases a little each year as your cost of living increases.
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| Annual withdrawal | Target return | Balance after 10 years | Balance after 20 years | How long will it last? |
| Scenario 1 | $40,000 | 5% | $1,055,037 | $1,019,011 | 44 years |
| Scenario 2 | $70,000 | 5% | $704,420 | $222,950 | 24 years |
Remember other factors have not been considered like government benefits (CPP,OAS) or fixed assets that may be sold, life insurance proceeds or future inheritances (don’t count on it). Working with our team to complete your goals based plan will take these other factors into consideration to provide you with the confidence & clarity you should have with your money.