# Do I Have Enough Money To Retire?

“Do I have enough money to retire?”

This is one of the top questions I receive. It is usually asked by someone who is deciding when to retire, and they want to be financially prepared.

Let’s define retirement from the perspective of most people.

retirement date n. that moment when a person ceases to earn money and begins living on money from other sources – sources which include social security, pensions, retirement savings plans, and other investments.

Let’s back to the question – “Do I have enough money to retire?” The hidden message behind the question is, “I don’t want to run out of money and end up eating dog food to survive.”

1. Determine your monthly guaranteed income (social security, pensions, annuities, rental income, business income, etc.)
2. Determine your monthly expenses (include savings for known upcoming non-monthly expenses like Christmas, vacation, car repairs, house repairs, annual insurance premiums, etc. Be sure to include even longer term expenses such as vehicle replacement and major appliance replacement.
3. Subtract #2 from #1. This will determine your “monthly financial gap” (if one exists). If you have no gap, congratulations! You are in great financial shape. If there is a monthly financial gap, continue to step #4.
4. Multiply the “monthly financial gap” by 300 – This is your “projected investments required” to provide enough income for the gap.
5. Add up the total value of all of your investments – retirement savings plans, stocks, mutual funds, etc. and compare to the number calculated in step #4. If the total value of your investments meets or exceeds your “projected investments required,” you are in the financial position to retire!

Here’s an example:

Suppose Tom and Mary are preparing to retire. They are eligible for Social Security monthly payments of \$2,875. They also have a small pension that will pay \$300 per month. Their monthly expenses, including savings for short and long term known upcoming non-monthly expenses, are expected to be \$4,500 per month. They have saved up \$450,000 in their retirement savings plans – 401(k), 403(b), and Roth IRA.

Let’s use the steps to see how much they need to have saved to retire well.

• Step 1  Monthly guaranteed income is \$3,175
• Step 2  Monthly expenses are \$4,500
• Step 3  Monthly Financial Gap is \$1,325
• Step 4  The “Monthly Financial Gap” is multiplied by 300 which provides a “Projected Investments Required” of \$397,500
• Step 5  Because they have have \$450,000 in their RSPs, they appear to be in great shape!

A few notes:

1. This is a rough calculation. I encourage any person who is preparing to retire to meet with a retirement specialist to walk through individual needs.
2. It is appropriate to understand taxes to ensure that money is utilized in the most tax-efficient manner. Using the services of a retirement specialist and CPA can help with this.
3. Ensure that appropriate insurance is in place. This includes consideration of long-term care insurance and life insurance policy analysis.
4. This calculation essentially assumes a 4% nest-egg growth rate that provides necessary income and preserves capital.