How large will your nest egg need to be?

By David Aston on September 25, 2012
Estimated reading time: 1 minute

If you use a 4% initial withdrawal rate, you’ll need a nest egg 25 times the annual amount you draw from it.

If you use a 4% initial withdrawal rate, you’ll need a nest egg 25 times the annual amount you draw from it. Using other assumptions described below, that means you will need between $250,000 and $1 million to enjoy a retirement that is middle-class or a bit better. The 4% initial withdrawal rate assumes you retire at 65 and is adjusted each year for inflation. If you retire early, you’ll need to use a smaller withdrawal rate or bump up the size of your nest egg, since you will need it to support you for longer. In that case, you can also expect less help from government benefits.

Notes: 1. Estimate of typical annual pre-tax spending in today’s dollars, assuming a paid-for home. (According to Statistics Canada, the average senior couple spent about $53,000 a year in 2010. Single seniors spent an average of about $31,000.) 2. Maximum combined payments for Old Age Security (OAS) and Canada Pension Plan (CPP) were $18,380 per person if you retire at age 65, but most people don’t collect full CPP. About $15,000 per person is a rough estimate if you retire at 65 after a fairly long career at average wages or better. 3. Assumes no employer pension.

For more, read the full story Make your nest egg last.